Although, in the early stages of the proceedings, Terraform indicated to the court its intent to challenge the jurisdiction of the court on the basis of the arbitration agreement in the Terraform Terms, it nevertheless proceeded to take certain legal steps, which included filing a defence to address the merits of the claims and bringing a counterclaim. Terraform also sought from the claimants more detailed particulars and disclosure of documents pertaining to the merits of the claims.

Eventually, Terraform sought to stay the lawsuit on the basis that there was an arbitration agreement between it and the claimants and therefore the claimants ought to have commenced arbitration proceedings rather than court proceedings. The other defendants similarly applied to stay the lawsuit on the basis that the claims against them were closely related and/or ancillary to the claims against Terraform such that it would be just and convenient to stay the lawsuit against them pending the outcome of arbitration proceedings against Terraform.

At the first instance, the senior assistant registrar (SAR) dismissed Terraform’s application on the ground that it failed to make out a prima facie case that a valid arbitration agreement existed. The SAR was of the view that the relevant hyperlinks to the Terms were not displayed on the respective websites with sufficient prominence to bring them to the attention of users and were thus not properly incorporated into the parties’ agreements. There was, accordingly, no valid arbitration agreement between the claimants and the defendants. In the alternative, the SAR held that even if a valid arbitration agreement could be shown to exist prima facie, Terraform had already taken multiple steps in the proceedings and so had submitted to the jurisdiction of the court.

Decision on appeal

On appeal, two issues came up for determination. The first issue was whether Terraform had taken any step in the proceedings so as to waive its right to insist on arbitration as the contractually chosen dispute resolution forum. The second issue was whether Terraform had established a prima facie case that a valid arbitration agreement existed between itself and the claimants.

In relation to the first issue, the court had to determine whether Terraform had taken any “step in the proceedings”. This is relevant in the context of section 6(1) of the International Arbitration Act, which provides that any party to an arbitration agreement “may, at any time after filing and serving a notice of intention to contest or not contest and before delivering any pleading (other than a pleading asserting that the court does not have jurisdiction in the proceedings) or taking any other step in the proceedings, apply to that court to stay the proceedings so far as the proceedings relate to that matter” (emphasis added).

In assessing whether a party had taken any step in the proceedings, the court considered that the “starting and basic point is that an act which indicates an intention that the court proceedings should proceed instead of arbitration is a ‘step in the proceedings’”. An act will be taken to be a step in the proceedings where “it cannot be explained, except on the assumption that the defendant accepts that the court should be given jurisdiction, or that any objection to the court’s jurisdiction has been waived or has never been entertained”. Overall, this assessment should be conducted in a practical and commonsensical way, taking into consideration the circumstances surrounding the defendant’s act.

The court found that, in filing a defence which contested the merits of the claim, as well as in seeking more detailed particulars and discovery of documents to enable Terraform to respond to the merits of the claimants’ pleaded case, Terraform had gone beyond the scope of what was necessary to bring a jurisdictional challenge and its actions thereby constituted “steps in the proceedings”. These actions demonstrated Terraform’s engagement with the court process and its acceptance of the court’s jurisdiction over the dispute.

On the second issue of whether the users were bound by an arbitration agreement, the court had to undertake a prima facie determination of the existence of an arbitration agreement.

The court noted that the terms of contracts formed online may typically be grouped into the following three categories:

• “Browse-wrap” agreements by which the website displays a notice or banner notifying the user that they agree to the site’s terms of use by using the site, without requiring affirmative action from the user.
• “Click wrap” agreements, which require the user to scroll through the terms of use and affirmatively click a button or tick a box stating, e.g., “I agree”.
• “Sign-in wrap” agreements by which users are notified of terms that are available by way of a hyperlink, and are required to click a button, or sign in, in order to access the site.

Despite having made this distinction, the court did not consider it appropriate in this instance to approach the question of incorporation by attempting to fit the present factual matrix within one of the three categories of “browse-wrap”, “click wrap” and “sign-in wrap”. Rather, the real issue was whether the claimants had, on a prima facie basis, actual or constructive notice of the arbitration agreement, as this was what an applicant seeking a stay of court proceedings in favour of arbitration had to establish.

On the facts of the present case, the court found that it could not be conclusively determined that no agreement to arbitrate was concluded between Terraform and the claimants, as briefly explained below.

According to the claimants, they accessed the Terraform website to learn more about UST, and in the process, accessed and read the Terraform white paper and other sections of the Terraform website, which allegedly contained the Terraform representations. The court held that if that was the case, then it would not be unreasonable to expect that, in perusing the Terraform website, the claimants would have also noticed the hyperlink to the Terraform Terms, which contained the arbitration agreement.

Since the court was in the process of hearing an application for a stay of court proceedings, it was not required to descend into a protracted examination of the evidence to make a finding on the merits that an arbitration agreement existed or did not exist. Rather, the court was simply required to determine whether Terraform had made out a prima facie case that an arbitration agreement existed between it and the claimants. On the facts, the court found that a prima facie case had indeed been made out that the claimants had actual or constructive notice of the Terraform Terms, which contained the arbitration clause.

Conclusion

Crypto asset platforms typically include arbitration agreements in their user terms, so as to ensure a flexible, confidential and independent dispute resolution procedure.

Users in various jurisdictions including the U.S. and UK have sought to circumvent arbitration agreements, bringing claims instead in their local courts. An example can be found in our previous alert from 15 September 2023.

This case serves as a useful reminder that platforms seeking to challenge a court’s jurisdiction in favour of arbitration should be careful of the extent to which they engage with the litigation while a dispute is pending. For instance, the filing of a defence could be seen as an indication of submission to the court’s jurisdiction. The key takeaway from this case is that if a platform faces court proceedings brought by users notwithstanding the existence of an arbitration agreement, the platform should apply to stay the court proceedings as soon as possible before taking any other steps in the proceedings.

In fact, similar principles are also applicable in reverse, with respect to challenges to arbitral tribunals’ jurisdiction. Arbitration rules often stipulate that any objections to a tribunal’s jurisdiction should ordinarily be raised before submission of a statement of defence (e.g., SIAC Rules Article 28.3, HKIAC Rules Article 19.3 and LCIA Rules Article 23.3).

For platform developers and providers, whether in the web3 space or not, this decision also highlights the importance of carefully considering how arbitration agreements in user terms and conditions should be displayed on websites. This could be done through a “clickwrap”, “sign-in wrap” or “browse-wrap” approach, with the “browse-wrap” approach tending to require a more fact-sensitive inquiry when a dispute arises.

Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style Reed Smith Pte Ltd (hereafter collectively, "Reed Smith"). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith's Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.

In-depth 2024-083