The High Court was asked to decide whether a particular provision of the International Cotton Association’s (ICA) code of conduct for arbitrators, which restricted repeat and concurrent appointments, was void and unenforceable as an unreasonable restraint of trade. The ICA, represented by Hill Dickinson, successfully defended the challenge to its code of conduct, with the Court finding that the doctrine of restraint of trade did not apply to the provision and, even if it did, the provision was both reasonable in scope and intended to further a legitimate objective of the ICA.
The ICA is the operating association of companies and individuals involved in the market for the trade of raw cotton. Its members comprise cotton merchants as well as producers and purchasers of raw cotton.
It is estimated that 80-85% of the international trade in raw cotton is carried out pursuant to the ICA byelaws and rules, with any disputes referred to ICA arbitration. Arbitrators of the association are obliged to meet certain proficiency requirements, namely to have five years’ experience in the cotton trade and to pass the requisite exams. In 2007, an arbitrators’ code of conduct was implemented with the intended purpose of promoting best practice and natural justice, and to maintain standards and public confidence in the ICA as an arbitral authority.
In 2014, an amendment to the code of conduct was introduced limiting the number of repeat and concurrent appointments an arbitrator could accept. This amendment, known as the ‘3 and 8 rule’, stipulates that:
‘In order to avoid the perception of bias, impartiality or justifiable doubts, an arbitrator may only accept up to and including three appointments for a party or related party to act as arbitrator from a claimant/appellant or respondent, per calendar year. An arbitrator should not be able to have more than eight active first tier cases open at any one time.’
The claimant, Mr Aldcroft, earns his living as a full-time arbitrator. He is a vastly experienced ICA arbitrator and a former president of the association. In previous years he had sat on 40-60% of all ICA arbitration tribunals and had been repeatedly appointed by the same merchants on numerous occasions.
Mr Aldcroft issued proceedings in the High Court seeking a declaration that the ‘3 and 8 rule’ be deemed void and unenforceable as an unreasonable restraint of his trade curtailing his ability to earn his living as an arbitrator, and also that an injunction be issued restraining the ICA from determining a complaint that he had not complied with the rule.
Does the doctrine of restraint of trade apply?
The Court began by analysing the doctrine of restraint of trade and noting the associated conceptual difficulty with it. The judge in the present case noted that, despite having a long history, numerous judges of the ‘greatest distinction’ had resisted any attempt to provide a clear test distinguishing [between] the types of contract to which the doctrine applies.
The judge went on to consider a line of authorities before drawing a number of conclusions, namely that:
‘i. The doctrine of restraint of trade is not applicable to all classes of contract, such that (a) the court must reach its own determination as to the reasonableness of any contractual provision limiting the ability of one of the parties to the contract to trade, and (b) the party seeking to enforce such a provision must show that it goes no further than is reasonably necessary to meet its legitimate interests or objectives.
ii. In particular, the doctrine will not apply to contracts which have passed into the accepted and normal currency of commercial or contractual or conveyancing relations, save where there is some special or exorbitant feature of those contracts which take them out of the accepted category.
iii. The rules of an association of members, professional body or co-operative are not exempt from the doctrine of restraint of trade. However, rules which limit the activities of members in order to meet legitimate objects of the association, body or society, and which have been properly passed in accordance with the internal rules of governance, will ordinarily be treated as a “domestic matter”, with the court being ready to intervene only when the rule adopted falls outside the range of decisions reasonably open to the body for the purpose of meeting the objective.’
In light of this, the judge went on to determine that the doctrine did not apply to the ‘3 and 8 rule.’ An arbitrator’s obligation to comply with the rule forms part of the contractual framework between arbitrating parties and it is perfectly open to those parties to contract on other arbitration terms should they dislike the rule.
If the doctrine of restraint of trade applies to the ‘3 and 8 rule’, is the rule an unreasonable restraint of trade?
Despite determining that the doctrine did not apply, the judge went on to consider its potential implications in the event it had applied. The applicable test includes:
- first, whether there is an interest on the part of the party seeking to rely on the restraint which merits protection, or a legitimate objective served by the restraint
- second, whether the restraint is reasonable as between the parties, and
- third, whether the restraint is reasonable in the public interest.
In applying this test, the judge analysed the motivation behind the introduction of the rule. Among the considerations of the ICA Arbitration Strategy Committee (the body responsible for implementing the changes) was the perceived risk of delay in resolving arbitration references, the perception of its members that the ICA had a pro-merchant bias, and the perception that some ICA arbitrators were biased in favour of their appointing party.
The judge highlighted that these were legitimate concerns and in particular that the risk of a perception of lack of impartiality brought about by repeated appointments of the same arbitrator by one party was a concern shared by the international arbitration community. The judge therefore held that the adoption of the ‘3 and 8 rule’ fell well within the range of reasonable options open to the ICA in meeting their legitimate objectives and Mr Aldcroft’s claim was consequently dismissed.
This case provides useful clarification for the ICA, and other arbitral institutions, on the ability to control arbitral appointments. Importantly, for members of the ICA, it has helped address concerns over the arbitral process and its perceived deficiencies. In the wider context of institutional arbitration it has also helped demonstrate one of the ways in which arbitral institutions can stream-line the arbitration process, promote fairness and ensure arbitration referrals are dealt with in a timely manner.
This article originally appeared in the May 2017 edition of shipping case digest.
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