Hill Dickinson secures victory for arbitration body in restraint of trade claim

After a five day trial in the High Court earlier this year, the ICA, represented by Hill Dickinson, successfully fought off a challenge to its code of conduct for arbitrators that was recently amended to limit the number of cases an arbitrator could handle at any one time to eight cases (in the interests of efficiency on the part of the arbitrator) and to three cases per year from the same party (to prevent any appearance or suspicion of bias on the part of the arbitrator appointed).

The facts

The ICA is the operating association of companies and individuals involved in the international market for the trade of raw cotton. Its members comprise cotton merchants, producers of raw cotton and the purchasers of raw cotton who turn it into yarn or fabric for re-sale (mills, spinners and weavers). Approximately 75%-80% of the international trade in raw cotton is contracted and carried out under the ICA’s byelaws and rules.

The claimant, Mr Aldcroft, earns his living as a full-time arbitrator in cotton disputes.

In 2014 the ICA changed its Arbitrators’ code of conduct to provide:

‘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 change introduced a limit to the number of ‘repeat appointments’ an arbitrator can accept from the same party in a calendar year. It also limited the number of active ICA arbitrations in which an arbitrator could be involved at a time. Mr Aldcroft objected to these changes as he was acting in some years in as many as 25 arbitrations.

He claimed that the changes constituted an unreasonable restraint of trade curtailing his ability to earn his living as an arbitrator.

Key points from the judgment

The judge in the case noted that:

‘The rules of arbitration institutions do not stand still, but are subject to ongoing appraisal and revision to reflect new issues and concerns, and to keep up with best practice.  In the case of trade arbitrations which bring the very real benefit of arbitrators with hands-on knowledge of the relevant trade, there has also been a process of moving away from what for many years were accepted ways of conducting arbitrations, but which came to diverge from best practice in international arbitration and, in some cases, from the legal duties of arbitrators as now enshrined in the requirements of the Arbitration Act 1996 and the surrounding case law’.

Over the years changes had been made to the ICA code of conduct for arbitrators, to maintain and promote confidence in the impartiality of ICA arbitration and to reduce the time (and cost) involved in resolving disputes.

The judge concluded that the changes introduced in 2014 were designed to address perceptions that the arbitration process had a pro-merchant bias (where this resulted from repeat appointments by a merchant of the same arbitrator) and in an attempt to reduce perceptions of the risk of delay resolving arbitration references, due to a small number of arbitrators having appointments in a large number of arbitrations at the same time.

In terms of the application of the doctrine of restraint of trade, he stated 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.’

Overall there was a finding that the proposed changes were introduced to address legitimate concerns of the ICA and that they were entirely reasonable.

Concluding comments

The decision is a welcome one for parties who use arbitration to resolve disputes in their commercial contracts. A mere suspicion of bias, from the acceptance by one arbitrator of too many appointments from the same party, is damaging to the reputation and attractiveness of the arbitration process. The case introduces welcome clarity to the number of appointments that may be accepted and from whom. This decision goes a long way to establishing the proper parameters under which arbitral bodies and arbitrators should operate.

It will be interesting to see whether other arbitral bodies follow suit in terms of their own procedures.

For further information regarding any of the issues above, please contact the author below.