David Foxton QC (sitting as a Deputy Judge of the High Court):
(1) Introduction
- In these proceedings, the Claimant ("Mr Aldcroft") asks the Court to declare that what is known as the "3 and 8 rule" in the Arbitrators' Code of Conduct of the International Cotton Association Limited ("the ICA") is void and unenforceable as an unreasonable restraint of trade. He also seeks consequential relief.
- Mr. Aldcroft earns his living as a full-time arbitrator in ICA disputes. The 3 and 8 rule, which was introduced by the ICA into its Arbitrators Code of Conduct in September 2014, provides:
"In order to avoid the perception of bias, impartiality or justifiable doubts,[1] 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 8 active first tier cases open at any one time".
- As will be apparent, that rule has two components: a limit to the number of "repeat appointments" an arbitrator can take from the same (or related) party in a calendar year ("the 3 rule") and a limit to the number of active ICA arbitrations in which an arbitrator is involved ("the 8 rule").
- Mr Aldcroft was represented by Mr Woolgar and the ICA by Mr Croall QC and Mr Plunkett. I am grateful to all counsel for their assistance, in particular for their written opening and closing submissions, and for the spirit of good humour in which the case was conducted.
(2) The parties' cases in summary
(A) Mr Aldcroft's case
- Mr. Aldcroft contends that both limbs of the 3 and 8 rule constitute an unreasonable restraint of trade.
- On that basis, he seeks a permanent injunction to restrain the ICA from proceeding with the determination of a complaint that he has not complied with the 3 and 8 rule and a mandatory injunction requiring the ICA to withdraw or dismiss the complaint.
(B) The ICA's case
- The ICA denies that the doctrine of restraint of trade applies to the ICA rules, and the contracts of which they form part. If they are wrong about this, they contend that the 3 and 8 rule is intended to further a legitimate objective or interest of the ICA, and that it is legitimate, reasonable and proportionate. On this basis, the ICA contends that there is no unlawful restraint of trade in any event.
(C) What this case is not about
- As will be apparent from the preceding summaries, the issues in this case are very narrow. They are significantly narrower than the ground over which the evidence ranged during the course of the hearing, and in those circumstances it may be appropriate briefly to identify matters which do not need to be determined in order to resolve the issues raised in this action.
- First, there are various other rule and procedure changes to the ICA arbitration process which have been criticised in the course of some of the evidence, most particularly the creation of the "Pool of Chairmen" (which I explain below). However there is no challenge to that rule before me, and, if it is relevant at all, it is only in so far as it bears directly on the challenge brought to the 3 and 8 rule.
- Second, there were various criticisms of the process by which the 3 and 8 rule came to be introduced, including complaints of lack of consultation and of the failure to put the issue to the vote of the membership. However, the claims before me involve no challenge to the 3 and 8 rule either as matter of company law, having regard to the Articles of Association of the ICA and the provisions of the Companies Act 2006, or (subject to the issue of restraint of trade) as a matter of contract.
- Third, as Mr Croall QC very properly made clear, the case involved no allegations of misconduct or lack of impartiality on Mr Aldcroft's part. As he confirmed in closing, "I am not here to criticise Mr Aldcroft's conduct in any way".
(3) The parties and the background
(A) Mr Aldcroft
- Mr Arthur Aldcroft began working in the cotton industry in 1958, working for Combined English Mills (which became part of Viyella International) until 1965. In that year he joined Ralli Brothers & Coney, and then in 1967 Alexander Eccles & Stern, a Liverpool-based cotton merchant where he worked until 2002.
- In that year he set up his own company, Aldcroft Cotton Ltd, which initially carried out some cotton trading, but has increasingly and now exclusively become the vehicle through which Mr Aldcroft provides his services as an ICA arbitrator.
- Mr Aldcroft, who is a former President of the ICA, began sitting as an LCA arbitrator in the early 1970s, initially in quality arbitrations and latterly in technical arbitrations. He described his career as an arbitrator as really "taking off" in the 1990s and early 2000s, and explained that at one time he sat on between 40% and 60% of all ICA arbitration tribunals. In a normal year, the ICA might expect some 25-30 referrals to its arbitration scheme, on which basis Mr Aldcroft was acting as arbitrator in between 15 and 18, and sometimes up to 25, arbitrations a year. While his earnings fluctuated depending on how many references to ICA arbitration there were, in a typical year he would expect to earn between £25,000 and £30,000 from his work as an ICA arbitrator. Fees deriving from his work as an arbitrator are his only source of income.
(B) The ICA
- The ICA, a company limited by guarantee, is the operating association of companies and individuals involved in the market for the trade of raw cotton. It was formerly known as the Liverpool Cotton Association ("LCA"), a company incorporated in 1962 as the successor to the previously unincorporated Liverpool Cotton Brokers Association which began operating in the 1840s. The LCA became the ICA in 2004.
- The ICA's members comprise cotton merchanting enterprises (or merchants) who primarily sell cotton, producers of raw cotton and the purchasers of raw cotton such as mills, spinners and weavers who turn it into yarn or fabric for on-sale. I was told that the ICA estimates that approximately 80-85% of the international trade in raw cotton is carried out using the ICA Byelaws and Rules, with the balance either on ad hoc contracts or on the terms of other cotton associations. Other major cotton associations include the China Cotton Association, the Cotton Association of India, the American Cotton Association and various cotton associations in Europe.
- The ICA has a Board of Directors comprising about 24 individuals who can be divided into three groups: first ex officio members comprising the President, two Vice Presidents, the Treasurer and the immediate ex-President; second a group of elected "Ordinary Directors"; and finally Associate Board members appointed under conventional procedures for the appointment of ordinary company directors.
- The ICA has a small administrative staff headed by someone known as the Managing Director (although the person discharging this role is not a director of the ICA). The current holder of that office is Mr Kai Hughes, who gave evidence before me. The administrative function falls under two broad heads: the Arbitration Secretariat, which as the name suggests administers the arbitration function, and a general administrative function embracing such issues as finance, marketing, conferences and education. The Arbitration Secretariat is headed by the Head of Arbitration, who is currently Mr John Gibson.
- The ICA has two main constitutional documents. There are the ICA Byelaws and Rules, to which all individual members and member firms sign up when they became members. There are also the ICA's Articles of Association, which in addition to standard company articles, include provisions concerned with disciplinary jurisdiction over ICA members including the power to expel members. Article 2 of the ICA's Articles identifies one of its objects as being "to adjust controversies between persons or firms engaged in the cotton trade by arbitration or other means".
- One of the objectives of the ICA is the promotion of "an impartial and effective dispute resolution service".
(C) ICA Arbitration
- There are two types of ICA arbitration. Quality arbitrations are disputes concerned with whether cotton complies with the specification on which it is sold. All other forms of arbitration are technical arbitrations. There is an automatic right of appeal on technical arbitrations to the Technical Appeals Committee (the "TAC"), which operates as a complete re-hearing.
- Initially all individual members of the LCA were able to act as LCA arbitrators, although arbitrators tended to be drawn from a small group of members with an interest in and aptitude for this work. However the system which is now in place, and has been in place for some time, requires those wishing to sit as arbitrators to meet certain requirements – the individual must have at least 5 years' experience in the cotton trade, and have passed the stipulated examinations. The result is a pool of some 25 to 28 ICA members qualified to accept ICA arbitration appointments.
- ICA arbitrations are held on documents, without oral hearings. An arbitration panel may be drawn from individuals from different countries, with the arbitrators communicating by telephone, email and Skype. A typical ICA arbitration normally takes 10 to 20 hours work from the arbitrator, which is normally charged at £150 per hour. There are no cost awards.
- In 2007, the ICA introduced an Arbitrators' Code of Conduct ("the Code of Conduct"), a document which has become more detailed over the ensuing years. All editions of the Code of Conduct have stated:
"This Code of Conduct embodies principles of best practice and natural justice deemed necessary by the Board of Directors to maintain existing standards and public confidence in the ICA as an arbitral authority".
The 3 and 8 rule was introduced by an amendment to the Code of Conduct.
(4) The evidence
(A) Mr Aldcroft's evidence
Mr Arthur Aldcroft
- I have set out Mr Aldcroft's background and experience above. It is clear that Mr Aldcroft has a deep knowledge of and interest in the cotton trade, and in the arbitration of cotton disputes. It is also clear that he disagrees with many aspects of the cultural and procedural changes effected in ICA arbitration over the past 10 years. His great success as an ICA arbitrator, and his position as one of very few ICA arbitrators for whom arbitration work provided his full-time employment, has inevitably meant that the changes effected to the process of ICA arbitration over that period have had a particular impact on him.
- In his witness statement, Mr Aldcroft suggested on a number of occasions that some of those changes had been adopted with the specific purpose of redistributing work from the full-time arbitrators such as himself and Ms. Helen Anderson, to other arbitrators on the ICA panel. For the reasons I set out below, I do not believe that the ICA had any such agenda, and those statements reflect a strength of feeling on Mr Aldcroft's part which I have taken into account in assessing his evidence. However, as someone entirely dependent on his income as an arbitrator, it is understandable that Mr Aldcroft has strong feelings about the changes to the ICA arbitration procedures which the ICA accepted contemporaneously, and accept now, were likely to have a particular impact on him.
- Given this factor, the candour and fairness of Mr Aldcroft's oral evidence was impressive. He accepted a great number of the points which Mr Croall QC put to him in a cross-examination which was all the more effective for the good humour in which it was conducted. There is, however, one aspect of Mr Aldcroft's evidence which merits mention. Perhaps because of his long experience as an ICA arbitrator, and his understandable confidence in his own experience and standards, he found it difficult to see how the fact of repeat appointments might give rise to a legitimate perception of a risk of lack of impartiality by an arbitrator. There was one ICA merchant, for example, who had appointed Mr Aldcroft as its arbitrator in 22 appointments between November 2010 and August 2014, and for whom (with one exception) he had been the sole arbitrator appointed since about 2004. When one party to the most recent of those appointments asked Mr Aldcroft to provide details of the number of occasions on which he had been appointed by the other party as an arbitrator, he did not believe that this was information to which they were entitled. In fairness to Mr Aldcroft, he accepted in cross-examination that he would respond to that request differently now. However, as I explain below, it is clear that the risk of a perception of lack of impartiality resulting from repeat appointments is a legitimate concern in the international arbitration community and one which, in my view, Mr Aldcroft has not sufficiently recognised.
Ms Helen Anderson
- Ms Anderson has sat as an ICA arbitrator for 25 years, and has 25 years' experience in the international raw cotton trade as an arbitrator, consultant and market analyst. She was an Ordinary Director of the ICA from 1999 to 2012.
- She makes it clear in her evidence that she, like Mr Aldcroft, does not support a number of the changes to the ICA arbitration process which have taken place over the last 10 years, including the introduction of the "Pool of Chairmen" and the 3 and 8 rule. Like Mr Aldcroft, her full-time employment was as an ICA arbitrator. Her evidence was that the "Pool of Chairman" rule had had a very severe impact on her earnings as an ICA arbitrator (she was not appointed to the Pool of Chairman in 2014, something which she said had "decimated" her own arbitration practice). In her witness statement, she too suggested that the changes may have been motivated by a desire to favour a particular group of ICA arbitrators so far as the obtaining of appointments is concerned.
- The strong feeling which those changes, and their impact, had engendered was apparent in a number of forthright comments in her witness statement. However, her oral evidence was conspicuously fair, being careful at all times to distinguish between matters within her own knowledge and matters of surmise.
Mrs Ann Adlington
- Mrs. Adlington is the in-house solicitor for Plexus Cotton Limited ("Plexus"), a cotton merchant member of the ICA until very recently. She had worked as the General Manager of the ICA (under the then-equivalent of the Managing Director) from 2003 to 2006, and was an ICA arbitrator from 2006 to the start of 2017.
- Mrs Adlington has sat with Mr Aldcroft as a member of ICA arbitration tribunals on a number of occasions, and as an employee of Plexus has nominated Mr Aldcroft as Plexus' arbitrator in all ICA arbitrations save one since 2002/2003. Plexus had previously appointed Mr John Anderson, a well-known ICA arbitrator, as its arbitrator in all ICA arbitrations prior to Mr Anderson's retirement.
- Mrs Adlington expressed her dissatisfaction with the 3 and 8 rule from the perspective of an arbitrating party, and explained why she did not believe the reasons the ICA had given for adopting that rule were sufficient or satisfactory.
- In her witness statement, Mrs Adlington voiced the suspicion that the reason for the introduction of the 3 and 8 rule was to reduce the number of arbitrations carried out by full time arbitrators such as Mr Aldcroft and Ms Anderson. It is clear that, like Mr Aldcroft and Ms Anderson, she does not support a number of the changes which have been effected to the ICA arbitration process, and that she is suspicious as to the motivations for those changes. However Mrs. Adlington's oral evidence was fair and balanced.
- Mrs Adlington regarded party autonomy in the matter of arbitrator appointments as a fundamental principle of ICA arbitration, and was not generally supportive of initiatives from the ICA secretariat which impinged on that autonomy.
(B) The ICA's evidence
Mr Kai Hughes
- Mr Hughes is the current managing director of the ICA. I formed the impression that Mr Hughes was a conscientious and professional executive, who had devoted considerable time and effort to effecting what he believed to be improvements to the ICA arbitration process and culture, and to conform that process to best practice in international arbitration.
- He was cross-examined in detail about the numerous meetings which featured in the course of the evidence. He sat on all 19 committees or sub-committees of the ICA, in the course of which he had participated in innumerable meetings, as well as participating in the administration of two other organisations. Given these commitments, it is not surprising that he was not always able to remember precisely what had been decided at particular meetings, and on occasions his memory led him astray when attempting to reconstruct what had happened and in what sequence. However, I am satisfied that he was at all times seeking to assist the Court to the best of his recollection, and I reject any submission to the contrary.
Dr Terry Townsend
- Dr Townsend is an international cotton industry consultant who worked as the Executive Director of the International Cotton Advisory Committee from 1999 to 2013. He is the principal of Cotton Analytics, a cotton consultancy. He has long been a proponent of the publication of the awards of commodities arbitration institutions, and since 2013 a supporter of an all-institutional appointment system for constituting arbitration tribunals to avoid issues of actual or apparent bias.
- These views featured in a presentation, discussed below, which he gave at an ICA event in October 2013, and which proved to be the catalyst for further consideration by the ICA board of the issues of appointment of arbitrators during 2014. He explained that the presentation was the result of a "build-up of years and years of frustration" resulting from people commenting to him about the perceived deficiencies of the ICA arbitration process, including a perception on the part of spinners and merchants that the ICA had a pro-merchant bias and that some ICA arbitrators were biased in favour of their appointing party. He supported the 3 and 8 rule and the other changes to the ICA arbitration process implemented during Mr Hughes' time as Managing Director.
- Dr Townsend's views as an informed observer on these issues were of interest, although he very properly accepted that others held very different views. His evidence confirmed the existence of the perceptions of bias, including arbitrator bias, held by some ICA members in the run up to the introduction of the 3 and 8 rule and the fact that this was not limited to what Mr Woolgar for Mr Aldcroft described as "sore losers". Dr Townsend was a thoughtful and informed witness, although his evidence was of limited relevance to the issues I have to decide.
Mr Jamie Welsh
- Mr Welsh is a director of the ICA and an ICA arbitrator. He was appointed to the Arbitration Strategy Committee in April 2003 which he chaired from late 2011 to early 2012. He worked in the cotton industry to April 2009, then from April 2009 to January 2010 as a full-time ICA arbitrator. He formed a raw cotton agency in November 2012, and re-joined the ICA board at that time.
- Mr Welsh was careful when giving evidence to explain the limits of his recollection, and to remain within them, and to distinguish between information he had acquired during the life of this litigation and the information he had had at the time. I found him a forthright and honest witness.
Mr Mohit Shah, Mr Dhirn Sheth and Mr Yahya Saleem
- The ICA called three further witnesses by video link. Their evidence was relatively brief, and was not at the centre of the issues in dispute:
i) Mr Shah is a director of Gill & Co. Pvt Ltd., one of India's oldest cotton companies, and a former President and director of the ICA. He gave evidence of a long-held perception that the ICA was biased in favour of merchants, which was strongly held in the Indian sub-continent, although not by all spinners. He also referred to complaints about the cost and delay of ICA arbitration. He described some of the steps undertaken to address these perceptions, and to promote the ICA internationally. He was not aware of any occasion on which a complaint about repeat appointment of arbitrators had been made in the course of an ICA arbitration or in opposition to the enforcement of an ICA award.
ii) Mr Sheth is a director of CA Galiakotwala & Co. Pvt Limited, a member of an Indian group of companies involved in textile trading and manufacturing. He gave evidence of a perception in India that ICA arbitration was "influenced by a clique of arbitrators drawn from the cotton merchant community". He also referred to complaints about the efficiency of ICA arbitration. He too was not aware of any challenge to an ICA arbitrator or award on the basis of repeat appointments.
iii) Mr Saleem is a director of the Nishat Ghunian Group, the third largest textile company in Pakistan, and a member of the ICA board of directors. He also gave evidence of a general perception that ICA arbitration had a pro-merchant bias, because of the number of arbitrators drawn from the merchant/sellers community. He referred to complaints made to him about repeat appointments by merchants of the same arbitrators. He also gave evidence of complaints about delay.
- The evidence of these witnesses corroborated, in a general way, some of the issues which are reflected in the contemporary documents, but, as the cross-examination of the witnesses confirmed, different views are possible as to how these concerns should best be addressed.
(C) The documentary evidence
- There was extensive documentary evidence, most of it disclosed by the ICA. A relatively clear picture emerges from the documents as to the genesis and mechanism for adopting the 3 and 8 rule, which I set out in my findings of fact below.
- A number of documents related to individual ICA arbitrations and complaints about individual ICA arbitrators. These were anonymised in order to preserve the confidentiality of the arbitral process. There was limited reference to these documents during the hearing, but I invited the parties specifically to identify those documents to which they wished to direct my attention. Mr Aldcroft provided a list of documents, which I have reviewed.
(5) Findings of fact
- 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.
- The ICA has been no exception in this regard. By way of one example, it was Mr Hughes' evidence that when he first worked for the ICA, it was his responsibility to draft all of the awards delivered by the TAC even though he was not a member of the appeal panel. The systems and practices were changed some time ago to ensure that this would no longer happen. Similarly, it was for a long time the practice in ICA arbitrations for party-appointed arbitrators to act as their appointing parties' "representatives to appeal", but the ICA stopped this practice "in order to minimise challenges to impartiality" (ICA Arbitrator Briefing, May 2013). That change took place at some point after Mr Hughes became Managing Director in 2008, although the precise date of the change was not clear in the material before me.
(A) Changes to the rules and practice of the ICA arbitration process
- The ICA has moved from a system whereby any individual member of the ICA could act as an arbitrator to one in which there is an approved panel of arbitrators, who need at least 5 years' experience in the cotton trade. It became a requirement for ICA arbitrators to pass a basic level examination on arbitration law and practice, and, from March 2013, an advanced level training course, initially for two modules and from the end of that year a further module on award writing as well.
- Initially all arbitration appointments in the ICA were party-appointments. There were two-arbitrator panels, with an umpire being appointed to resolve any issues on which the party-appointed arbitrators were unable to agree. In 2002-2003, after extensive research into the practices of other leading trade associations, the ICA moved to three-arbitrator panels, with the ICA itself appointing the third arbitrator and chair of the tribunal. A paper produced by the immediate past chairman of the ICA, Mr Hursthouse, on 6 July 2009, identified one of the reasons for the move to the institutional appointment of a chair as being:
"This criticism arose from the nomination of the same arbitrators to many disputes and the view that they were battling on behalf of the party that nominat[ed] them. It was considered that the degree of randomness and oversight by an ICA appointed Chair would be beneficial in addressing this perception and the Chairman's role is also designed to encourage timeliness of the arbitration process".
- Those concerns to maintain and promote confidence in the impartiality of ICA arbitration, and to reduce the time (and cost) taken to resolve disputes, were constant concerns of the ICA Board during the period from 2007 onwards, and the Board asked the ICA's Arbitration Strategy Committee to consider how those goals might be achieved.
- The minutes of the Arbitration Strategy Committee of 23 March 2007 (at which Mr Aldcroft was in attendance) reveal a number of issues under discussion in an attempt to improve the ICA's arbitration service. This included a desire to move away from the perception that ICA Arbitrators were "European traders" – or merchants – and a wish to attract candidates from the growing/producing sectors. Mr Aldcroft accepted in his evidence that there had been a long-standing perception that the ICA and ICA arbitration awards tended to be pro-merchant, in disputes with weavers, spinners and manufacturers, although he did not agree that there was any substance in this perception. The desire to change that perception was a continuing theme in the documents before me in which the ICA reviewed its arbitration service over the period from 2007 to 2015. The meeting also approved the ICA Arbitrators Code of Conduct.
- In late 2008, the-then President of the ICA, Mr Andrew Hursthouse suggested that it should be open to a claimant to ask the ICA to appoint a sole arbitrator in cases in which there was little or no expectation of the respondent participating in the arbitration, with the sole arbitrators being appointed on a rotational basis, by which "any considerations of bias should be resolved". That proposal was discussed on various occasions, albeit in the event not implemented, but it reflects the continuing reappraisal within the ICA as to how to maintain and promote the confidence of ICA members in the impartiality of the arbitration service and how to speed up the arbitral process.
- At a meeting of the Arbitration Strategy Committee on 30 September 2009, and as part of the consideration of Mr Hursthouse's "Sole Arbitrator" proposal, it was agreed that the Committee would look at how other commodities' associations addressed this issue, including the Grain and Feed Trade Association ("GAFTA"). Those enquiries were pursued at a meeting of the Federation of Commodity Associations on 20 September 2009. A note of the meeting recorded that all the associations had a Code of Conduct and a disciplinary process for arbitrators. It was noted that GAFTA had a rule that no arbitrator was allowed to have more than 10 live arbitrations on their books at any one time. There was a further discussion with a GAFTA representative on 2 December 2009.
- An ICA representative visited members in India, Bangladesh and Dubai at around the same time as these discussions with other commodities' associations. A note of that trip records the views of some of those members that the costs of ICA arbitration were too high, and complaints that the length of time taken to complete references was too long.
- At the next meeting of the Arbitration Strategy Committee on 25 January 2010, Mr Hughes reported on initiatives which had been adopted by other commodities associations to reduce costs. It was noted that a sole arbitrator approach could reduce the time and costs of resolving disputes, and "address the perception that arbitrators are not acting impartially". In this connection, the Committee were told that "GAFTA does not allow arbitrators to accept more than two arbitrations from the same company in any year". It was agreed that the Committee would provide the Board with a paper on how to address the complaints about costs.
- At subsequent meetings of the Committee, various proposals were adopted including a "streamlined" Small Claims arbitration procedure. This was in due course incorporated into the ICA Byelaws and Rules. On 12 July 2011, Mr Hughes presented a paper to the Board of Directors which he said reflected "feedback he had received from members and arbitrators, including complaints on the time taken to complete awards, the costs, enforceability issues, the lack of impartiality and adversarial conduct of some arbitrators, and the quality of arbitrators". Mr Hughes said he had "looked at the procedures of other commodity associations and used their best practice as a basis for his proposals". Mr Hughes told the meeting that the most recent statistics showed that the average time to produce an award had increased from 120 to 140 days, that he had received 8 complaints from arbitrators, and that from his analysis, "those arbitrators with larger caseloads were involved in tribunals that took the longest time to complete an arbitration".
- The discussion paper referred to complaints on a number of issues: about the time taken to complete references; the cost of arbitrations; the enforcement of awards; a lack of impartiality and adversarial conduct by arbitrators. It also discussed training, education and continuing professional development for arbitrators, and referred to a "strategic away day" at which views had been expressed that many traders acting as arbitrators did not have time to write awards, and at which views were expressed that the system should be "professionalised".
- The paper proposed that the ICA appoint a pool of professional arbitrators contracted to the ICA on a yearly basis who would chair all Tier 1 arbitrations, and that the panel would be open to arbitrators qualified under the rules of other commodities associations. It also referred to concern by a number of arbitrators that "it has been apparent or perceived by them" that a co-arbitrator was not acting impartially or was being adversarial. As one solution to this issue, it proposed that all arbitrators be appointed by the President of the ICA, although it noted that this would remove party autonomy in relation to arbitrator choice. The paper continued:
"Another solution is [to] stop the practice of an arbitrator having `clients' and always acting for that party in a dispute. Such practice can only give the impression that an arbitrator is acting on behalf of their `client' and therefore cannot be acting impartially. It also has the added effect of rendering any subsequent award at risk of not being able to be enforced due to this perceived lack of impartiality. This point has been highlighted by our lawyers and has also been addressed by other commodity associations.
It is recommended that an arbitrator cannot act more than twice for the same party within a calendar year".
In the final version, the limit to the number of appointments was not specified, but left to the Board's determination.
- The paper also addressed the issue of the time taken to complete arbitration references. It stated that an analysis of those cases that had taken the longest time to complete showed that "these Tribunals invariably have as a member an arbitrator who has numerous arbitrations on the go". It recommended that:
"arbitrators should not accept any appointments for, say, more than 5 arbitrations at one time".
In the final version, the limit to the number of appointments was not specified, but left to the Board's determination.
- The paper concluded by presciently noting that "a number of these issues will affect the earning potential of those arbitrators who choose to conduct arbitrations for a living", but stated that it was evidence from comments from ICA arbitrators, the ICA's lawyers and colleagues in other commodity associations that "our current system can be improved by increasing transparency and thus dispelling accusations of partiality, making arbitrators more accountable for the time taken in awards, providing more training and awareness on arbitration issues to arbitrators and more importantly, making awards more enforceable".
- Changes to the arbitration system were considered again at a meeting of a "task force" group set up by the ICA Rules Committee which took place from 22 to 24 February 2012. The task force recommended that the concerns about perceived lack of impartiality and delay be addressed by moving to a system of rotational institutional appointment of arbitrators, referring to "a potential lack of impartiality where one firm appoints the same arbitrator in all its cases" and the fact that "some arbitrators accept more cases than they can complete in a reasonable time".
- Mr Hughes' July 2011 paper was considered at a meeting of the Arbitration Strategy Committee on 16 March 2012. The chairman of that meeting, Mr Welsh, suggested that one way of meeting the Board's concerns would be for there to be a pool of 10 chairs within the ICA arbitrator pool, who would write all of the awards, and a task force would review this and other proposals.
- The task gorce met again between 18 and 20 April 2012. The notes of that meeting suggest that at this stage, the decision was taken not to move to an all-institutional appointment system, and not to impose any limit on the number of open arbitrations which any arbitrator could have at any one time. However it was recommended that a proposal to limit the number of appointments an arbitrator could obtain from the same party in one year be considered by the Arbitration Strategy Committee. The task force was told that GAFTA unofficially operated a limit of 5 arbitrator appointments by the same company. In later discussions with GAFTA on 14 May 2012, Mr Hughes was told that GAFTA did not operate an official limit because of the particular problem of string arbitrations under GAFTA rules (as a result of the same cargo being bought and sold multiple times, with the same disputes passing up and down the contractual chain), although they did recommend in their code of practice that arbitrators should not be seen as doing repeat arbitrations for the same company. GAFTA suggested to Mr Hughes that a limit of 2 appointments by the same party in any one year might be appropriate for the ICA.
- It was suggested to Mr Hughes that it was inappropriate for him to seek the views of GAFTA on this issue. He stated that he thought it was appropriate for the ICA to consult other commodities associations to ascertain best practice, and GAFTA was the largest commodities association. I reject this criticism of Mr Hughes. It seems to me that it was entirely appropriate for the ICA to seek to ascertain best practice by considering how other commodities arbitration schemes approached the same issues, just as general arbitration institutions around the world, and indeed commercial courts, seek to share best practice.
- Those proposals were brought before the Arbitration Strategy Committee on 1 June 2012, and before the Board of Directors on 5 July 2012.
- In April 2013, the Byelaws and Rules were amended to provide for a pool of 10 chairs from the overall pool of 25 or so ICA arbitrators. The members of the "Pool of Chairmen" were to be approved by the Board on an annual basis, and only members of that pool were eligible for institutional appointment to chair ICA arbitration tribunals. The chair of a tribunal had first right of refusal on drafting any award, something which would impact on the number of hours work an arbitrator would do on an arbitration, and consequently on the fees which could be charged. In his witness statement, Mr Aldcroft made a number of complaints about the "Pool of Chairman" provisions, and similar complaints were made by Ms Anderson and Mrs Adlington. However, there is no legal challenge to the "Pool of Chairman" provisions, and it is not necessary for me to say anything more about them.
- At an Extraordinary General Meeting of the ICA on 6 September 2013, revisions to the Articles of Association were adopted, which had the effect of introducing a reference to the Code of Conduct into the Articles of the Association for the first time. One of the new Articles, Article 21.4.4, identified acting in contravention of the Code as a matter for which the Preliminary Investigation Committee could sanction a member.
(B) Further consideration of the issue of repeat and concurrent appointments
- The issues of repeat nominations and the number of concurrent arbitral appointments remained on the agenda of the ICA Arbitration Secretariat. At a "Pool of Chairmen" meeting on 26 and 27 September 2013, an amendment to the Code of Conduct was approved which reminded arbitrators that they should only accept appointments if they had sufficient time to discharge their duties, and that to avoid a perception of bias, lack of impartiality or justifiable doubts on these issues, an arbitrator could only accept up to 5 appointments from a party or related party in the same calendar year. A presentation on this topic was made at the ICA International Trade Event in Liverpool by Dr Terry Townsend, who gave evidence before me. That presentation discussed perceptions of the ICA arbitration process, and suggested that these included lack of transparency and legitimacy; awards favouring repeat clients of the arbitrators; and that the arbitrators acted as advocates of the parties.
- Dr Townsend's paper led the President of the ICA and other directors to ask Mr Hughes to prepare a paper for the Board's consideration on these issues. That paper went to the Board in March 2014. It referred to anecdotal evidence that a small minority of ICA arbitrators were not meeting the requirement of neutrality and impartiality required by the Arbitration Act 1996, and referred to the procedure introduced over the past few months to require ICA arbitrations to declare whether they had any conflicts of interest in relation to any case to which they were to be appointed. That procedure asked various questions to ascertain whether an arbitrator had been employed by or acted as a consultant to one of the arbitrating parties, but did not specifically raise the issue of repeat arbitration appointments.
- Mr Hughes' paper put forward a number of options for the Board's consideration:
i) The first was to maintain the current system, but it identified as one of the disadvantages of the current system that "in some cases, an arbitrator has been appointed for the same party so many times, and for so many years, that in the eyes of the law they would be considered as an `employee' or `consultant'". Mr Hughes was criticised for including this statement without having any legal basis for the assertion. Whether or not the statement was or could be correct as a matter of law (something which might well depend on the country in which an award was being enforced), the concern that sufficient repeat appointments ran the risk of the arbitrator being identified with the appointing party was legitimate. The paper also noted that this could be manifested by the over-use of the word "majority" in awards, perhaps to signal to an appointing party that an arbitrator had not agreed with an award against that party. It stated that "too many claimants appoint the same arbitrators who, due to the volume of work caused by having too many arbitrations open, cannot work on the case in a timely and efficient manner". It was noted that the system of Presidential appointment of tribunal chairs on a rota basis also contributed to this problem, because the President had no opportunity to nominate a less busy arbitrator.
ii) The second option was a proposal that all ICA arbitrations should be institutional appointments. The paper recommended this option as a transparent system which would reduce any risk of lack of impartiality.
- That paper came before the Board at a meeting on 29 July 2014. The proposal to move to an all-institutional appointment process did not find majority support. The minutes record a suggestion that the issue of repeat arbitrations could be addressed by the ICA intervening to prevent any arbitrator accepting more than one appointment for the same party. The Board decided to revisit the issue in 12 months once there had been a chance to see how the new arbitration system (which included the requirement of a formal confirmation by arbitrators of a lack of conflict of interest) was working. It was also decided that a small working group should consider the risks associated with a perceived lack of impartiality, and the complaints of arbitrator bias and bullying. Mr Gibson, head of the Arbitration Secretariat, appears to have volunteered for this task, and asked directors who were interested in joining this working group to let the Secretariat know
- A further meeting of the Board of Directors took place on 30 September 2014. The Board was told that the working group referred to at the previous meeting comprised Mr Welsh (not Mr Gibson), Mr Pollard and Mr Illes, and that they had met to consider the issues of lack of impartiality and delay. It was reported to the Board that the working party was not satisfied that the current annual limit of 5 appointments on behalf of the same party was sufficient to address complaints of lack of impartiality. The Board resolved to reduce the limit to 3 appointments from any one party or related party (although this was not to apply where the appointments were institutional appointments, whether to first tier arbitrations or the TAC). The concern was also expressed that some arbitrators took on too many appointments, resulting in delay. The working group recommended that no arbitrator should have more than 8 active first tier cases open at any one time. The Board agreed with these recommendations, and resolved that the Code of Conduct be amended to reflect them.
- An "Arbitrators Forum" of the ICA was held in Dubai which discussed the proposed 3 and 8 rule. "Arbitrators Fora" are held periodically by the ICA and all ICA arbitrators are invited to attend these events to discuss issues of interest. The Dubai Arbitrators Forum was held at the same time as the ICA's EGM and Annual Dinner, and I was told that most ICA arbitrators tend to attend this event. Mr Aldcroft did not attend this particular forum.
- At a meeting of the Arbitration Strategy Committee on 17 November 2014, the changes to the Code of Conduct necessary to give effect the Board's decisions were approved. The amendments were circulated to ICA arbitrators in the Arbitrators' Bulletin distributed on 28 November 2014. The successful completion of the amendment to the Code of Conduct was reported back to the Board at its next meeting on 15 January 2015.
- At a meeting of the Arbitration Strategy Committee on 29 and 30 January 2015, it was agreed that the 3 and 8 rule would be reviewed annually, with the ICA Arbitration Secretariat having the power, with the Board and the Arbitration Strategy Committee's agreement, to vary the number of arbitrations an arbitrator may hold (i.e. the 8 part of the 3 and 8 rule), if there was a need to do so due to a large number of arbitrations. Notes of that meeting stated that the 3 and 8 rule applied to first tier hearings only, and not to appeals (it not being clear from the note whether this was a reference to the entire 3 and 8 rule or the limit on repeat appointments). The notes stated that the 3 rule was intended to stop a perception of an arbitrator being an employee of a particular party, and the 8 rule to speed up arbitrations. It was observed that the key was active cases rather than cases on hold. One member, Mr Nigel Scott, is recorded as saying that this structure would prevent people taking on ICA arbitration as a full-time profession, and that if a need to rely on full-time arbitrators arose again (which I interpret as a reference to the very large spike in the number of ICA arbitrations in 2011/2012 and 2013 due to unprecedented volatility in the market price), the full-time arbitrators would not be there to call upon. In relation to the 8 rule, the notes record that the message was to "speed through arbitrations".
(C) The dispute between Mr Aldcroft and the ICA crystallises
- On 10 February 2015, Mr Aldcroft wrote to the-then President of the ICA (Mr Jordan Lea) protesting at what Mr Aldcroft clearly then understood to be a proposal to introduce the 3 and 8 rule (although, as stated above, the change had in fact been incorporated into the Code of Conduct in November 2014). Various objections were taken, including the fact that it was a restraint of trade. The letter set out a number of "in principle" and practical objections to the 3 and 8 rule which have also been aired in the evidence and submissions before me.
- Mr Hughes prepared a series of rebuttal points for Mr Lea. There were aspects of that response which were criticised by Mr Woolgar (for example the statement that the working party which had recommended the rule had "an equal split of merchants in favour of the proposal for the ICA to appoint all arbitrators and those against") when, although this was true of Mr Pollard and Mr Illes, the Chair of the group, Mr Welsh, had also favoured an all-institutional appointment approach. If any suggestion was being made that Mr Hughes was intending to mislead Mr Lea, then I reject it. Mr Lea had been present at the meeting of 29 July 2014 when the working group was proposed, and at the meeting of 30 September 2014 when the composition of the working group and its conclusions were reported. In any event, in circumstances in which the Board had not approved the "all institutional appointment" proposal, but a different approach altogether, I cannot see how the division of views of the working group on that issue was a matter of any moment. Mr Woolgar also criticised other aspects of the email as over-stating the degree of consultation and consideration of the 3 and 8 rule before its introduction. I accept that the email, which was sent at 16.45 on a Friday evening, was clearly seeking to make the most of the material available when responding to Mr Aldcroft, and to present it in its most favourable light. Mr Woolgar confirmed that he was not suggesting that there had been any intention on Mr Hughes' part to mislead Mr Lea (and as I have noted, Mr Lea had himself attended the relevant Board meetings). In these circumstances, these criticisms go nowhere, and I say no more about them
- On 20 March 2015, Mr Gibson, the head of the Arbitration Secretariat, wrote to Mr Aldcroft and referred to the fact that Mr Aldcroft had just received two further arbitrator nominations from an ICA member for whom he was already holding two appointments. He was warned that if he accepted the two further appointments, he would be in breach of the Code of Conduct. Mr Aldcroft responded on 29 March 2015 stating that he was not able to turn down appointments nominating him, and that any restriction on his freedom to accept appointments was a restraint of trade. On 6 April 2015 Mr Lea responded to Mr Aldcroft's letter of 10 February 2015, defending the 3 and 8 rule. In April 2015, Mr Aldcroft accepted the two further appointments, taking the number of appointments he had accepted for that party in a calendar year to 4.
- On 22 April 2015, Mr Gibson raised what he said was Mr Aldcroft's breach of the 3 and 8 rule, and another complaint which is not relevant to this case, with Mr Hughes and Mr Welsh, and asked them to refer the complaints to the ICA's Arbitrator's standards sub-committee. On 5 May 2015, Mr Aldcroft was asked for his comments on the complaint so that they could be considered.
- Further correspondence followed, including from Mr Aldcroft's solicitors Stitt & Co., in which the parties maintained their positions. A letter from Stitt & Co. to the ICA of 28 August 2015 stated that unless the ICA immediately stopped the internal investigation process against Mr Aldcroft, Mr Aldcroft would issue proceedings and seek interim injunctive relief. The ICA maintained its position. These proceedings were commenced by Mr Aldcroft on 13 November 2015. The application for an interim injunction was scheduled to be heard before Mr Justice Phillips on 26 November 2015, but shortly before the hearing, the ICA agreed to provide an undertaking in the terms of the injunction Mr Aldcroft had previously sought. In these circumstances, Mr Justice Phillips ordered the ICA to pay the costs of the application.
(6) My conclusions as to the reasons why the 3 and 8 rule were introduced
- It is clear from the evidence that I have set out above that the 3 and 8 rule was introduced by the ICA as a measure intended to address perceptions that the arbitration process had a pro-merchant bias, in particular where this resulted from repeat appointments by a merchant of the same arbitrator, and in an attempt to reduce what was perceived to be the risk of delay in resolving arbitration references resulting from a small number of arbitrators having appointments in a large number of arbitrations at the same time.
- There was no evidence before me of any party to an ICA arbitration raising the issue of repeat appointments before the introduction of the 3 and 8 rule, nor of any attempt to resist enforcement of ICA awards on the basis that the successful party had repeatedly appointed the same arbitrator. However, it is not possible to conclude from these facts that repeat appointments presented no actual or potential risk to the integrity and efficacy of the ICA arbitration process. The evidence of Mr Aldcroft, Ms Anderson and Mrs Adlington suggested that there was no practice of ICA arbitrators disclosing the fact or extent of repeat appointments, and in those circumstances, and on the evidence before me, it is simply not possible to know how far the lack of any challenge resulted from ignorance of the existence and extent of repeat appointments, rather than any general sanguinity on the part of arbitrating ICA members at the phenomenon of repeat appointments.
- There was evidence in the trial bundles of occasional complaints by parties about delay in the production of awards. For example, an ICA member visiting Turkey in August 2011 received complaints from a party "waiting since February for the result of an arbitration" and complaining about "extraordinary delays". An email sent in February 2012 by a member with three pending arbitrations complained that the awards were "two to five months late" and referred to a 7-month wait for an appeal award. In April 2013, there were 5 award still outstanding from 2011, and later that year one ICA arbitrator complained about the time it was taking to arrange a meeting with a co-arbitrator given time differences and the arbitrator's workload. In 2014, one arbitrator referred to the availability of arbitrators being "a big factor in the delay of this award" and attributing this to "certain arbitrators who have perhaps too heavy a work load".
- There were also complaints from one member of an arbitration tribunal about alleged lack of impartiality on the part of a co-arbitrator. For example, in May 2013, one arbitrator complained that a co-arbitrator had "acted partially throughout". In May 2014, one arbitrator suggested that another arbitrator was "more concerned with making life easy for this claimant and providing them with a service, rather than his duty to the association to act as an impartial arbitrator".
- It is not possible to form a view on whether any of these particular complaints were justified on the facts, and, if so, how far they were isolated instances or reflected more systemic issues. Nor did the material before me provide any basis for concluding how far the involvement of individuals who worked full-time as arbitrators in ICA disputes on arbitration panels tended to increase or reduce the time taken to resolve disputes generally. However, they confirm that the issues of delay and apparent bias were legitimate topics for the ICA to seek to address.
- It is clear that repeat appointment by merchants of the same arbitrator was a feature of ICA arbitration. I have referred already to Mr Aldcroft's appointment as arbitrator by the same merchant on 22 occasions in under 4 years, and he was appointed 11 times between 2012 and 2014 by another merchant. However, I saw no evidence of any complaint to the ICA specifically concerning the issue of repeat appointments before the 3 rule was introduced.
- I do not accept that an arbitration institution is required to wait until there have been a challenge, either to an arbitration appointment or an award, on the basis of repeat appointments before taking action to address that issue. The ICA was entitled to be pro-active on this issue, seeking to anticipate possible challenges. In any event, given the long-standing perception of pro-merchant bias, and the complaints about delay which no doubt greet the representatives of most arbitration institutes when they meet their users, it was legitimate for the ICA to engage in "virtue signalling", stressing the commitment to impartiality in its arbitration process and incentivising arbitrators to complete references with all due expedition.
- While I have concluded that the purpose of the 3 and 8 rule was both to address, and to be seen to address, the issues of the risk of perceived bias stemming from repeat appointments, and the risk of delay resulting from a small number of arbitrators being involved concurrently in a significant number of arbitrations, it would have been obvious to those implementing these changes that they were likely to have a particularly adverse effect of Mr Aldcroft. He was clearly seen by Mr Hughes, at least, as exemplifying both of these concerns. For example in an email of 21 May 2015 to Dr Townsend, Mr Hughes referred to the 8 rule and said:
"As a result of the fact that arbitrations were taking over 400 days to complete and one arbitrator had 57% of all arbitrations we introduced a rule that arbitrators could only have 8 open cases at one time".
- Nor does it follow that the 3 and 8 rule was the only, or necessarily the best, means of addressing these issues. There are clearly a range of possible responses to these issues, and a range of views were expressed within those ICA bodies charged with considering these issues as to how to address them. As I set out below, there is no clear consensus as to how best to tackle them.
(7) The issues of repeat and concurrent appointments in arbitration more generally
- The issues of repeat and concurrent appointments are topics of interest, both within other international arbitral institutions, and in the arbitration community more generally.
The IBA Guidelines
- The International Bar Association ("IBA") Guidelines on Conflicts of Interest in International Arbitration which were adopted by a resolution of the IBA Council on 23 October 2014 contain an Orange List which is described as "a non-exhaustive list of specific situations that, depending on the facts of a given case, may, in the eyes of the parties, give rise to doubts as to the arbitrator's impartiality or independence" and which an arbitrator has a duty to disclose. Paragraph 3.1.3 identified as one such matter:
"The arbitrator has, within the past three years, been appointed as arbitrator on two or more occasions by one of the parties, or an affiliate of one of the parties".
A footnote to this paragraph states:
"It may be the practice in certain types of commodities arbitration to draw arbitrators from a smaller or specialised pool of individuals. If in such fields it is the custom and practice for parties to frequently appoint the same arbitrator in different cases, no disclosure of this fact is required, where all parties in the arbitration should be familiar with such custom and practice".
- Paragraph 3.1.5 identifies as another "Orange List" situation:
"The arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration involving one of the parties, or an affiliate of one of the parties".
Other arbitration institutions
- The only other institutional rules which I was referred to which have a limit on the number of appointments are the Rules of Arbitration and Appeal of the Federation of Oils, Seeds and Fats Associations Ltd. ("FOSFA"). Rule 1(c) of those Rules provides:
"No person shall be eligible to proceed as an arbitrator or umpire who is already proceeding as an arbitrator or umpire in 10 disputes, excluding arbitrations on quality and/or condition and any arbitration stayed by Order of the Court".
- In particular, there is no such provision in the GAFTA Arbitration Rules, although, as set out above, there was a reference in the documents before me to GAFTA operating an unofficial rule limiting appointments of an arbitrator by the same party to 5 in a calendar year.
- However the International Chamber of Commerce ("ICC") Note to Parties and Arbitral Tribunals on the Conduct of Arbitration under the ICC Rules of Arbitration of 22 September 2016 (and the revised version published on 1 March 2017) refers to the "Statement of Acceptance, Availability, Impartiality and Independence" which all prospective ICC arbitrators are required to complete (Article 11(2) of the ICC Rules of Arbitration). Among the matters arbitrators are asked to consider when assessing whether there are circumstances which are such as to call into question his or her independence in the eyes of the parties, or give rise to reasonable doubts as to his or her impartiality, are that "the arbitrator or prospective arbitrator acts or has acted as arbitrator in a case involving one of the parties or one of its affiliates", "the arbitrator or prospective arbitrator acts or has acted as arbitrator in a related case" and "the arbitrator or prospective arbitrator has in the past been appointed as arbitrator by one of the parties or one of its affiliates, or by counsel to one of the parties or the counsel's law firm". In addition, the Note provides:
"Prospective arbitrators must indicate in the Statement the number of arbitrations in which they are currently acting, specifying whether they are acting as president, sole arbitrator or co-arbitrator or counsel to a party as well as their availability over the next 24 months".
- The LCIA's Notes for Arbitrators of 29 June 2015 at paragraph 10 state that the parties are entitled to expect that "each arbitrator has also checked, before appointment, that any existing or anticipated diary commitments will permit the arbitrator to fulfil his/her mandate without delay" and paragraph 11 notes that the LCIA Rules require an arbitrator to confirm that he/she is "ready, willing and able to devote sufficient time, diligence and industry to ensure the expeditious and efficient conduct of the arbitration", for which purpose arbitrators are asked to complete a form "providing details of the number of hearings, the number of outstanding Awards and all pre-existing commitments that might impact the arbitrators' ability to devote sufficient time to this arbitration" (paragraph 12).
- The Singapore International Arbitration Centre ("SIAC") Code of Ethics for an Arbitrator also requires an arbitrator who is "aware of any potential time constraints in the next 12 months in his ability to discharge his duties if he is appointed as an arbitration" to disclose those details in an attached disclosure sheet.
Commentary.
- As Mr Woolgar noted in the course of his opening submissions, "the topic of delay in the delivery of awards by arbitrators is of course something of a considerable talking point among arbitrators and users of all arbitration systems; one can't go to any international arbitration conference without the topic coming up". Concerns about arbitrators taking on too many appointments have featured in some of the discussion on this topic (see for example Global Arbitration Review (2010) 5(1) 14-17 and "Is London still ahead of the game?" Counsel September 2016).
- The issue of repeat appointments has also been the subject of ongoing discussion. For example Fatima-Zahra Slaouri published an article on "The Rising Issue of `Repeat Arbitrators': A Call for Clarification" in Arbitration International ((2009) 25(1): 103-120) and Daphna Kapeliuk has written on "The Repeat Appointment Factor: Exploring Decision Patterns of Elite Investment Arbitrators" in the Cornell Law Review ((2010) Vol.96:47 47-90). In investment treaty arbitration, in particular, there have been calls to remove party-arbitral appointments altogether (see for example Sergio Puiz, "Social Capital in the Arbitration Market" (2014) European Journal of International Law 387 at 400).
Judicial challenges based on repeat appointments
- The issue of repeat appointments came before the Commercial Court most recently in H v. L and M [2017] EWHC 137 (Comm), a judgment of Popplewell J. The underlying arbitration was a claim by H under a Bermuda Form insurance policy in respect of a liability which H and two other companies, Q and R, has been found to have in the United States of America. H sought to remove M ("a well-known and highly respected international arbitrator" who enjoyed "a reputation as an international arbitrator of the highest quality and integrity") under s.24(1) of the Arbitration Act 1996 on the basis that "circumstances exist that give rise to justifiable doubts as to his impartiality".
- M had been appointed not by either party, but by Flaux J. under s.18 Arbitration Act 1996 as third arbitrator and chair when the two parties were unable to agree on who to appoint. At the time of his appointment, M disclosed to the parties that he had previously been appointed by L as an arbitrator, and that he was currently acting as arbitrator in two arbitrations to which L was a party. H did not oppose M's appointment by the court on these grounds, but for other reasons which were rejected by Flaux J. After his appointment, M accepted appointment in two other arbitrations in which R sought to recover from liability insurers in respect of the same underlying liability, one of which involved L. In rejecting the suggestion that the overlap in issues and evidence between the various arbitrations provided a sufficient basis for the exercise of the s.24(1) power, Popplewell J. referred to "the principle of party autonomy which underpins the [1996] Act, enshrined in s.1(b)" which "dictates that parties should be free to appoint their chosen arbitrator in accordance with the procedure agreed in the arbitration clause in fulfilment of the contractual bargain" ([23]). He noted that arbitration is often chosen as a preferred form of dispute resolution because of the desire to have tribunals with particular knowledge and expertise, and that the arbitrators with such knowledge and expertise and who command the confidence of the parties "often comprise a limited pool of talent".
- By contrast, in Cofely Limited v. Anthony Bingham and Knowles Ltd. [2016] EWHC 240 (Comm), Hamblen J. heard a s24(1) removal application in respect of an arbitrator, one ground for which was that the arbitrator had acted as arbitrator or adjudicator 25 times in cases involving one of the parties (either as a party or as a representative of a party), which amounted to 18% of all of the arbitrator's appointments and 25% of his income. This was one of a number of factors the judge held gave rise to concerns of apparent bias.
Conclusion
- It is clear that the issues of repeat appointments by one party of the same arbitrator, and of the risk of delay caused by the number of references in which an arbitrator is involved at any one time, are topics of legitimate concern and interest in international arbitration, but that different views are held as to how these concerns should be addressed. Clearly this is an issue often addressed, in the first stage at least, through disclosure to the parties, leaving them to make their own challenge, as information to be provided to an appointing institution which it can take into account when considering whether to make or confirm an appointment, or as matters which the arbitrator is advised to consider before accepting an appointment. The FOSFA arbitration rules were the only other set of arbitration rules I was referred to which included an absolute limit (in that case on the number of concurrent arbitration appointments).
- No doubt each of these different approaches has its advantages and drawbacks. For example a system of disclosure would provide the parties with the opportunity to decide whether they regarded the arbitrator's prior appointments as a problem. However, it might also involve the institution in resolving disputed challenges. This has time and cost implications. In the context of a commodity association, it might involve the (perhaps unwelcome) consequence of involving the individuals responsible for determining any such challenges (in the case of the ICA, the President) in disputes between members of the association, and between arbitrating members and particular arbitrators.
(8) The doctrine of restraint of trade
(A) To which classes of contract does the doctrine apply?
- The doctrine of restraint of trade has a long history, dating at least back to the time of the Year Books, but, as the editors of Chitty on Contracts (32nd) at 16-087 note, the definition of the doctrine "presents conceptual difficulty". This is because, to some extent, all contracts limit the freedom of action which the contracting parties had before signing them. Those difficulties of definition become all the more acute when, as here, the contract in question arises through adhesion to the rules of an association, and the "restraint" in question is one to which all members of the association are subject in their dealings with each other.
- It is perhaps because of those conceptual difficulties that a number of judges of the greatest distinction have resisted the attempt to provide any clear test distinguishing between those types of contract which are subject to the doctrine, and those which are not. There is equally no general guidance as to how far, when the doctrine is engaged, its operation varies between different types of contract.
- I was referred by the parties to a large number of authorities. I do not propose to summarise them all, but set out below a number of authorities which are of particular relevance to the central issues between the parties. These are, in turn:
i) Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. [1968] AC 269.
ii) The Pharmaceutical Society of Great Britain v. Dickson [1970 A.C. 403.
iii) Nagle v. Feilden [1966] 2 Q.B. 633.
iv) Geoffrey and Anne Lewis v. Interflora (Ftda) Bu Limited [1990] ECC 178.
Esso v. Harper's Garage
- Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. [1968] AC 269 was concerned with so-called "solus" agreements, under which garage-owners entered into agreements with petrol suppliers to meet their total fuel requirements from that supplier, and agreed to comply with supplier's sales and pricing policies.
- Lord Wilberforce referred to the protean nature of the doctrine of restraint of trade at pages 332-3:
"The doctrine of restraint of trade (a convenient, if imprecise, expression which I continue to use) is one which has throughout the history of its subject-matter been expressed with considerable generality, if not ambiguity..…. … There is no need to regret these tendencies: indeed, to do so, when consideration of this subject has passed through such notable minds from Lord Macclesfield onwards, would indicate a failure to understand its nature. The common law has often (if sometimes unconsciously) thrived on ambiguity and it would be mistaken, even if it were possible, to try to crystallise the rules of this, or any, aspect of public policy into neat propositions The doctrine of restraint of trade is one to be applied to factual situations with a broad and flexible rule of reason.
There will always be certain general categories of contracts as to which it can be said, with some degree of certainty, that the "doctrine" does or does not apply to them. Positively, there are likely to be certain sensitive areas as to which the law will require in every case the test of reasonableness to be passed: such an area has long been and still is that of contracts between employer and employee as regards the period after the employment has ceased. Negatively, and it is this that concerns us here, there will be types of contract as to which the law should be prepared to say with some confidence that they do not enter into the field of restraint of trade at all.
How, then, can such contracts be defined or at least identified? No exhaustive test can be stated - probably no precise non-exhaustive test. But the development of the law does seem to show that judges have been able to dispense from the necessity of justification under a public policy test of reasonableness such contracts or provisions of contracts as, under contemporary conditions, may be found to have passed into the accepted and normal currency of commercial or contractual or conveyancing relations. That such contracts have done so may be taken to show with at least strong prima force that, moulded under the pressures of negotiation, competition and public opinion, they have assumed a form which satisfies the test of public policy as understood by the courts at the time, or, regarding the matter from the point of view of the trade, that the trade in question has assumed such a form that for its health or expansion it requires a degree of regulation. Absolute exemption for restriction or regulation is never obtained: circumstances, social or economic, may have altered, since they obtained acceptance, in such a way as to call for a fresh examination: there may be some exorbitance or special feature in the individual contract which takes it out of the accepted category: but the court must be persuaded of this before it calls upon the relevant party to justify a contract of this kind".
(emphasis added).
- At page 335, Lord Wilberforce returned to the topic of transactions "exempted" (to use his word) from the ordinary application of the doctrine:
"I think one can truly explain them by saying that they have become part of the accepted machinery of a type of transaction which is generally found acceptable and necessary, so that instead of being regarded as restrictive they are accepted as part of the structure of a trading society. If in any individual case one finds a deviation from accepted standards, some greater restriction of an individual's right to `trade', or some artificial use of an accepted legal technique, it is right that this should be examined in the light of public policy".
- At pages 336-7 he noted that:
"The courts are not lacking in tools which enable them to select from the whole range of those contracts, which in one way or another limit freedom in trading, segments of current and recognisably normal contracts which are not currently liable to be subjected to the necessity of justification by reasonableness. Such contracts may even be listed …. but the classification must remain fluid and the categories can never be closed".
- Lord Reid stated at pages 295-6:
"If a contract is within the class of contracts in restraint of trade the law which applies to it is quite different from the law which applies to contracts generally. In general unless a contract is vitiated by duress, fraud or mistake its terms will be enforced though unreasonable or even harsh and unconscionable, but here a term in restraint of trade will not be enforced unless it is reasonable and in the ordinary case the court will not remake a contract: unless in the special case where the contract is severable, it will not strike out one provision as unenforceable and enforce the rest. ..
It is much too late now to say that this rather anomalous doctrine of restraint of trade can be confined to the two classes of case to which it was originally applied. But the cases outside these two classes afford little guidance as to the circumstances in which it should be applied. In some it has been assumed that the doctrine applies and the controversy has been whether the restraint was reasonable and in others where one might have expected the point to be taken it was not taken, perhaps because counsel thought that there was no chance of the court holding that the restraint was too wide to be reasonable.
Restraint of trade appears to me to imply that a man contracts to give up some freedom which otherwise he would have had. A person buying or leasing land had no previous right to be there at all, let alone to trade there, and when he takes possession of that land subject to a negative restrictive covenant he gives up no right or freedom which he previously had."
- He too was wary of providing any test for identifying those contracts which were subject to the doctrine, saying "I would not attempt to define the dividing line between contracts which are and contracts which are not in restraint of trade" (pages 298-9). He noted (at page 296) that there might "come .. a point" where contracts of a class which were not ordinarily subject to the doctrine might become subject to it, presumably because of the exorbitant nature of a particular set of terms.
- Lord Pearce in his speech distinguished between "a mere agreement for the promotion of trade" (which he also referred to a contract "which merely regulate(s) the normal commercial relations between parties") and "an agreement in restraint of it" (page 327).
- The two classes of contracts in which the doctrine most clearly applies are contracts between employer and employee (or, as it was once said, master and servant) relating to the post-employment period, and contracts for the sale of a business which impose fetters on the right of the seller to set up another business. In cases concerned with those classes of contract, it is possible to find statements of the doctrine in very wide terms which, if applied to all contracts which relate to the provision of services, would have remarkable consequences. But as Lord Reid observed in Esso v. Harper's Garage at p.294 of such statements in the judgment of Lord Macnaghten in Nordenfelt v. Maxim Nordenfelt Guns & Ammunition Co. Ltd. [1913] AC 781 at 794, "it may be misleading to take [these] passages out of context and try to apply them to cases of quite different nature".
The Pharmaceutical Society of Great Britain v. Dickson
- The decision in Pharmaceutical Society of Great Britain v. Dickson [1970] AC 403 involved a society incorporated by Royal Charter to represent the profession of registered pharmacists, of which all registered pharmacists were required to be members. The particular interest of that case for present purposes is that the restraint successfully challenged was not one intended to restrict competition with the society, or to secure economic advantage to the society or other members of the society by requiring pharmacists to trade in a particular way. The challenge concerned the Code of Ethics introduced by the Society with a view, it would seem, to maintaining or promoting the quality and dignity of members of the profession by restricting their ability to sell non-pharmaceutical products from the same premises as pharmaceutical products without the prior approval of the Society. Breaches of that Code could form the basis of charges of misconduct before the Society's disciplinary body.
- The proceedings involved two separate attacks on this aspect of the Code: that it was ultra vires the society's objects and that it was an unreasonable restraint of trade, and while these were separate issues, there was clearly a close relationship between the two. Lord Reid stated at p.420:
"In every profession of which I have any knowledge there is a code of conduct, written or unwritten, which makes it improper for members of the profession to engage in certain activities in which ordinary members of the public are quite entitled to engage. Normally this is regarded as a domestic matter within the profession. But it appears to me that if a member of a profession can show that a particular restriction on his activities goes beyond anything which can reasonably be related to the maintenance of professional honour or standards, the court must be able to intervene".
- He was of the view that it "cannot be doubted" that the restrictions were in restraint of trade (p.420) but this did not conclude the issue. In a passage (at p.421) which is of particular importance to the case at hand, he doubted whether the ordinary principles of restraint of trade applied "where restraints exist as part of a code of professional conduct":
"The respondent argues that, as this motion would operate in restraint of trade, the ordinary principles of restraint of trade apply so that the appellants must plead and prove justification. I am very doubtful whether that is so where restraints exist as part of a code of professional conduct. If the ordinary rule were to apply, any member of a profession who wanted to make more money by disregarding some long-standing rule of professional conduct could require the restraint to be justified without himself having to allege and prove that the rule was unreasonable. The onus would be on the body defending the standards of the profession and, unless the tests laid down in the authorities are to be altered, I do not see how the court could limit the extent to which it would interfere in the domestic affairs of the profession … But I do not think it necessary to pursue this matter because, wherever the onus may lie in this case, I am of opinion that these restraints cannot reasonably be related to the objects of the society".
- Lord Morris too held that the restrictions fell outside the objects and purposes of the Society (p.425H), but he also held that the restriction was in restraint of trade (p.426G) while noting that, because of the way in which they had chosen to advance their case, the Society had made no attempt to justify the restraint (p.427A-B). Lord Hodson dealt with the two issues together, saying that if the rule was "bad as an unreasonable restraint of trade it will in any event be outside the limits imposed on the society by its charter" (p.430F-G), and he continued "unless it is reasonable in relation to the objects of the society the restraint cannot be justified". In his speech, he appears to reject the argument that the test for justifying restraint of trade in the context under consideration differed from that which applied when restraint of trade arose in a more conventional context, stating "I do not find it possible to segregate any particular class of case so as to exclude it from the ambit of the doctrine, although there are of course many cases where it is futile to raise it" (p.431D).
- Lord Upjohn held that the rule went outside the Society's objects (p.435G), and he therefore dealt with the restraint of trade issue briefly. He rejected the argument that "professional bodies are outside the general doctrine of restraint of trade" (p.436A) but stated that:
"in applying the doctrine to a profession there is this additional relevant circumstance to be considered. A profession is a vocation of the highest standing; it calls on its members to serve (no doubt for reward) the public by offering to them highly technical and always confidential advice and services which require a different standard of conduct from the tradesman. Its members stand in a different relationship altogether from the man doing ordinary business. …. The professional code must be different by the nature of its calling and the reliance placed upon it by the public from those carrying on trade and commerce. Those seeking the advice of a professional man are entitled to expect of him the highest standards of ethical conduct. This means that the professional man must submit to some restraints of trade such, to take elementary examples, as a prohibition against advertising and a refusal, by undercutting or otherwise, to snatch work from another practitioner (but of course there is no harm in letting the work come to you). But such restraints (of which I have only given two elementary examples) are necessary to establish, sustain and promote the profession and particularly its ethical standards. The restraints upon professional men are justifiable in law, for they are not only necessary in the interests of the profession but of the public, who trust to the peculiarly high standing and integrity of a profession to serve it well".
He held that the Society had "refused to set up any test of reasonableness" at the trial, which concluded the action against them (p.437C).
- Lord Wilberforce held that the Charter "ought to be construed so as to give the members a wide degree autonomy" particularly "in relation to standards of professional conduct" noting at p.439A that:
"When, as to this matter, rules are laid down, and submitted by proper procedure to democratic approval and approved by a majority, the court will normally allow them to take effect".
- He concluded that the rule had "too slender a connection or link with the relevant object" (p.439E) and was therefore not a justified exercise of the Society's rule-making power. He also held that the rule was "plainly, on its face, a restraint of trade" (p.440B) and that, as the Society had made no attempt to justify the restraint as reasonable, the applicant was entitled to the declaration and injunction sought (p.440H).
- The manner in which the issues arose, and were argued, in the Pharmaceutical Society case left an important issue unresolved. If the rule had been intra vires the Society, and the Society had identified the legitimate object which the rule was intended to promote, how far would the deference to the Society in making rules for its domestic affairs have coloured the Court's consideration of the issue of whether a rule which restrained the trade of its members was unreasonable? However, that is an issue on which assistance can be obtained from the next two cases.
Nagle v. Feilden
- Nagle v. Feilden [1966] 2 QB 633 is a justly famous case in which the Court of Appeal refused to strike out a claim brought by Mrs Nagle (described in the law report as a "femme sole") seeking declarative and injunctive relief against the Jockey Club on the ground that its refusal to issue her with a trainer's licence because she was a woman was an unlawful restraint of trade. Its interest for present purposes lies in the observations made about how the court will approach issues of restraint of trade raised in relation to the rules of professional associations.
- Lord Denning M.R. stated of such associations at p.645:
"If they make a rule which enables them to reject his application arbitrarily or capriciously, not reasonably, that rule is bad. It is against public policy. The courts will not give effect to it …. But if the rule is reasonable, the courts will not interfere … There are not many modern cases on the subject, but they support the principle which I have stated. In Weinberger v. Inglis the rules of the Stock Exchange gave to the committee an absolute discretion to admit such persons as they "shall think proper." The House of Lords were not referred to the old cases but to the cases where directors are empowered in their discretion to refuse a transfer of shares, such as Re Gresham Life Assurance Society, Ex parte Penney. The House were disposed to accept this analogy and hold that, if the committee of the Stock Exchange were to act arbitrarily or capriciously, the courts could set aside their decision".
- At pages 646-7 he continued:
"When an association, who have the governance of a trade, take it upon themselves to licence persons to take part in it, then it is at least arguable that they are not at liberty to withdraw a man's licence – and thus put him out of business – without hearing him. Nor can they refuse a man a licence – and thus prevent him from carrying on his business – in their uncontrolled discretion. If they reject him arbitrarily or capriciously, there is ground for thinking that the courts can intervene".
- Salmon LJ made observations to similar effect at p.653:
"Quite apart from social clubs, there are monopolistic associations, such as trade unions, the Stock Exchange and the Inns of Court which control certain trades or spheres of human activity in which no man can earn his living unless he is admitted to membership of the association. In such cases the question arises as to a man's right to work or, more precisely, his right not to be capriciously and unreasonably prevented from earning his living as he wills. There is no doubt that such associations may lay down such minimum qualifications for admission as they in their discretion consider necessary for the protection of the public and for the protection of their trade or profession, Rex v. Askew. Nor do I think they need ascribe any reasons for refusing to admit any candidate. If, however, it can be shown from the reasons which they may give, or from other sources, that a candidate has been capriciously and unreasonably refused admission, it is certainly arguable that the law will intervene to protect him: see Weinberger v. Inglis ….".
- Both judgments envisage a test of "capriciousness" as the threshold of judicial intervention, an approach which recognises the primacy of the association's own decisions as to the rules applicable to actual or would-be members, whilst recognising that such associations, even as regards their internal affairs, are still subject to the requirements of public policy.
Lewis v. Interflora
- Lewis v. Interflora (Ftda) Bu Limited [1990] E.C.C. 178 was an action brought by two members of a company limited by guarantee which operated as a non-profit making co-operative for florists ("Interflora"), through which orders for the delivery of flowers placed with one member could be fulfilled by another operating in or near the place of delivery. To become members of Interflora, florists had to pass exacting standards, and there was a power of expulsion of members who had committed acts likely to be detrimental to the good interests of Interflora, its aims or objects. The Articles of Association were amended to provide that if a member joined or became affiliated to any rival flower relay organisation, the member would be deemed to have withdrawn from the association. The plaintiffs joined a rival organisation, and issued proceedings to prevent Interflora acting on the relevant provision of the articles, which they contended was an unlawful restraint of trade.
- Vinelott J. analyses the issue of restraint of trade in the following terms:
"[11] The principle that a provision which interferes with the liberty and freedom of the subject in his trade or business, or the legitimate use and enjoyment of his property, is void as a restraint of trade unless it is reasonable in the interests of the parties concerned, and is not injurious to the public interest, applies to a provision which forms part of the constitution and rules of a co-operative society as well as to any other contract. On the other hand, the court will be slow to interfere on this ground with the constitution and rules of a co-operative society (whether a corporate body or an unincorporated association) which has been freely entered into by the members and which the members are free to alter, and which binds them only as members and which they are free to leave. Both the principle and its application to a co-operative society are well illustrated by the decision of the House of Lords in Mcellistrim v. Ballymacelligott Co-Operative Agricultural and Diary Society Ltd. In that case the respondent society carried on the business of manufacturing cheese and butter for sale from milk provided by certain of its members. The society bound itself to take all milk produced by members' cows kept within a defined area at the price fixed by its committee. The rules provided (rule 6, sub-rule 2) that no member with milk to sell, being the produce of cows within the defined area, should, without the consent of the committee, sell the produce of any other creamery or butter producer...
[12] It was held in the House of Lords by a majority (Lord Parmoor dissenting) that rule 6, sub-rule 2, in conjunction with rules 16 and 21, was unlawful as a restraint of trade. ... However, all their Lordships (including Lord Parmoor) expressed the view that, in the words of Lord Finlay:
`If a member could cease to be a member at his pleasure there would be no ground for complaint. No-one can say that it would be unreasonable that it should be one of the conditions of membership that while a man chooses to remain a member he should supply his milk to the society and to no other dairy company.'
[13] So also in English Hop Growers Limited v. Dering, an agreement between the members of the association to deliver all hops grown on land owned by him during 1926 to the association, and which was conditional upon a scheme for the purchase of hops for resale by the association, being agreed to by 90 per cent. of all hop growers, except brewers, was held not to be void in restraint of trade. Romer J., observed that the agreement had been entered into in pursuance of a scheme to be put into operation for the benefit of all hop growers, and that 95 per cent. of all hop growers, except brewers, had entered into similar agreements, said:
`It is they who are the members of the society that in each case is the other party to the contract. How in these circumstances it can be said that the contracts are unreasonable as between the society and the member in question passes by comprehension. It may be safely assumed that this large body of hop growers knew their own business best and what was reasonable to do in the circumstances with which they were confronted.'"
- In this regard, it is relevant that the rules of an association have a dynamic quality which is absent from many other sets of contractual terms such as the terms of an employment contract regulating the post-employment conduct of an employee, or those which regulate post-sale competition in a contract for the sale of a business. It is open to the membership of the association or the relevant bodies to revise those rules if their practical operation identifies issues or areas for improvement or if prevailing sentiment with regard to the appropriateness of the rules changes.
Conclusion
- From this survey of the authorities, I draw the following conclusions:
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.
- It will be apparent that there is some overlap between the second and third of these principles, both being contexts in which there is a significant judicial deference to the terms of the parties' bargain, but where sufficiently extraordinary or egregious provisions may nonetheless have the result that the relevant term is unenforceable as an unlawful restraint of trade.
(B) The issues which arise if the restraint of trade doctrine applies in its full rigour
- If the restraint of trade doctrine applies in its full rigour, then the issues which arise are conveniently summarised in Kamerling & Goodwill, Restrictive Covenants under Common and Competition Law (6th, 2010) at page 2:
i) First, is there 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?
ii) Second, if so, is the restraint reasonable as between the parties?
iii) Third, is the restraint reasonable in the public interest?
- It is clear that the onus of establishing that a restraint is reasonable as between the parties rests on the party relying on it, while the onus of establishing that a restraint which is reasonable between the parties is nonetheless contrary to the public interest rests upon the person alleging a restraint of trade: Esso Petroleum [196] 1 A.C. 266 at 319D-F (Lord Hodson). It is also clear that for a restraint to be reasonable as between the parties, it must afford "no more than adequate protection" to the party in whose favour it is imposed or extend "no wider than is required for the adequate protection of the person in whose favour it is created": Herbert Morris Ltd. v. Saxelby [1916] 1 A.C. 688 at 707 per Lord Parker of Waddington.
(9) Analysis and conclusion
(A) The relevant contractual framework
- There was some debate before me as to the precise contractual status of the Code of Conduct, both as between arbitrators and the ICA, and between arbitrating members of the ICA. While it would have been possible to address this issue more directly, I have concluded that the position is as follows.
- Byelaw 304(6) provides that:
"By accepting appointment (whether by a party or by [the ICA]) an arbitrator binds himself to the Association to act in accordance with the Byelaws and Articles".
- Article 23 of the Articles of Association contains a power to discipline members of the ICA who break "Any Article, Bylaw or Rule" or who have "done, or omitted to do, any act, matter or thing whereby he or it may have rendered himself or itself liable to punishment or penalty under the provisions of the next following Article". By Article 24.1.5, this includes "acting in any manner in contravention of the Arbitrators' Code of Conduct". On this basis, I am satisfied that by accepting an arbitral appointment, an arbitrator binds himself as a matter of contract to comply with the Code of Conduct (subject, of course, to the question of whether the terms of that contract are enforceable in law).
- So far as the arbitrating parties are concerned, the standard ICA arbitration clause provides:
"All disputes relating to this contract will be resolved through arbitration in accordance with the Bylaws of the International Cotton Association Limited. This agreement incorporates the Byelaws which set out the Association's arbitration procedure".
- The effect of this provision, therefore, is that the parties have contracted for their dispute to be resolved by a process of arbitration under which the arbitrator has agreed to comply with the Byelaws and Articles, which agreement binds the arbitrator to observe the Code of Conduct. That obligation owed by the arbitrators forms part of the contractual framework for the parties' agreement to arbitrate, giving each arbitrating party the confidence that not only their own party-appointed arbitrator, but also the other party-appointed arbitrator and the chair, are bound to act in accordance with the Code of Conduct.
(B) Does the doctrine of restraint of trade apply to the 3 and 8 rule?
Is being an ICA arbitrator a trade?
- The ICA took a preliminary point that the doctrine of restraint of trade did not apply in this case because there was no relevant trade or profession of being an ICA arbitrator. I do not believe that there is anything in this point. It is clear that an individual can (and many do) earn their living through providing services as professional arbitrators, and that this is fairly described as a trade or profession for the purposes of the restraint of trade doctrine if otherwise applicable.
- Mr Croall QC submitted that:
"A trade or profession (or even a calling) is defined by the activities in which the participant is engaged and the skills of the role. So a trade may be of a pharmacist, or a florist or even perhaps an arbitrator. It is not ordinarily further defined by reference to the precise context in which an individual has chosen to ply that trade".
- I reject this argument. Mr Aldcroft is clearly entitled to describe himself as an arbitrator specialising in cotton disputes, or even a cotton industry arbitrator. In circumstances in which 80-85% of the world's international raw cotton trade is conducted on ICA terms, it is clearly open to Mr Aldcroft to say that limitations on his ability to act as an ICA arbitrator restrict that trade.
- Mr Croall QC also objected that if Mr Aldcroft's trade was that of an "ICA Arbitrator", that meant nothing more than being an arbitrator under arbitrations conducted on ICA terms. On this basis, he submitted that inherent in the definition of the trade which Mr Aldcroft said he was being restrained from pursuing was whatever limits applied to ICA arbitrators from time-to-time. However, once it is recognised that Mr Aldcroft's trade can fairly be characterised as that of an arbitrator specialising in cotton disputes, this argument leads nowhere. It is possible properly to define Mr Aldcroft's trade in terms which exist independently of the ICA rules applicable to those arbitrating on its terms from time to time.
Does the doctrine of restraint of trade apply to the rules of an arbitration institution regulating an arbitrator's right to accept appointments on the association's terms?
- The suggestion that the doctrine of restraint of trade applies to the rules of an arbitration institution regulating the right of arbitrators to accept appointments on that association's terms is, at first sight, a surprising one. Both parties accepted that there had never been any previous suggestion that the doctrine applied to the contracts constituted by rules of this kind.
- As Mr Croall QC pointed out, the key relationship so far as the provision of an arbitrator's services are concerned is that between the arbitrator and the arbitrating parties. When parties agree to arbitrate on the basis of the rules of a particular arbitration institution, that may well impose limits on who is able to accept an appointment as arbitrator, unless the parties agree to vary such a requirement. For example, in the case of the LCIA, the effect may be to preclude the appointment of a sole or presiding arbitrator of the same nationality as the parties (Article 6(1) of the LCIA Rules); Rule 3.4 of the GAFTA Rules restricts arbitrators to members or the employees of members of GAFTA who are or have been engaged in the trade; and the ICA itself requires arbitrators to have 5 years' experience in the cotton industry. Equally the terms of the parties' contract may restrict the pool of potential arbitrators to "commercial men" (cf. Pando Compania Naviera S.A. v. Filmo SAS [1975] Q.B. 742), practising Queen's Counsel or members of a particular religious or cultural group (cf. Hashwani v. Jivraj [2011] UKSC 40).
- This last decision evidences the great reluctance of the Court to interfere in matters concerning the requirements which arbitrators must meet in order to be eligible for appointment. Lord Clarke of Stone-cum-Ebony JSC stated at [61]:
"One of the distinguishing features of arbitration that sets it apart from proceedings in national courts is the breadth of discretion left to the parties and the arbitrator to structure the process for resolution of the dispute. This is reflected in section 1 of the Arbitration Act 1996 which provides: `the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest'. The stipulation that an arbitrator be of a particular religion or belief can be relevant to this aspect of arbitration".
- In my view, Mr Croall QC is entitled to submit that not only is there no case law which suggests that the relevant contracts here are a class of contract to which the doctrine of restraint of trade should apply, but that the policy recognised by s.1 of the Arbitration Act 1996 points positively against this being the position.
- Mr. Woolgar accepted, with a degree of forensic understatement, that if the 3 and 8 rule had formed:
"part of the eligibility criteria for appointment, then, having regard to the importance which English law places on party autonomy in arbitration (as acknowledged, for example, in section 1(b) of the Arbitration Act 1996) and the importance which English law attaches to upholding contractual bargains, it might have been that [Mr Aldcroft's] complaint that the "3 and 8 rule" is unenforceable as an unreasonable restraint of trade would have been less straightforward".
- However, this distinction attaches too much significance to the particular mechanism by which the 3 and 8 rule was introduced (whether as an amendment to the Code of Conduct or as a rule). I have concluded at section (9)(A) above that the arbitrator's obligation to comply with the 3 and 8 rule formed part of the contractual framework between the arbitrating parties. Part of the package to which those agreeing to arbitrate their disputes on ICA arbitration terms sign up is the fact that those eligible to accept arbitration appointments on those terms are subject to the 3 and 8 rule. It is open to those parties, if they do not like the rule, to contract on other arbitration terms, or to vary the arbitration provisions after a dispute has arisen.
- Further, it is significant in the present context that the 3 and 8 rule only impacts on those who have voluntarily become members of the ICA (and can leave), or those trading in cotton who have voluntarily chosen to contract on ICA terms, and who can as easily contract on other terms for their next transaction.
- This is not to say that there are no circumstances in which a provision in an arbitration institution's rules relating to the acceptance of appointment as arbitrators could be subject to the doctrine of restraint of trade. As I have set out above, it is always possible for a provision in a class of contracts not ordinarily subject to the doctrine to be so unusual and egregious that there "comes a point" when the doctrine applies. A provision, for example, by which any arbitrator accepting an appointment under the rules of an arbitration institution thereby agreed not to accept any appointment under the rules of any other association for some period might raise this issue. However, for reasons I explain below, the 3 and 8 rule does not come close to being such a provision.
(C) If the doctrine of restraint of trade applies to the 3 and 8 rule, is the 3 and 8 rule an unreasonable restraint of trade?
Did the 3 and 8 rule serve a legitimate objective of the ICA?
- I have concluded that the 3 rule was introduced to address concerns about, and to promote the perception of, arbitrator impartiality in ICA arbitration, and that this was a legitimate objective for the ICA to address, and a topic of general concern in the international arbitration community.
- I have also concluded that the 8 rule was introduced to address concerns about delay in rendering ICA awards, and to promote the expeditious resolution of ICA arbitrations, and that this was a legitimate objective of the ICA, and a topic of general concern in the international arbitration community.
- Mr Woolgar accepted that the issues of arbitrator impartiality and avoiding delay in rendering awards were legitimate objects for the ICA to address, but he submitted that these were not the interests which the 3 and 8 rule were seeking to protect:
i) He submitted that the 3 rule was not seeking to protect a legitimate interest (or promote a legitimate objective) about perceptions concerning the impartiality of arbitrators but "something narrower, namely the perception among users or prospective users of the ICA arbitration system that those arbitrators in its pool who accept more than 3 appointments from the same or a related party in the same calendar year are biased", and he submitted that the evidence established that there was no such perception.
ii) To similar effect, he submitted that the 8 rule was not directed at the objective of delay, but "something narrower, namely preventing the delays that occur when its arbitrators take on more than 8 appointments" in circumstances in which there was "no uniform correlation between the delays that can occur in the delivery of fair awards and the number of appointments each panel member holds".
- These submissions confuse the identification of the legitimate objective with the precise means adopted to promote that objective. Parties who agree on the former might well hold different views as to how best to achieve those objectives, but that would not mean they were seeking to advance different objectives. By way of example, the ICA has a legitimate objective of ensuring ICA arbitration disputes are resolved by arbitrators with sufficient knowledge of the trade. It has sought to address this objective through the requirement that ICA arbitrators have at least 5 years' experience in the cotton trade. It would be wholly wrong, in my view, to suggest that the 5 year rule is not intended to promote the objective of ensuring arbitrators have the requisite experience, but a narrower concern of the lack of sufficient experience on the part of arbitrators who had worked for less than 5 years in the cotton trade.
Were the 3 rule and the 8 rule reasonable as between the ICA and Mr Aldcroft, and reasonable in the public interest?
- I have taken these two issues together. There are many contexts in which there will be a distinct private and commercial interest on the part of one party to the contract (for example that of the purchaser of a business concerned about competition from the seller, or an employer concerned at the loss of custom or the leaking of commercially valuable information when an employee moves on), which merits separate consideration from the wider question of public interest. However, such a distinction is less readily applicable to the ICA's interests in relation to the 3 and 8 rule, of promoting the perceptions of impartiality of its arbitration process, and addressing concerns about delay and promoting the efficient resolution of ICA arbitrations.
- For the reasons I have set out in section 8(A) above, decisions of the ICA, when validly taken in accordance with the applicable procedures, as to the conditions which apply to the appointment of arbitrators to arbitrations on ICA terms, should only be susceptible to judicial intervention where they fall outside the range of decisions reasonably open to the ICA for the purpose of meeting its legitimate objectives.
- In relation to both of the objectives which the ICA was seeking to address, there are a range of possible means of pursuing those objectives, each with their own advantages and disadvantages. As I have indicated, there is no unanimity as to how best to address these issues within the international arbitration community. The particular mechanisms adopted by the ICA fall well within the range of reasonable options open to them for the purpose meeting the legitimate objectives I have identified.
- Mr. Woolgar addressed a number of criticisms of the two rules with which I should deal.
- In relation to both rules, he submitted that:
i) The ICA had not carried out any empirical analysis of complaints about bias or appearance of bias and whether they correlated with one arbitrator accepting multiple appointments on behalf of the same party, or about delays in the production of awards, and whether this correlated with one of the arbitrators being involved in a certain number of concurrent arbitrations.
This criticism involves wholly unrealistic assumptions both as to the resources which the ICA could or could reasonably be expected to commit when considering revisions to its rules, and the volume and quality of data which could be obtained. In any event, as I have found, the ICA in pursuit of its objects was entitled to seek to anticipate potential problems, whether or not they had manifested themselves in complaints to date, and to take steps to communicate to potential users of the ICA arbitration scheme and ICA arbitrators the importance the ICA attached to the impartiality of arbitrators and the expeditious resolution of arbitrations.
ii) The rules made no allowance for linked cases with a connected subject matter or connected parties which the parties might want to be tried by the same panel. There is a power to order consolidated or concurrent hearings under Byelaw 307b of the ICA arbitration rules, and Mr Woolgar submitted that it was not clear whether cases subject to such an order would count as one or more than one arbitration for the purposes of the 3 and 8 rule.
I accept that it is possible for scenarios to arise in which the issue of whether consolidated arbitrations, or those ordered to be heard concurrently, count as one or more than one arbitration for the purposes of the 3 and 8 rule could be material, although I heard no evidence as to how likely it was that this would occur. The ICA's position before me was that where an order was made for a consolidated or concurrent hearing, this would be treated as a single reference for the purposes of the 3 and 8 rule. That is, with respect, a sensible approach to the rules, and one which sufficiently addresses the issue Mr Woolgar raised. In any event, an issue of this kind is one which the ICA is entitled to address after seeing how the 3 and 8 rule operates in practice, and whether and how frequently the issue arises. It does not render either rule unreasonable.
iii) The rules were not in the public interest because they undermined party autonomy in arbitration.
Once again, this is an issue on which reasonable differences of view are possible. A number of arbitral institutions only permit institutional appointments: for example the Refined Sugar Association (Rule 9), the Sugar Association of London (Rule 409) and the Federation of Coca Commerce Ltd. (Rule 2.4). The approach adopted by the ICA, of preserving party autonomy within defined limits, was one of the options reasonably open to it.
- In relation to the 3 rule, he submitted that:
i) Disclosure of prior appointments by one of the parties would have been a more proportionate response, leaving it to the other party to mount a challenge either with the President of the ICA (who could them remove the arbitrator under Byelaw 305.3) or the court under s.24 of the Arbitration Act 1996.
That is certainly one possible means of seeking to address the issue of a perceived bias resulting from repeat appointments. However, it does carry with it the possibility of a greater number of pre-arbitration disputes about particular arbitrators, which would require time and resources to resolve, and into which the President would be drawn, as well as a risk of lingering discontent by a party who makes a challenge unsuccessfully. The ICA is an organisation with a relatively small administrative staff. The President is someone involved in the same trade as the arbitrating parties. I do not feel able, as Mr Croall QC invited me to do, to find that if a disclosure rule had been introduced, it could not "safely" be assumed that ICA arbitrators would comply with it. This issue was never tested, and I do not think the fact (which I do find) that there was no practice of such disclosure in the absence of a rule provides a basis for inferring that a rule requiring disclosure would not have been followed. However, I do find that the ICA, through its duly appointed organs, was entitled to reach its own view as to which of the various alternative approaches best served this objective, provided the resulting decision falls within the range of rational responses, as I have found it did.
ii) The rule could not be reasonable because it could require an arbitrator to turn down an arbitration appointment in circumstances in which the Court would not remove that arbitrator under s.24(1) of the Arbitration Act 1996.
I reject the argument that an arbitration institution acts outside the range of options reasonably open to it to promote perceptions of arbitrator impartiality if it imposes restrictions on the appointment of arbitrators which are stricter than those which would justify the removal of a validly appointed arbitrator by the court. An arbitration institution may legitimately wish to reinforce the confidence of users in the impartiality of arbitral institutions by adopting stricter standards than those applied by the court on a removal application, or do so to reduce the possibility of disputed challenges even if they would not succeed or because of risks which might arise in enforcement jurisdictions. I note in this regard that Leggatt J. in Guidant LLC v. Swiss Re International SE [2016] EWHC 1201 (Comm), while recognising the importance of party choice of an arbitrator at [8], found at [9]-[10] that concerns by one party about the prior involvement in related arbitrations of a proposed chair of two arbitrations were a legitimate reason for the Court not to appoint that person under s.18(3)(d) of the Arbitration Act 1996, even though they would not have been grounds for removing the arbitrator if already appointed.
iii) The rule did not distinguish between arbitration appointments which culminated in a substantial hearing, and those which do not.
I find that it was reasonably open to the ICA to conclude that it is the fact of repeat appointments which raised concerns as to arbitral impartiality, rather than the duration of the resultant arbitrations which might depend on any number of factors. The IBA Rules, so far as disclosure of prior arbitration appointments is concerned, do not distinguish between appointments dependent on the duration of the arbitration, and there would, of course, be issues as to how long an arbitration would have to continue before it would count for the purposes of the rule.
iv) Mr Woolgar complained that the 3 rule was the result of a compromise between those who wished to address the risk of an appearance of bias in party-appointed arbitrators by making all appointments institutional, and those who valued party-autonomy in arbitrator appointments. He complained that "a compromise between diametrically opposing views in order to quell disagreement internally is not a legitimate objective for a restraint of trade".
I accept that the 3 rule did emerge as a compromise proposal between differing view-points, something which Mr Welsh confirmed in his evidence. As he put it, "at the ICA there are often different opinions, and we have to try and find a solution that will satisfy both sides of the line". However, I reject the suggestion that this somehow invalidates the ICA's decision as to how best to achieve a legitimate objective, or renders the decision unreasonable. In associations of members, professional bodies and societies, the precise terms of a rule promulgated to promote a particular objective will often emerge from a process in which different views have been held and expressed, and consensus emerges as to a proposal which accommodates those differing views.
v) Finally, Mr Woolgar pointed out that the "Pool of Chairman" had been content to adopt a 5 rule for repeat appointments on 27 September 2013, and that in these circumstances, it could not be credibly said that the achievement of the ICA's objectives required a 3 rule such a short time later.
It is clear that there was ongoing debate within the ICA on the issue of how best to address concerns about the perceived lack of impartiality of arbitrators, which received renewed impetus following Dr Townsend's paper in October 2013. Consideration within an association of members as to how best to achieve its objects is, as I have noted, a dynamic process. The fact that modifications are made to the rules over time does not provide a basis for concluding that earlier or later formulation of rules which impact on a member's ability to trade are necessarily unreasonable.
- In relation to the 8 rule, he submitted:
i) Delay in producing awards could be reduced by removing arbitrators under Byelaw 305.3 if no award was produced within 8 weeks of the close of submissions.
That is an approach which is likely to generate delay, rather than reduce it, as a new tribunal would have to be appointed to resolve the dispute. Certainly it cannot be said to be an option so obviously superior to the 8 rule that the Court should substitute its own view as to how to meet the ICA's objective for that of the ICA.
ii) The 8 rule did not apply to appeals to the TAC, but only to First Tier Arbitrations.
All arbitration appointments to the TAC are made by the President of the ICA, and the evidence before me was that the number of arbitrations an arbitrator was currently involved in was a matter taken into account when determining who to appoint. I was told that there had been only one TAC constituted during 2016, although there had been more (8 to 10) in previous years. In these circumstances, I reject the submission that the exclusion from the 8 rule of TACs, or the effect of that exclusion on the 8 rule, takes the 8 rule outside the range of decisions reasonably open to the ICA as a means of promoting its legitimate objective.
iii) Where delay in producing the award is the responsibility of one arbitrator (for example the chair who ordinarily writes the award), the effect of the 8 rule may be to prevent the other arbitrators from accepting appointments.
It is clear that all the arbitrators share responsibility as a tribunal for deciding an arbitration, and for discharging the obligation under s.33(1) Arbitration Act 1996 to avoid "unnecessary delay and expense". Each arbitrator is required to contribute to the decision-making process. If one member of the tribunal is causing delay, it is open to the others to raise this issue with him and indeed to give feed-back on this issue to the ICA Arbitration Secretariat. In these circumstances, I find that it was reasonable for the ICA to seek to address concerns as to delay in the production of awards by a rule which applied to party-appointed arbitrators, in circumstances in which the ICA itself could consider the commitments of potential chairs when exercising its power of appointment.
iv) The rule might apply to arbitrations which were "on hold" at the parties' request, with the result that an arbitrator might be precluded from accepting arbitration appointments by arbitrations which were "on hold", or find himself in breach of the 8 rule when an arbitration which was previously "on hold" was reactivated.
There is a process in ICA Arbitration whereby the parties can request, the Secretariat to put the arbitration "on hold" for a period while the parties seek to resolve their dispute. The ICA, through Mr Croall QC, conducted its case on the basis that the 8 rule was a rule concerned with arbitral appointments and was not breached merely because an "on hold" arbitration which came back to life took an arbitrator over the limit. I agree that this is how the 8 rule falls to be interpreted, because the relevant section of the Code of Conduct begins with the words "an arbitrator must accept an appointment to act only if he has sufficient time to allow the arbitration to be conducted". On this basis, the criticism Mr Woolgar made of the possible operation of the 8 rule does not arise. In any event, an issue of this kind is one which the ICA is entitled to address after seeing how the 8 rule operated in practice, and whether and how frequently the issue arises. It does not render the 8 rule unreasonable.
How realistic was it for Mr Aldcroft to accept appointments on other arbitration rules?
- One of the matters on which the ICA relied as part of its case that there had been no restraint of trade, or that any restraint of trade was reasonable, was the suggestion that it was possible for Mr Aldcroft to obtain arbitration appointments on the arbitration rules of other cotton associations, other commodity associations or under more general arbitration rules.
- On the conclusions I have reached, it is not necessary for me to make findings on this issue, because it does not affect my conclusion that the doctrine of restraint of trade does not apply to the 3 and 8 rule, and, if it does, both limbs were intended to achieve legitimate objectives of the ICA, and did not fall outside the range of options reasonably open to the ICA to achieve those objectives.
- However, as the point was argued, I set out my findings on these issues. I accept that Mr Aldcroft's particular expertise is as a cotton arbitrator, and I do not think the possibility of him obtaining appointments in other types of disputes is sufficiently realistic to preclude a finding of restraint of trade had one otherwise been warranted. Similarly, while there are other cotton associations with arbitration rules, the evidence before me was that the overwhelming majority of international cotton was carried on ICA terms, and that it would have been very difficult for Mr Aldcroft to establish any significant volume of appointments as arbitrator whether under the rules of other international cotton associations or in relation to domestic arbitrations.
- While the options open to him were not quite as bleak as those facing Mr Eastham, who was left only with the possibility of pursuing a career as a professional footballer in Australia (Eastham v. Newcastle United Football Club Ltd & ors [1964] Ch. 413), I find that the 3 and 8 rule did have a significant effect on Mr Aldcroft's ability to work as an arbitrator in cotton disputes.
(9) Conclusion
- It follows that Mr Aldcroft is not entitled to the relief he seeks, and that his claim is dismissed.
- I will hear the parties on any consequential orders which follow from this Judgment.
