Reed Smith Client Alerts

Whether arbitrations are administered or ad hoc, parties within certain industry sectors will often require disputes to be resolved by arbitrators from panels of professional associations, such as GAFTA, FOSFA, LMAA or the SCMA.

In the recent case of Aldcroft v The International Cotton Association Ltd [2017] EWCH 642 (Comm), the High Court considered whether the ICA’s ‘3 and 8 rule’ (which sought to limit repeat appointments and active cases per arbitrator, respectively) was unenforceable as an unreasonable restraint of trade.

The case raises issues regarding the risk of perception of bias, party autonomy and delay in the determination of arbitral references and will be of interest to industry associations promoting arbitration and the arbitration community in general.

Autores: Jody Wood

The Facts

Mr Aldcroft began working in the cotton industry in 1958 and sitting as an arbitrator for the Liverpool Cotton Association (as it was then known) in the 1970s. By the 1990s/early 2000s Mr Aldcroft (a past president of the ICA) had increased his arbitration practice and at one time sat on around 50 per cent of all ICA arbitration references.

At the time the case was brought, Mr Aldcroft was one of only 27 arbitrators listed on the ICA’s website, described as a “technical and quality” arbitrator, determining disputes arising out of trades carried out under the bylaws and rules of the ICA.

In September 2014, the ICA introduced the 3 and 8 rule into its arbitrators’ code of conduct. This stated that:

“In order to avoid the perception of bias, impartiality or justifiable doubts, an arbitrator may only accept up to and including three appointments for a party or related party to act as arbitrator from a claimant/appellant or respondent, per calendar year. An arbitrator should not be able to have more than 8 active first tier cases open at any one time.”

As is evident from its wording, the 3 and 8 rule contained two limbs, each with an independent objective:

  • Firstly, in order to avoid a “perception of bias, impartiality or justifiable doubts”1, the 3 rule restricted an arbitrator to accepting only three appointments for the same or a related party during a calendar year.
  • Secondly, in order to expedite determination of references and reduce delay arising out of a small number of arbitrators having a large number of appointments, the 8 rule restricted an arbitrator to having no more than eight active first tier cases open at any one time.

Since Mr Aldcroft acted in up to 25 arbitrations per year, the 3 and 8 rule was bound to significantly impact his ability to work as an ICA arbitrator, which, in turn, would affect his income. Mr Aldcroft therefore applied to the Court for a declaration that both limbs of the 3 and 8 rule were void and unenforceable as an unreasonable restraint of trade.

Mr Aldcroft put forward a number of practical and in-principle arguments criticising the 3 and 8 rule, including that the rule undermined party autonomy in appointment of arbitrators, failed to take account of ‘string’ arbitrations and was designed to re-distribute work from full-time arbitrators.

The ICA put forward a number of arguments in response, including that the doctrine of restraint of trade did not apply to the ICA bylaws & rules or the contracts of which they form part, and even if the doctrine did apply, the 3 and 8 rule was designed to further legitimate objectives of the ICA.

Mr David Foxton, sitting as Deputy High Court Judge in the Commercial Court, dismissed Mr Aldcroft’s case, finding, inter alia, that:

  • “Whilst the doctrine of restraint of trade may not be applicable to all classes of contracts, the rules of an association were not exempt”; and
  • “Notwithstanding, the Court should not intervene in rules which limited the activities of members in order to meet legitimate objects, which had been properly passed in accordance with the internal rules of governance and did not fall outside the range of decisions reasonably open to the body for the purpose of meeting those legitimate objectives”.