Arthur Aldcroft v The International Cotton Association Ltd
| Jurisdiction | England & Wales |
| Judge | David Foxton |
| Judgment Date | 30 March 2017 |
| Neutral Citation | [2017] EWHC 642 (Comm) |
| Docket Number | Case No: CL-2015-000814 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 30 March 2017 |
[2017] EWHC 642 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
David Foxton QC
(sitting as a Deputy Judge of the High Court)
Case No: CL-2015-000814
Dermot Woolgar (instructed by Stitt & Co.) for the Claimant
Simon Croall QC and Greg Plunkett (instructed by Hill Dickinson LLP) for the Defendant
Hearing dates: 20, 21, 22, 23 – 24 February 2017
Judgment Approved
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...
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Justifiable doubts questioning the repeat appointment of arbitrators
...that arbitrator by the same party. The recent English High Court case of Arthur Aldcroft v International Cotton Association Limited [2017] EWHC 642 (Comm) has raised a number of interesting issues in relation to the repeat appointments of arbitrators and the steps that are being taken by in......