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Cotton trade arbitration requests dive at ICA in 2013
09
Jan '14
At the year-end stage, the International Cotton Association (ICA) received 76 requests for arbitration, a marked reduction compared to the record high of 247 requests received in 2012.

As the market returns to a level of stability following the volatility of previous years, these latest results see a return to ‘normal’ operating conditions at the ICA, but even though arbitration requests are now reducing, the previously high volumes have resulted in an increase in the number of firms on the ICA’s List of Unfulfilled Awards, more commonly known in the industry as the ‘default list’. One hundred and six firms were added during 2013 taking the total up to 662, with the majority of 2013’s defaults coming from China (40).

The ICA also reports an increase in the value of arbitration awards - up from a pre-2008 average of around $300,000 to $1.1m, a situation that has seen a corresponding rise in the number of appeal hearings at the ICA, with 30 appeals published during 2013 compared to a yearly average of 13.

“We would love to see the number of arbitration requests continue to drop and the length of the ‘default list’ reduce,” says ICA President, Mohit Shah. "Our vision is to see zero arbitrations, with all contracts being honoured and all disputes being settled amicably.

This can only be achieved if the entire cotton community works together and contracts are respected. There should be no room or tolerance towards anyone who trades with a defaulter. This to me is paramount and it must always remain in the forefront within our industry circles if we are to maintain cotton’s global prominence.”

During 2013 the focus for the ICA was firmly on deterring defaulters, improving its arbitration process and award enforcement. This strategy will continue during 2014, as Mohit explains: “Our Business Intelligence Team continues to put the spotlight on firms that are using ‘dishonourable’ trading practices. It is still early days, but there is evidence that this approach is working and acting as a deterrent.

“Significant progress has been made on improving our global arbitration process. The biggest change has been the introduction of our new pool of chairmen - 11 of our most experienced arbitrators that make up our ‘Arbitration Strategy Committee’ and are now responsible for the conduct and efficiency of arbitrations, writing awards, mentoring new arbitrators, sharing best practice and chairing tribunals and appeals.

“We are already seeing positive results, for instance the average cost of an arbitration has stabilised, now at GBP £5,417 and, by introducing an automated document management system to speed up the process, our next goal is to reduce the time taken to complete arbitrations, which currently stands at an average of 237 days.

“Undoubtedly, one of the major challenges we face, is around the enforcement of awards. To help parties enforce ICA awards in jurisdictions around the world, enforcement working groups are now in place for China, India, Pakistan, Bangladesh, Indonesia and Thailand.

"Each group will have local knowledge in specific jurisdictions to help us effectively engage at a diplomatic level and enable us to share enforcement information and best practice to our members. Other groups will follow and I truly believe that this way of working will have a major, positive impact on the industry over the coming years.”

International Cotton Association (ICA)

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