Arbitration has a number of advantages over time-consuming, expensive litigation.
Life sciences projects tend to give rise to collaborative, complex, and long-term relationships, often involving multiple jurisdictions that require a large number of contractual arrangements to govern disparate sets of commercial agreements.
These cross-border partnerships are often highly technical and, at their heart, will have valuable intellectual property (IP) rights.
Although parties will start out their relationship with a common goal, their expectations and circumstances may diverge and change over time, providing fertile ground for disputes to arise.
When that happens, arbitration can be an attractive and preferred option for resolving disputes, reflecting both the increasingly cross-border nature of transactions being done in the industry, and the desire to keep valuable IP and commercial contracts confidential.
WHAT IS ARBITRATION?
Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to a sole arbitrator or an arbitral tribunal, who will make a final and binding decision, known as an “award”.
Although the procedure is adversarial, it has marked differences from litigation.
In choosing arbitration, for example, the parties opt for a private dispute resolution procedure instead of commencing proceedings in the respective parties’ courts.
Most notably, however, arbitration awards are not appealable except on very limited procedural grounds, such as lack of jurisdiction or a violation of due process.
This not only reduces the scope for prolonged proceedings through appeals, but also provides the parties with certainty.
Importantly for businesses that operate on a cross-border basis in the Life Sciences sector, arbitration awards are easier than court judgments to enforce globally owing to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).
The New York Convention, through its 168 signatories worldwide who have agreed to enforce awards in its jurisdiction, provides a uniform and effective system for successful parties to enforce awards issued by Tribunals based in another signatory state.
Notably, at the time of writing, there is no equivalent widely adopted international treaty for the enforcement of court judgments.
In order for a court judgment to be enforced cross-border, the judgment creditor must first register the foreign judgment before enforcement steps are taken.
Arbitration will not always be appropriate where IP is involved.
By their very nature, IP rights are local—there is no blanket worldwide registry—so in order to gain protection globally, companies must register a trademark in every region of the world.
Where the validity or ownership of IP is at issue, arbitration will not provide the proper forum for dispute resolution, as generally only local courts are empowered to determine these questions.
However, in the right type of case, arbitration may certainly be very advantageous.
ADVANTAGES OF ARBITRATION
International Enforceability of Awards
International arbitration awards tend, overall, to be easier to enforce internationally than court judgments.
This is a critical advantage in multi-jurisdictional disputes, avoiding the risk of non-recognition by one jurisdiction’s court of a judgment rendered by the courts of another country.
Arbitrations are generally confidential, a major advantage in the life sciences industry where commercially sensitive IP may be involved.
Court proceedings generally take place in public and, in some cases, generate extensive media attention.
Parties are free to select, by agreement, the arbitrator(s) to preside over the dispute.
Given the technical subject matter that is associated with life sciences work, the parties can select an individual or tribunal with the requisite industry knowledge and experience, which may provide greater certainty of outcome.
This expertise cannot be guaranteed in national court proceedings, where judges are often allocated cases suited to the court’s list of cases to be heard, and may have little or no understanding of the technical issues.
Along with the election of the arbitrator(s), the parties will often agree for the dispute to be seated in a neutral venue to ensure there is no risk of any bias towards either party from a national court.
Given that commercial life sciences disputes vary appreciably, no one procedural approach can always appropriately address them all.
Arbitration gives the parties considerable flexibility and control about how the dispute should be run.
Unlike in the courts, where there are rigid procedural rules that govern disputes, the nature of arbitration allows the parties and tribunal to adjust the procedure to the requirements of their specific dispute.
Time and Cost Efficiency
Arbitration can be more time and cost efficient than litigation thanks to the option to tailor the procedure to the needs of the dispute.
Increasingly, arbitral institutions are offering expedited proceedings for smaller value disputes, with requirements that an award to be issued in a matter of months.
Arbitral awards are generally final and binding, and not subject to appeal on the merits of the dispute, thus minimising the risk of costly appellate stages.
EFFECTIVE ARBITRATION CLAUSE
In order for parties to be able to refer their dispute to arbitration, they will need to agree an effective arbitration clause when drawing up the initial contracts to a deal.
No one dispute is the same and, although the main arbitral bodies provide model clauses to incorporate, these will need to be adapted to the specific requirements of the parties and the transaction in question.
Key points that should be agreed in an arbitration clause include
- The venue of the arbitration (also known as the “seat”), the arbitral institution, and the governing law
- The language to be used in the proceedings
- Any selection procedure for the arbitrator(s), including any experience requirements if desirable
- Any bespoke procedural requirements deemed necessary g., confidentiality, rules around disclosure/discovery, and time limits for exchanges of pleadings or for the delivery of an award
- The ability for the parties to consolidate related disputes if multiple parties are involved
- Tiered/escalating procedures that may require parties to negotiate or mediate before going to arbitration.
Given that the circumstances of each deal will differ, it is always sensible to seek specialist advice when drafting an arbitration clause in order to avoid common pitfalls.
At best, a defective arbitration clause may delay the commencement of the arbitration.
At worst, it may prevent the parties from being able to arbitrate their dispute at all, condemning them to using national courts in order to resolve the dispute, which is the very thing that they were seeking to avoid by agreeing to arbitrate.
Adam Abbott also contributed to this article.