The way we conduct business across all industries and the way we all live our lives will no doubt be altered for years to come. There will inevitably be a number of disputes arising from the crisis across the sector which are unfortunately unavoidable. With the limited number of cases local courts across the world are able to accommodate remotely, there is likely to be a serious backlog of cases which courts will need to service before new cases can be dealt with. There are also likely to be disputes which are sensitive in nature which parties do not wish to be aired in the public domain.
Further, whilst the number of press inches dedicated to Brexit significantly reduced at the start of the pandemic, Brexit is now back at the fore and is a matter which businesses will need to contend with once the current crisis has subsided regardless of whether the transitional arrangements are extended past 31 December 2020 or not.
Accordingly, many businesses in the life sciences sector that do not usually adopt arbitration clauses in their commercial agreements are considering whether they should use arbitration as an alternative to court litigation.
What benefits could arbitration provide over court litigation in a post COVID-19 and Brexit world?
Many will be familiar with arbitration. But put simply, arbitration is a private form of dispute resolution. It allows parties to refer their dispute to an independent neutral tribunal to resolve. Arbitration is a creature of contract. All parties must agree in writing to refer their dispute to arbitration (whether at the outset of entering into a contract or at a later date).
Arbitration in the life sciences sector has been on the rise in recent years with many institutional arbitration centres such as the LCIA and ICC reporting that life sciences constitutes one of the most common industries in which they assist in resolving disputes. In addition, certain centres such as WIPO and JAMS have increasingly marketed themselves as being appropriate forums in which to resolve disputes in the biotechnology and pharmaceutical sectors and other life sciences sectors.
Whilst some seek to argue that arbitration has certain limitations, most will admit that it provides many benefits which court procedures cannot offer.
There are four benefits of using arbitration that may be of particular interest to the life sciences sector in a post COVID-19 and Brexit world.
1. Speed, flexibility and use of technology
Arbitration is a party led process which provides the parties with the flexibility to agree at the outset how their dispute should proceed. For example, parties are free to decide whether any dispute between them should be the subject of expedited proceedings. Some arbitration institutional rules already provide that claims of certain values will be subject to expedited procedures (eg the ICC Rules provide that disputes under USD 2m should be resolved within 6 months of the first case management conference unless the parties agree otherwise).
Arbitration has always been at the forefront of employing cutting edge technology to make the procedure more efficient and cost effective. For years it has not been uncommon for arbitration hearings to be conducted by video conferencing software where the law of the seat allows. That ensures that the cost, time and environmental impact of people having to travel to hearings can be limited and also helps minimise delays of when everyone can convene for a hearing.
For example, ICSID reported that about 60% of the 200 hearings and sessions it organised in 2019 were conducted by videoconference whilst the Seoul IDRC has already reported a 500% increase in demand for arbitral hearings to be conducted by videoconference technologies following the recent pandemic.
Following the recent crisis, many arbitral centres have been quick to adopt technology which allows for video hearings to be conducted effectively and efficiently. By way of example, the International Arbitration Centre in London provides a service that allows for hearings to be conducted by secure video-link which provides for private breakout rooms for parties and tribunals respectively. It also provides a decluttered screen focussed only on the tribunal, advocates and witnesses.
With UK courts unfortunately announcing in March 2020 that they were limiting the number of hearings being heard during the Coronavirus outbreak, there is likely to be a significant backlog of cases to be listed once the courts are fully functioning again. Arbitration should not impacted in the same way as there is a greater pool of arbitrators to select and parties are not confined by the limited number of court rooms and judges which courts can provide. That will ensure that there are no unnecessary delays to the arbitration process. Accordingly, arbitration is already being seen by participants in the market as an attractive alternative to court litigation for those that do not wish the resolution of their disputes to be delayed.
Another important factor and particular to those from European and North American economies expanding into new markets is that arbitration provides a forum to resolve disputes which will often be more familiar to them than agreeing to litigate disputes in a foreign court. Parties may also have the advantage of being able to rely on investment treaty arbitration provisions if certain acts such as expropriation occur and they have structured their participation in a new market through entities that are able to take advantage of such treaties.
One of the key benefits of arbitration is that it is generally easier to enforce arbitration awards across the globe than it is to enforce court judgments. More than 160 States are signatories to the New York Convention 1958 which requires courts of member states to uphold arbitration agreements and enforce arbitral awards, with limited exceptions. Whilst the UK has some similar arrangements in respect of its court judgments, they are not on the scale which the New York Convention provides for.
Further, post Brexit, the Brussels Recast Regulation will cease to apply in the UK. The position regarding how UK judgments will be enforced throughout the EU and vice versa remains uncertain and will depend on what arrangements the UK agrees with the EU once the transitional arrangements come to an end, such as whether the UK:
- will rely on the 2005 Hague Choice of Courts Convention and 2019 Hague Judgments Convention (if acceded to) or
- is permitted to become a member of the Lugano Convention. The UK formally applied to become a member on 8 April 2020 but recent reports on 27 April 2020 have indicated that the EU seek to reject the application although further details have yet to be provided.
No such uncertainty exists for the enforcement of arbitration awards under the New York Convention.
One of the major advantages of arbitration is that proceedings are conducted in private and are confidential. That means that the subject matter and the contents of a dispute should be kept out of the public domain. Court litigation, by contrast, is almost always conducted in public in order to allow for due process and transparency of justice.
Whilst the English Arbitration Act 1996 does not include a provision that parties to arbitrations are required to keep the existence of the arbitration confidential, English common law does dictate that it is an implied term of every arbitration agreement that the existence of the arbitration and the documents produced during the proceedings are to be kept confidential. That can only be fettered in limited circumstances. The privacy of arbitration can be important to parties in particular in the life sciences sector where parties often do not wish their sensitive, commercial and/or proprietary information to be disclosed to the public.
4. Skilled decision makers
Another major advantage of arbitration in comparison to litigation is the ability to select the tribunal who will determine the case. Parties can agree which independent experts will review and determine the key issues in dispute with the benefit of their existing appreciation of both the legal and commercial considerations at play, often gained over a long career in the relevant field. Arbitral institutions such as the AAA/ICDR now have lists of arbitrators that have specialist life sciences arbitrators reflecting the fact that specialist skills are needed in life science disputes.
Despite the benefits arbitration provides, parties in the life sciences sector can often prefer court dispute resolution clauses because they feel this provides better access to interim relief such as injunctions restraining a party from using it’s IP rights etc. Whilst many arbitral rules do now provide for emergency arbitrator procedures to secure interim relief, there is still uncertainty around how such emergency awards will be enforced in foreign jurisdictions. Further uncertainty has been added around the use of emergency arbitrators following decisions such as the English High Court decision in Gerald Metals v Timis ( EWHC 2327 (Ch)) where the UK courts rejected a party’s request for interim relief on the basis that they could obtain the relief requested from an emergency arbitrator. If that is of concern to parties, they can remedy this by stipulating in their arbitration agreements that a party can seek interim relief from the courts so that they can have the best of both worlds – ie they can have the benefits which arbitration provides whilst having the bite of court sanctioned interim relief if it is required.
The current crisis presents many unknown unknowns. It is still difficult to predict where we will be in six to twelve months from now. However, planning ahead will be key to any recovery. And dispute management should be part of that. Arbitration could provide many advantages to parties that wish to ensure any disputes they face are resolved as quickly as possible, in a confidential manner and resulting in an award they are confident they will be able to enforce.
Mark Davison will be joining a discussion of how international arbitration developed in the wake of previous pandemics and global events and whether the current pandemic will mark a sliding doors moment for international arbitration going forward.
The webinar will take place on Tuesday 30 June 2020 at 5.30pm BST / 12.30pm EST. To register, see here.