Arbitration in Pharma Sector: Amendment of the LCAI Arbitration Rules, 2014 and it’s Importance in International Arbitration
The use of international arbitration has augmented over the years to include a wide range of sectors. While the majority of financial disputes still transpire in court, some of them are submitted to arbitration.
Life sciences giants often move out of their domestic markets in search of better growth opportunities in developed and emerging markets. Many of those developed and emerging markets already have their own pharma companies with significant annual revenues. For example, Mexico, Brazil, Russia, MEA REGION, India, Indonesia and South Africa all have pharmaceutical companies with revenue of USD 1 billion. The complex supply and distribution chains engaged by many pharma companies often extent multiple jurisdictions. Arbitration is well-suited for the settlement of disputes arising out of these types of complex, multi-jurisdictional agreements.
In 2015, 236 mergers and acquisitions between pharmaceutical companies were locked worldwide, for a total value of over USD 403 billion collectively. This is not only a good indicator of the potential future growth of the sector, but it may also lead to further disputes.
The complex cross-border nature of many of these mergers and acquisitions suggest that arbitration is possible to be used as a dispute resolution mechanism. The life science industry is already the fifth biggest contributor to LCIA’s caseload. It encompasses 15% of arbitrations and mediations sent to the World Intellectual Property Organization (WIPO), and various institutions (including the International Chamber of Commerce (ICC) and American Arbitration Association (AAA)).
In light of the same, the London Court of International Arbitration, on October 1, 2020, revised the LCIA Arbitration Rules 2014 (“2014 Rules”) and released the new amendments in the form of the LCIA Rules 2020 (“the 2020 Rules”).
The 2020 Rules have mended several important rules that give flexibility and efficiency in the arbitration process. The 2020 Rules recognize the increasing role of technology that plays in arbitration, due to the recent COVID-19 pandemic.
The key changes have been summarized below:
Science & Technology-Related Changes
A key feature of the 2020 Rules takes into account technological advances and has adopted a very proactive approach. The Key amendments include the following:
- Electronic communications and signatures – The 2020 Rules recognize the primacy of email and other electronic communications. The communications are now required to be sent by email or other electronic means by default. An arbitration’s commencement date is now specifically tied to the electronic receipt of the request by the Registrar (Article 1.4). The Awards can now be signed electronically and in counterparts (Article 26.2), reducing the time between an award being finalized and transmitted to the parties to the arbitration.
- Virtual hearings and the new normal – The LCIA has incorporated flexible, future-proof provisions as to the form of hearings directly into its rules. The 2020 Rules state that all hearings (including procedural hearings and emergency arbitrator’s hearings) may be conducted virtually, with provision for the use of “other communications technology” between “participants in one or more geographical places” (Article 19.2; see also 9.7 and 14.3).
- Data protection and cybersecurity – Article 30A has been inserted that requires tribunals to consult with parties on information security measures and personal data at an early stage. It also provides for tribunals and the LCIA to issue binding directions to ensure that best practices in these areas are observed.
Procedural And Other Changes
The 2020 Rules contain a number of other important updates relating to procedure, people and costs. They are as follows:
- Early determination – Though it is within a tribunal’s power under the existing rules to determine disputes on a summary basis, the 2020 Rules expressly provide that tribunals can determine (including by order or award) that any claim or defence is outside its jurisdiction or is inadmissible or manifestly without merit (Article 22.1(viii)). The new early determination is confirmation that such claims will be dealt with speedily and cost-efficiently in LCIA arbitration.
- Consolidation, concurrent conduct and composite requests and responses – The 2020 Rules dwells on the procedural tools available to the parties, tribunals, and the LCIA for dealing efficiently with the large and complex sets of transaction documents and counterparties that often feature in LCIA arbitrations. The LCIA has new limited powers of consolidation in Article 22.8. It is now possible for claimants to commence multiple arbitrations – against multiple sets of respondents and/or under multiple arbitration agreements – with a single “composite Request”.
- Updated Schedule of Costs – The 2020 Rules include an amendment to the LCIA’s 2014 fees and rates. The arbitrators’ costs are fixed by the LCIA by reference to hourly rates set by the LCIA on a case by case basis up to a maximum rate of £500. This gives the LCIA freedom to pay arbitrators competitively for their work on some of the high value and complex commercial disputes in the market.
Pharma company’s disputes already contain a significant number of arbitration disputes and the number of arbitrations in the sector is likely to grow. In recent years there have been numerous investment treaty arbitrations relating to Pharma companies.
In the wake of the pandemic, the revised rules of LCIA provide ease of adjudicating the disputes between parties by using electronic communication. The virtual hearing will significantly cut down the attorney’s cost as well as the attorney can appear anywhere from the globe. Pharma companies contain a lot of personal data, the new rules of LCIA ensure data protection at an early stage of hearing.
On procedures, the speedy trials would determine claims, defenses and jurisdiction quickly and a cap of 500 Pounds for arbitrators’ fee will give a fair estimate of arbitration cost. To sum up, the revised rules of LCIA will be preferred to adjudicate parties disputes quickly and in a cost-effective manner.