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10 August 2023

Cipla v Salix Pharmaceuticals: Commercial Court backs Arbitrator who refused to allow additional expert evidence late in proceedings

Summary

In Cipla v Salix Pharmaceuticals,[1] the Commercial Court dismissed a challenge to an arbitration award under s68(2) of the Arbitration Act 1996 (‘AA 1996’) (serious irregularity), where a party was challenging an award based on a patent licence, and whether a patent claim was infringed. The Court found that the Arbitrator’s refusal to admit new evidence on one particular issue at a late stage in proceedings was not a serious irregularity by the Arbitrator which would be in breach of his duty to act fairly. The Court had to tread the careful line between what counted on ruling on admitting new evidence, and what counted as decided which issues were ‘live’ to be determined by the tribunal.

Background

The dispute arose from an Exclusive Licence Agreement dated 1 October 2009 (the ‘2009 Contract’), which granted Salix the use of certain patent claims in relation to a compound, amorphous rifaximin, in exchange for royalties on any products sold that, absent the licence, would infringe Cipla’s patents. The licensee manufactured a drug product containing crystalline rifaximin, which was sold under the brand name, XIFAXAN®. Cipla initiated London Court of International Arbitration (‘LCIA’) arbitration proceedings, alleging that XIFAXAN® contained amorphous rifaximin, and thus fell within the scope of the 2009 Contract. In May 2022, the Arbitrator (the Rt. Hon. Lord Neuberger of Abbotsbury) made a partial award in favour of Salix. Cipla made an application under s68 AA 1996 to ask the Court to determine whether the Arbitrator had failed to comply with his general duties of fairness under s33 AA 1996.

Admission of Evidence to the Tribunal and Arbitral Ruling

Salix argued to the Tribunal that in order to successfully claim royalties, Cipla would need to establish that when XIFAXAN® was subjected to x-ray powder diffraction (‘XRPD’) analysis, it would produce the XRPD pattern shown as ‘Figure 1’ in the patent claims. Salix argued that Cipla failed to establish this. During the arbitral hearing on the merits, the Arbitrator asked Counsel for Salix, whether all amorphous rifaximin would produce the Figure 1 XRPD pattern when subjected to the analysis. Counsel for Salix responded by asking the Tribunal whether some ‘very late evidence could come in which suggested that there was a polyamorphism [i.e. more than one XRPD pattern] so there were multiple different forms of amorphous content.’[2]

The Arbitrator ruled that it was too late for such evidence. The basis for this ruling was that a) the evidence sought would not actually answer the Arbitrator’s question (‘the proper answer to the question is it does not arise’[3]), and b) Salix had had the opportunity earlier in proceedings to challenge Cipla’s expert evidence, which suggested that there is only one XRPD pattern for amorphous rifaximin.

Lord Neuberger agreed with Salix’s contention that Cipla needed to establish that XIFAXAN® would produce the Figure 1 XRPD pattern in order for such to infringe Cipla’s patents. He also found that Cipla had not produced evidence that this was the case. It was clear that XIFAXAN® did contain amorphous rifaximin, but there was no evidence with regard to the XRPD pattern. Accordingly, Cipla’s claim failed.

Challenge to the Arbitral Award

Under s33(1)(a) AA 1996, an arbitrator is required to ‘act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent.’

Cipla argued that Lord Neuberger had failed to allow the Claimant to give its reasonable case by deciding that the polyamorphism argument (i.e. whether amorphous rifaximin could produce more than one XRPD pattern) was not a live issue. This was, in Cipla’s submissions, a serious irregularity on the part of the Arbitrator.

Cipla’s argument was based on two particular statements by the Arbitrator:

  • ‘The proper answer to the question is it does not arise’; and
  • ‘Relatively little time was spent in argument and even less time was spent in evidence on the point.’[4]

Cipla argued that the second point occurred due to the Arbitrator concluding in the ruling on additional evidence that the suggestion that amorphous rifaximin could have different XRPD patterns had not been raised or was not in issue between the parties. Cipla also explained the lack of time being spent on argument due to Cipla’s own evidence that the Figure 1 XRPD pattern was an inherent feature of amorphous rifaximin. As that evidence had not been challenged by Salix, Cipla had run its case on the basis that it was not disputed that amorphous rifaximin exhibited the Figure 1 XRPD pattern.

Cipla argued that the Arbitrator’s award contained a ‘fundamental incompatibility’[5] with the decision with regard to additional evidence on polyamorphism.

Decision

The Commercial Court dismissed Cipla’s claim. Dame Clare Moulder DBE decided that Lord Neuberger had not opined on what issues were live, but merely on what evidence could be adduced at that very late point in proceedings. The parties could have produced that evidence earlier, but did not do so. It was not unfair of the Arbitrator not to allow the evidence to be introduced at the last minute.

Dame Clare was influenced by the following factors:

  • The language of the ruling on additional evidence, and of the award itself;[6]
  • That although Cipla’s Counsel did submit to the Arbitrator that the polyamorphism argument was closed, the Court decided that, based on the exchanges between Cipla’s Counsel and the Arbitrator, the matter was still open;[7]
  • The fact that the written pleadings by Salix included the argument that Cipla had to demonstrate that the amorphous rifaximin in XIFAXAN® produced the Figure 1 XRPD pattern. This was important even though the polymorphism argument itself was not set out;[8]
  • The ruling on evidence came late in the day, so the majority of Cipla’s strategy for the case would not have affected by the ruling;[9] and
  • That Cipla did not proceed, after the ruling on evidence, on the basis that it no longer had to establish that the amorphous rifaximin in XIFAXAN® produced the Figure 1 XRPD Pattern.[10]

Commentary

This case is another example of the difficulty of overturning arbitral awards, even where raising novel patent questions. Arbitration is supposed to be a binding form of alternative dispute resolution, and the Courts will not lightly overturn arbitral awards.

This result should come as a warning to those parties who consider that they can save costs by refraining from adducing evidence in support of their claim, with the intention of doing so later should such become necessary. It is crucial to ensure that all the foundational building blocks of each party’s claim are evidenced to support the pleadings, be that via expert reports, witness statements, or other evidence.

If there is any confusion as to whether or not a particular issue is still live, the party that is unsure should raise the question with the tribunal, prior to the award being published. If Cipla had raised its concern (i.e. whether the polyamorphism argument was still live) with the arbitrator immediately after the ruling on evidence, then it could have planned accordingly with the regard to their conduct of the claim through to the award. Its Counsel could have made submissions on the polyamorphism point that could either have assisted its position in the arbitration, or provided further evidence on appeal.

[1] Cipla Ltd v Salix Pharmaceuticals, Inc. [2023] EWHC 910 (Comm)

[2] Ibid. at 62.

[3] Ibid. at 49.

[4] Ibid. at 67.

[5] Ibid. at 34.

[6] Ibid. at 91.

[7] Ibid. at 62-63.

[8] Ibid. at 66.

[9] Ibid. at 75-82.

[10] Ibid at 86.

Authored by James Tumbridge