The Rise Of Emergency Arbitration In Life Sciences Disputes

Emergency arbitration provides an option for parties that do not want to approach national courts for interim or conservatory relief during the lacuna between the time that an arbitration is commenced, and the time that a full merits tribunal can be constituted.

Introduction

Emergency arbitration has become a common feature in commercial life sciences arbitrations, and has only increased in popularity during the COVID pandemic. This article examines the factors that have driven that development.

Section I discusses emergency arbitration generally, and Section II explains the two factors that have made it a frequent tool in commercial life sciences arbitrations. Section III provides the history behind emergency arbitration’s development, and Section IV explains its key features. Section V details the benefits that emergency arbitration offers in commercial life sciences disputes, while Section VI explains its limitations.

I. Emergency Arbitration Generally

Emergency arbitration is a virtual process that permits applicants to quickly obtain interim or conservatory relief – usually in three weeks or less – from a sole emergency arbitrator appointed by the relevant arbitral institution, instead of from a national court or a full merits tribunal, which would not yet be appointed when the emergency application is lodged. Emergency arbitration therefore provides an option for parties that do not want to approach national courts for interim or conservatory relief during the lacuna between the time that an arbitration is commenced, and the time that a full merits tribunal can be constituted (which can take several weeks or months).

II. The Two Reasons Emergency Arbitration Is Frequently Employed In Commercial Life Sciences Arbitrations

Emergency arbitration has become a frequently employed tool in commercial life sciences arbitrations for two primary reasons.

First, many life sciences disputes involve time-sensitive issues – such as intellectual property and trade secrets issues, and/or issues regarding ongoing contractual performance obligations during the pendency of a dispute—that need to be immediately addressed at the outset of an arbitration.

Second, many of those issues are multijurisdictional and require relief in numerous locations at the same time. Emergency arbitration is an ideal tool for addressing both of those needs.

III. Emergency Arbitration Is A Relatively New Process

While emergency arbitration has become a common feature in life sciences arbitrations, it remains a relatively recent addition to the international arbitration toolbox, particularly as a default option.

The concept of emergency arbitration first arose in the 1980s, when institutions began to revise their rules to expressly give arbitrators the power to grant interim relief. During the course of making those amendments, practitioners and institutions began to consider how parties might also obtain interim relief from arbitrators before a merits tribunal was appointed. Those enquiries led to the emergency arbitration concept entering the arbitration landscape in the 1990s, with opt-in rules that parties could select if they wished to resort to emergency arbitration.¹

The ICC was the first well-known institution to establish an emergency arbitrator process in 1990, when it introduced the Pre-Arbitral Referee Procedure, which still exists today. The Pre-Arbitral Referee Procedure is a set of opt-in rules that permit the ICC to appoint a referee who can grant relief (including the right to record and preserve evidence) before a dispute is referred to arbitration or another forum as “a temporary resolution of the dispute” that “may lay the foundations for its final settlement either by agreement or otherwise.”² While the Pre-Arbitral Referee Procedure was a significant innovation in 1990 that allows parties to resolve disputes in long-term contracts without having to commence further formal proceedings, it has only been employed by parties 17 times since its inception, and has never been widely adopted by practitioners.³

The next innovation came in 1996, when the World Intellectual Property Organization (“WIPO”) proposed adopting opt-in emergency arbitration rules. While those rules represented a further step towards the emergency arbitration procedure we know today, WIPO ultimately declined to implement them.

In 1999, matters moved ahead materially when the AAA introduced its Optional Rules for Emergency Measures of Protection as part of its Commercial Arbitration Rules.⁴ Those rules (as the name indicates) were also optional, and required the parties to affirmatively assent to them, but were positively received, and helped pave the way the first set of default, opt-out rules promulgated by the ICDR only a few years later.

In 2006, emergency arbitration in its current form came to fruition when the ICDR introduced the first default, opt-out emergency rules as part of its 2006 revisions.⁵ Under the 2006 ICDR Rules, emergency arbitration became a default process, instead of an opt-in procedure, which meant that parties accepted the emergency arbitrator process by agreeing to arbitrate under the ICDR Rules generally.

The introduction of the 2006 ICDR Emergency Measures of Protection resulted in two crucial outcomes. First, by making the emergency rules a default process, rather than an elective option, many more parties began choosing emergency arbitration over national court relief. Second, as more parties gained experience with emergency arbitration, its benefits became much clearer, and the process gained widespread acceptance in the international arbitration community.

The introduction of the ICDR default emergency arbitration rules was so successful, in fact, that almost every major arbitral administrator adopted de-fault/opt-out emergency arbitration rules over the next decade.

Consequently, from 2006 to 2015, nine of the largest and most-influential arbitral administrators in the world implemented default emergency arbitration procedures, which made the process a globally accessible one – and with global access came global usage (which also impacted enforcement issues).

IV. Emergency Arbitration’s Key Features

• While emergency arbitration procedures vary somewhat between institutions, there are several features that are common to every emergency arbitration. Those features include:
• Compressed Timelines —Emergency arbitration is designed to provide fast, expedient results for urgent issues, so institutions typically endeavour to appoint emergency arbitrators within 24 to 48 hours of the emergency request being filed and the applicant paying the filing fee.6 Moreover, emergency arbitrators must generally issue their ruling within two to three weeks of registering the application, which requires emergency arbitrators to impose aggressive written submission schedules that generally eschew significant evidence gathering, as well as witness examination.
• Single Emergency Arbitrator — Regardless of the number of arbi-trators the arbitration clause calls for, or the appointment method, emergency arbitrations are conducted by sole emergency arbitrators appointed by the relevant institution. While respondents occasionally seek to challenge that process on jurisdictional grounds, it is something to which the parties consent by selecting the arbitral rules in question.
• Limited or No Disclosure —The short and strict deadlines for issuing emergency awards generally preclude evidentiary demands directed to the other party (unless the application itself seeks some sort of evidentiary relief), so applicants must generally possess the evidence they need to support their application at the time they make it, and should not hope to receive evidence to support it after submission (indeed, lodging an unsupported application not only bodes poorly for its chances, but could result in an adverse costs award).
• Non-Binding Results —Emergency arbitral awards do not bind the merits arbitrators, who can accept, modify, or vacate emergency awards, making emergency awards and orders inherently interim in nature, even if they benefit from built-in compliance incentives.
• No Ex Parte Relief—With the exception of the Swiss Rules of International Arbitration, all major institutional rules require the respondent to be notified of the emergency application, as ex parte relief is generally considered improper for arbitral tribunals and impermissible under Article V of the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”).
• No Third-Party Relief—Arbitration is a consensual and contractual form of dispute resolution that only binds the parties to the arbitration agreement, so emergency arbitration awards cannot legally bind third parties, like banks, customers, or even related entities.

Consequently, emergency arbitration is a quick process that allows for urgent relief in the frequently long period before a full merits tribunal is appointed. Given that emergency awards are non-binding, do not permit ex parte relief, and cannot legally bind third parties, one may wonder why parties would ever choose emergency arbitration over interim judicial relief from a national court. As the following section explains, emergency arbitration offers significant advantages over interim judicial relief in many life sciences disputes, despite its limitations.

V. The Benefits That Emergency Arbitration Offers Over Interim Judicial Relief In Life Sciences Disputes

Emergency arbitration offers six distinct advantages over interim judicial relief in life sciences arbitrations.

A. Single Forum Relief Through One Set of Counsel

As Section II above notes, life sciences companies frequently require concurrent multijurisdictional relief at the outset of a formal dispute.

For instance, a pharmaceutical licensor may need to terminate a worldwide licence, and may need to secure its IP, prevent the use or dissemination of trade secrets, or might need to stop the licensee from distributing a product. The licensor has two practical options in those circumstances.

First, it can engage multiple sets of local counsel in multiple jurisdictions to simultaneously approach multiple national courts (for example, courts in the U.S., Europe, Asia, and Latin America) to seek whatever relief those national courts can offer. If the licensor does so, each national court will:

• Assign a judge (when it is ready to do so) that may not have any commercial life sciences expertise;
• Follow its own procedural rules for interim relief;
• Apply its own national laws, evidentiary burdens, and standards for granting whatever interim relief might be available;
• Impose its own timelines and move at its own pace to decide the application, particularly during events like COVID, but also during other periods, such as routine local holidays or slow periods like summer; and
• Reach its own outcome when deciding whether to grant whatever relief is available under its national laws, which may be entirely different from the relief available under the national laws of other courts that the licensor has simultaneously approached.

Notably, the outcome that each of those national courts reaches could be inconsistent with the outcomes reached by other national courts, could come at different times, would be limited in geographical reach to the physical jurisdiction of the issuing court, and would generally not be readily enforceable in other jurisdictions around the globe.⁷

Alternatively, that same licensor could engage one set of counsel to approach one emergency arbitrator, who is likely to have life sciences expertise, and who will apply one set of procedural rules and one governing law (generally) that the licensor has itself designated in the licence, which can result in one emergency award that grants consistent relief that may not be available in many of the national courts the licensor would otherwise have had to approach.

Critically, that emergency award could also be readily and concurrently enforced in multiple jurisdictions around the globe under the New York Convention, regardless of whether the enforcement court could have granted the same merits relief allowed in the emergency award.⁸

The choice in those circumstances for life sciences companies is usually an easy one – emergency arbitration.

B. Emergency Arbitrator Expertise

Institutions seized with emergency applications typically appoint experienced emergency arbitrators who are knowledgeable about the industry and substantive area of law they will be asked to address, which materially assists in resolving the emergency application expeditiously and appropriately.

Conversely, national courts faced with emergency applications typically appoint whatever judge is available (or one that is randomly selected), who may or may not have any industry expertise at all, which can necessitate significant education, and who may not understand or respect the limited role they are being asked to play in relation to the overall dispute between the parties (which will ultimately be resolved in arbitration).

When quick relief is needed, life sciences companies do not want to spend their time educating the adjudicator about industry issues as opposed to the dispute itself, or dealing with merits issues that are better left to merits arbitrators at a more appropriate stage, so emergency arbitration offers a preferable alternative to judicial interim relief.

C. Confidentiality

Confidentiality is particularly significant in the life sciences sector, and emergency arbitration is a confidential process that allows applicants to seek interim relief without disseminating sensitive commercial information or the very fact of the dispute itself to the world (unless enforcement in a court with rights of public access becomes necessary).

For instance, if a party to a joint development agreement believes that its collaboration partner is abusing its trade secrets, that party can commence an emergency arbitration with little fear that bringing the action will further expose the very trade secrets that spawned

the dispute in the first place, or that bringing the application will alert competitors to its issues. In the highly competitive life sciences space, the confidentiality that emergency arbitration offers is not only desirable, but critical.

D. Speed

Emergency arbitration is inherently fast, but also provides an excellent alternative to those courts around the world that cannot grant quick interim relief, or that cannot grant interim relief in the two to three week timeframe that most institutional rules envision, particularly during challenging time periods like the pandemic.

For example, a medical device manufacturer might need an order directing its foreign distributor to stop selling competitive products in a jurisdiction in which the courts are either closed or severely backlogged because of COVID, or in which the courts generally move slowly as a matter of course. Similarly, a med tech company might need to stop a vendor from misusing data in an equally challenging jurisdiction that has weak IP or data control regulations. In those circumstances, emergency arbitration offers an excellent alternative to slow and ineffective courts, because the process is quick and efficacious.

E. A Panoply of Available Remedies

Emergency arbitration allows applicants to obtain interim remedies that may not be available in every jurisdiction in which they might need relief – such as a worldwide freezing order, or an injunction when money damages might still compensate the applicant – but which can nevertheless be enforced in those jurisdictions as a New York Convention award.

For instance, a biotech company might need a collaboration partner to physically transmit research materials that might be critical to ongoing development efforts, but that might not be “unique” in the way that many common law courts require to grant specific performance. Similarly, a pharmaceutical company might need to compel a manufacturing partner to continue producing API while a production issue is resolved. In those instances, an emergency arbitrator can order relief that a court might be unable or unwilling to grant, but can have that same court enforce the award granting the relief.

F. Global Enforceability

One of the primary advantages that emergency arbitration offers over interim judicial relief is the realistic prospect for simultaneous global enforcement.

Simply stated, the New York Convention currently has 170 signatories in which an emergency award can be enforced, while there is no equivalent treaty for judgements that allows for anything approaching that reach, and particularly not for interim orders or interim judgements.

A simple example demonstrates the point. If a party to a co-development agreement needs an injunction to stop a collaboration partner from infringing on its IP rights, that party can (a) sue in one location and seek to enforce the judgement globally, (b) start seeking judicial injunctions around the world and hope for the best, or (c) bring one quick emergency arbitration and seek to enforce the emergency award simultaneously in every New York Convention jurisdiction in which it needs relief.

The first two options are unlikely to produce satisfactory practical results. Obtaining an emergency award and seeking to enforce it globally, however, provides a viable commercial solution, even if it might face challenges in some jurisdictions.

Moreover, even if a jurisdiction is one that does not enforce emergency awards, the prevailing party should have a much easier time obtaining interim judicial relief in that location when it can present a favourable emergency award that was issued by a reputable arbitrator, without the sensitivities that another national court judgement can oftentimes raise.

Accordingly, while emergency arbitration is not ideal for every situation, and particularly not when ex parte or third-party relief is needed, it frequently offers significant advantages over judicial interim measures in appropriate circumstances.

As the following section explains, those circumstances include instances where the relevant jurisdictions will enforce an emergency award, because not every jurisdiction will currently do so.

VI. Emergency Arbitration’s Limitations

While emergency arbitration provides many advantages, is not a panacea for every problem, and like every legal option, it has inherent limitations that render it inappropriate in some circumstances.

A. No Third-Party Relief

Arbitration is a creature of contract, so it can only bind parties that have agreed to arbitrate, which means that emergency awards cannot bind third parties like CROs, suppliers, distributors, vendors, shippers, financial institutions, or even separate affiliated entities. Accordingly, if a life sciences company needs relief against third parties, a judicial application will likely be necessary. For instance, if a pharmaceutical company in a dispute with a collaboration partner needs to attach API held by a manufacturer, or research held by a CRO, an emergency award may not be helpful.⁹

B. No Ex Parte Relief

With the exception of the Swiss Rules, parties cannot obtain ex parte emergency awards, so if ex parte relief is truly needed, courts remain the only real option. For instance, if a life sciences company needs ex parte relief to prevent a collab-oration partner from imminently stealing trade secrets or improperly exploiting IP, and does not want to tip the partner off, a judicial application will be necessary.

C. Enforcement Limitations

As noted above, there are still jurisdictions that will refuse to enforce emergency awards on grounds that those awards are not final within the meaning of Article V of the New York Convention. If a life sciences company needs emergency relief in a jurisdiction that does not currently enforce emergency awards, and the life sciences company believes that the counterparty will not voluntarily comply with any emergency award (despite the many built-in enforcement incentives that frequently result in voluntary compliance), judicial relief remains preferable.

While the problem of enforcement in certain instances remains, it is one that many jurisdictions are actively tackling, and jurisdictions have come up with a variety of solutions to enforcement challenges. Some jurisdictions, like Singapore and Hong Kong, have enacted specific legislation that allows for the enforcement of emergency awards, and Article 17 of the 2006 UNCITRAL Model Law also makes interim awards enforceable.

Other jurisdictions, such as the United States, have found judicial solutions by holding that emergency awards are final and binding as to the issues they address, and are therefore enforceable under the New York Convention.

In a decision that has generated significant attention in the international arbitration community, the Indian Supreme Court recently held that parties are free to agree to the arbitral rules that govern their dispute, and that if those rules include emergency arbitration provisions, the parties are bound by their choice (at least when the arbitration is seated in India, for the time being). Courts in other counties, such as the DRC, Ukraine, and Egypt, have all reached similar judicial solutions. Accordingly, there appears to be a nascent trend developing around the world for emergency awards to be enforced as a means of ensuring their efficacy and protecting party autonomy.

Not all countries have followed that trend, however, and some still resist enforcing any interim awards. Some of those courts examine whether the emergency award constitutes a final and binding award, or merely constitutes an interim or procedural order, either in name or in substance, and others will look to see where the tribunal was seated to determine if it had the right to issue an enforceable interim order. Some simply refuse to enforce emergency awards altogether on grounds that the merits tribunal can modify or vacate them.

Consequently, parties must consider where they will seek to enforce emergency awards before pursing emergency arbitration over judicial interim measures, but even some of those countries that currently impose enforcement barriers may be changing their view, as the Indian Supreme Court decision demonstrates.

Accordingly, while the three limitations set forth above can be significant ones, they are ones that do not impose insurmountable barriers in many cases. Consequently, while life sciences companies need to consider those limitations when formulating their interim relief strategies, they can oftentimes overcome those limitations.

CONCLUSION

Emergency arbitration is a valuable tool that has become increasingly common in cross-border life sciences disputes during the pandemic. The advantages emergency arbitration offers ensure that it will continue to be a common feature in life sciences arbitrations well after the pandemic is over.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.