The English Commercial Court dismisses an award challenge based on exclusion of evidence in patent dispute

The English Commercial Court, in Cipla Limited v Salix Pharmaceuticals, Inc. [2023] EWHC 910 (Comm), has dismissed a challenge pursuant to s68(2)(a) of the Arbitration Act. It held that a tribunal, in refusing to admit evidence on an issue at a late stage in the proceedings, had not breached its duty to act fairly pursuant to s33 of the Arbitration Act by ultimately rendering an award tied to that issue. The case highlights the fine dividing line between a ruling on admitting new evidence and a ruling on the scope of issues to be determined by the tribunal.

Background

Cipla licensed to Salix the use of patent claims in respect of a compound called amorphous rifaximin. Salix manufactured a drug called Xifaxan, which Cipla alleged contained the patented amorphous rifaximin. Cipla commenced a London-seated LCIA arbitration against Salix for unpaid royalties. Salix argued 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 produced the XRPD pattern shown in a "Figure 1" in the patent claims – and Cipla failed to do so.

During the merits hearing, the Tribunal asked whether all amorphous rifaximin produced the Figure 1 XRPD pattern. Salix then sought permission to introduce evidence to put to Cipla's expert that suggested amorphous rifaximin could produce more than one XRPD pattern (so-called polyamorphism).

The Tribunal refused to admit this evidence in a ruling (the Ruling) on the basis that (i) permission to admit the evidence could not be based on the Tribunals question "because the proper answer to the question is it does not arise" and (ii) Salix had had opportunity to comment on Cipla's expert's evidence which in part suggested that there is only one XRPD pattern for amorphous rifaximin. The Tribunal therefore concluded:

"In those circumstances, to raise a point which could have been raised at any time before and, if it was going to be raised, should have been raised in accordance with normal principles, and to raise it at this stage for the first time when [Cipla's expert] is about to be cross-examined, does seem to me to be unfair … bearing in mind my duty is to ensure a fair hearing, I have concluded this evidence should not be put and should not be put in and should not be put to the witness."

In its award, the Tribunal agreed with Salix that the amorphous rifaximin in the Xifaxan would need to be characterised by the Figure 1 XRPD pattern to be protected. It further held that the onus was on Cipla to show this, and that although Cipla had succeeded in showing that there was amorphous rifaximin in Xifaxan, it had presented no evidence that it was characterised by the Figure 1 XRPD pattern. The Tribunal accordingly rejected Cipla's claim.

Challenge to the award

Cipla challenged the award for serious irregularity pursuant to s68 of the Arbitration Act, on the basis that the Tribunal had breached its duty under s33 of the Arbitration Act 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 by its Ruling, the Tribunal had determined that the polyamorphism argument was not a live issue (which interpretation of the Ruling was supported, among other things, by the Tribunal's sentence in the Ruling that "the proper answer to the question is it does not arise"). Cipla also referred to a statement in the award that "relatively little time was spent in argument and even less time was spent in evidence on the point" which it argued was because (i) the Tribunal in the Ruling concluded that the suggestion that amorphous rifaximin might have multiple forms with different XRPD patterns had not been raised/was not in issue and (ii) all the evidence supported the proposition that the Figure 1 XRPD pattern was an inherent feature of amorphous rifaximin. Cipla had accordingly run its case on the basis that it was not disputed that amorphous rifaximin exhibited the Figure 1 XRPD pattern. It was unfair – indeed, "fundamentally incompatibl[e]" with the Ruling – for the Tribunal in its award to hold that Cipla had failed to discharge its burden of proof in demonstrating that the amorphous rifaximin contained in Xifaxan was characterised by the Figure 1 pattern XRPD pattern.

Decision

The court dismissed Cipla's challenge. The Ruling did not rule on what issues were live, but rather ruled that evidence could not be put to Cipla's expert for the first time at such a late stage in proceedings. The parties had had "an opportunity to address all the 'essential building blocks' in the tribunal's conclusion" and there was no breach of s33, nor accordingly s68, of the Arbitration Act.

The court was influenced by the following:

1. The language of the Ruling itself as well as the award.
2. The oral closings. Although Cipla's counsel did at one point submit the polyamorphism argument was a closed issue, overall (in the court's view), the exchanges between Cipla's counsel and the Tribunal signalled it was not, and the Tribunal reminded Cipla of the onus on it to demonstrate that the amorphous rifaximin in Xifaxan produced the Figure 1 XRPD pattern.
3. The written pleadings. Whilst not spelling out the polyamorphism argument itself and not even laying much weight on the point until closing submissions, Salix had, in its written pleadings prior to the merits hearing, put the argument that Cipla must demonstrate that the amorphous rifaximin in Xifaxan produced the Figure 1 XRPD pattern.
4. The fact that Cipla's conduct of its case, including as to the manner in which it approached testing of Xifaxan, was, for the majority of the arbitration, unaffected by the Ruling given how late on the Ruling came during the proceedings.
5. On the facts, Cipla did not itself appear to be under the assumption that, in light of the Ruling, it no longer had to establish that the amorphous rifaximin in Xifaxan produced the Figure 1 XRPD pattern.

The court also dismissed, on the facts, a claim that the Tribunal had overlooked evidence that it was "common ground" between the parties that the Figure 1 XRPD pattern was inherent in all amorphous rifaximin.

Comment

This case is further confirmation of the very high threshold to be met to successfully challenge an arbitral award on account of breach of a tribunal's duty to act fairly. As a practical matter for parties, it is a good reminder of the need to ensure in good time that they have properly established and evidenced the fundamental building blocks of their claim. It also demonstrates the fine line between a ruling on the admissibility of evidence versus a ruling on the scope of the issues in dispute. In case of doubt on such a matter (or indeed a broader range of matters), a party should where possible seek clarification from the tribunal, no matter what stage of the proceedings.

For more information, please contact Hannah Ambrose, Partner, Finnuala Meaden-Torbitt, Senior Associate, or your usual Herbert Smith Freehills contact.