Cipla Limited v Salix Pharmaceuticals, Inc

An arbitration award will be challenged for serious irregularity under section 68 of the Arbitration Act 1996 only where the tribunal has failed to comply with its procedural duties and the failure has caused, or will cause, substantial injustice. A tribunal need not refer each inference, submission or item of evidence to the parties before deciding the case. It must, however, give them a fair opportunity to address every essential building block of its conclusion.

Where infringement is alleged, the party bearing the burden of proof must establish every required claim element. The exclusion of late evidence does not necessarily remove the underlying issue from consideration. A court will not use section 68 to review the tribunal’s factual assessment or determine whether it reached the correct conclusion.

Cipla applied under section 68 of the Arbitration Act 1996 to remit a partial award made by Lord Neuberger in an LCIA arbitration concerning royalties allegedly payable under an exclusive licence agreement.

The arbitration concerned whether Salix’s XIFAXAN tablets contained amorphous rifaximin falling within two issued patent claims. The tribunal concluded that Cipla had not proved that the amorphous rifaximin produced the specified Figure 1 XRPD pattern and dismissed the royalty claim.

Cipla alleged that the tribunal’s earlier ruling excluding late evidence concerning different forms of amorphous rifaximin had made that issue no longer live, and that the tribunal had overlooked evidence. The central questions were whether the tribunal had breached its duty under sections 33 and 68 and whether any serious irregularity had occurred.

1. The application was dismissed. Judgment was entered for Salix.

2. The 26 October ruling excluded late evidence which suggested that amorphous rifaximin could produce different XRPD patterns. It did not decide that the issue was no longer live or that Cipla was relieved of proving that the amorphous rifaximin in the tablets had the Figure 1 pattern. The wording of the ruling, the tribunal’s later explanation in the award, and the exchanges during closing submissions supported that construction.

3. Cipla bore the burden of proving infringement of each element of the issued claims. It was therefore for Cipla to establish, on the balance of probabilities, that the relevant amorphous rifaximin had the required XRPD pattern. Salix did not have to prove polyamorphism or establish that the product had a different pattern.

4. The tribunal had pleaded issues and evidence before it, and the parties had an opportunity to address the essential building blocks of its conclusion. Cipla’s counsel relied in closing on evidence said to establish inherency and accepted that the absence of evidence on the Figure 1 pattern was a criticism open to Salix. There was therefore no breach of section 33.

5. The complaint that the tribunal overlooked Professor Myerson’s evidence could not establish a serious irregularity. The 26 October ruling did not make a binding finding that the evidence was common ground. The tribunal was not required to mention every item of evidence, and section 68 is concerned with due process rather than the correctness of factual findings. Cipla had an opportunity to make the point in closing but did not do so.

6. In light of those conclusions, it was unnecessary to decide whether substantial injustice had been caused.

The judgment concerned a first-instance application to challenge an arbitral award. No appellate history was stated in the judgment.