Contract considerations for resolving partnership disputes

WRITTEN BY

Celina McGregor, Senior Counsel, BioPharmaceuticals Legal, AstraZeneca

At the start of a relationship, it can be hard to identify where a collaboration’s potential pressure points will be, with clinical trial results or a product’s commercial potential just some of the potential variables.

Taking a collaborative approach to resolving disputes that do arise should always be the preferred course of action, as my colleague Emma Barton noted recently. But if problems can’t be solved in this way, then a more formal approach may be required.

To do this successfully, the nature of the approach should be decided right at the start of any collaboration, which is why dispute resolution clauses are included in any agreement.

As a lawyer, the two things that I’m most interested in understanding from the agreement are: what is the governing law and what are the dispute resolution processes.

The governing law is the substantive rules by which it’s agreed that the contract will be interpreted and enforced. The dispute resolution process is what was agreed as the steps the parties will take to ultimately resolve a disagreement. These steps will typically contain one or more of the following options.


1. Internal escalation

Internal escalation takes place before the parties go to court or arbitration and it sees the dispute addressed at ever-higher levels within the organisation. For example, a development dispute might have to be discussed by the joint development committee, then – if they can’t reach a resolution – move to the joint steering committee and then go to a senior executive, perhaps even the CFO or CEO.

It’s helpful to have timelines written into the contract. Escalation tends to be quite quick, by dispute resolution standards, and often these processes can provide a complete answer to the situation and do less damage to the on-going relationship.

2. Mediation

The idea of mediation is that the parties get together on a ‘without prejudice’ basis, allowing them to have open and frank discussions, without what’s said being used against them in a more formal dispute resolution proceeding.

Mediation can happen between the parties, if they are happy to get together on their own, or more structure can be put around it with the appointment of a professional mediator.

It’s not a binding process and either party can walk away at any time. Even if no solution is achieved on the day of the mediation, it can still be a useful way of breaking deadlock and thinking about things differently.

3. Litigation or Arbitration?

The agreement will either choose national courts (litigation) or an arbitration centre to resolve disputes in a formal setting.

If choosing litigation, the contract should state that disputes are referred to the national court of a particular country. This is called the contract’s ‘jurisdiction clause’. It’s often advisable to include that that country has been chosen as having ‘exclusive’ jurisdiction, because if you’re going to follow a litigation process it is good to be clear about where this will take place.

In these cases, the dispute will go before a judge. There will be a public hearing and depending on issues like the claim’s complexity it’s likely to also be a long and costly process. The decision reached by the court is binding on both parties but may be subject to appeal under the national laws of that country. Although in most jurisdictions the opportunities for this are quite limited.

An alternative approach is arbitration. This allows disputes to be resolved outside of a national court by requiring the parties to refer their dispute to an arbitral tribunal, which comprises one to three arbitrators, all typically lawyers who have also trained as arbitrators.

It’s a complete process for dispute resolution but is often long and costly. The tribunal’s decision is binding and often contracts will state that it cannot be appealed. One of the attractions of arbitration is that it’s confidential. So, unlike a court case, there’s no element of airing your disputes in public.

Both litigation and arbitration are only able to offer limited solutions to the parties, rather than anything more creative. Courts and arbitral tribunals are only concerned with interpreting what the parties have already agreed. So, they can say what the contract means, who is in breach of the contract, what damages should be paid for those breaches. They can’t come up with more creative ways to navigate through a dispute, for example with a change to the governance structure, amending the terms of the agreement or adding a new opportunity into the relationship.

4. Expert determination

Expert determination can also be included in the contract, or the parties can agree to it later, and it can be either binding or non-binding. Although if the decision is taken to make it binding, then an expert determination takes place instead of arbitration or litigation.

The expert here is an expert in the field rather than a lawyer. It’s not commonly used in the pharmaceutical industry but could be a useful tool for pharmaceutical companies to consider in clinical development disputes where a certain type of expertise is needed to help the parties see things in a different way. Used well, it can be a shorter and less costly process than going to arbitration or litigation. However, finding and agreeing the right expert is likely to be difficult, which is why an internal escalation process is often the preferred route.

Start with a path to resolution

Collaboration agreements should always contain one or more of these dispute resolution processes and it is highly inadvisable to sign an agreement if it doesn’t specifically state how disputes will be handled. Including these clauses benefits both parties and helps create a sense of commercial certainty about how problems will be handled.

Ultimately, the foundation for a lasting collaboration is a good working relationship. It’s important to note that while these dispute resolution processes might resolve the issue at hand, they can also do a lot of damage to the underlying relationship. So, it’s often far better to try and think of creative ways to resolve disputes rather than looking for your day in court.