A call for clearer guidance
Where participants in international arbitration come from different legal jurisdictions, disputes over what is or is not privileged can be complicated by disagreement over which jurisdiction’s rules of privilege apply. In the absence of party agreement, determining these issues can prove complex and costly. Clearer guidance on how such privilege issues might be resolved is needed.
Most countries recognise, in one form or another, the concept of legal privilege: a right to protect from disclosure communications between lawyers and their clients, and documents prepared for the purposes of litigation or arbitration. The precise rules, however, vary across jurisdictions, sometimes significantly. What is accepted as privileged in one country will not necessarily be privileged in another. (We explored this previously in our International arbitration report, when we looked at the US and English laws on privilege in issues 5 and 6.)
How, then, are privilege issues to be resolved in international arbitration where claimants, respondents and arbitrators may all come from different jurisdictions? The answer is not easily found.
The existing guidance on determining privilege
There is, in fact, very little guidance on this issue. It is almost unheard of for parties to provide expressly in their dispute resolution agreement which privilege rules are to apply. Most arbitration laws and most institutional arbitral rules offer little to no guidance. For example, the UNCITRAL Model Law, English Arbitration Act 1996, ICC Rules and LCIA Rules are all silent on this question; they simply provide that, in the absence of agreement between parties, it is for the tribunal to determine procedural and evidential matters at its discretion, subject to overriding principles of fairness and equality of treatment.
The 2010 IBA Rules on Taking of Evidence in International Arbitration (IBA Rules) go a little further, confirming that privilege as a general concept should be respected, and that evidence may be excluded on the basis of “legal impediment or privilege under the legal or ethical rules determined by the Arbitral Tribunal to be applicable”, taking into account factors such as the following:
- any need to protect the confidentiality of a document created or communication made for the purpose of settlement negotiations or providing or obtaining legal advice
- the expectations of the parties and their advisors at the time the legal impediment or privilege is said to have arisen
- any possible waiver of privilege
- the need to maintain fairness and equality between the parties, particularly if subject to different legal or ethical rules.
However, this does not assist the parties or the tribunal to ascertain which privilege rules should be applied. Nor does it answer other crucial questions such as: What happens when the expectations of the parties as to privilege are different? What about if the parties’ expectations differ from their own advisors who, particularly in cross-border transactions, might foreseeably be based in different jurisdictions? What if privilege would have been waived according to the laws of one jurisdiction, but not another? How is the tribunal to ensure fair and equal treatment where conflicting legal or ethical rules apply?
Similarly, the International Institute for Conflict Prevention and Resolution Rules for Non-Administered Arbitration (CPR Rules of Non-Administered Arbitration) require tribunals to “apply the lawyer–client privilege and the work product immunity”. Lawyer–client privilege is a largely generic term, but work product immunity is a term most commonly used in the US. The rules, however, fail to confirm whether the tribunal must apply US privilege rules, or whether they can read into those terms a reference to equivalent privilege rules in other jurisdictions. If so, which jurisdiction’s version should the tribunal adopt?
The International Centre for Dispute Resolution International Arbitration Rules (effective 1 June 2014) (ICDR Rules) are an exception in that they do offer some substantive guidance, following what is commonly known as the ‘most favoured nation’ approach, as is discussed further below.
What methods do tribunals deploy when a conflict of privilege rules arises?
In practice, there are a number of methods which tribunals deploy, depending on the facts and circumstances of the case. In every case, the tribunal must treat the parties fairly and equally and in accordance with their legitimate expectations – not least so as to avoid exposing the award to later challenge.
The ‘choice of law’ approach
One method is the ‘choice of law’ approach – determining the proper law governing privilege. The difficulty with this is that there is no consensus as to whether privilege is a substantive or a procedural matter. It is therefore not as simple as choosing between the substantive governing law of the contract and the procedural law of the arbitral seat.
A common solution is to seek to identify the law of the jurisdiction with the ‘closest connection’ to the documents or communications in question, taking into account factors such as where the document was created, where the communication took place, where the document is located, and where the parties or their lawyers reside. This can prove difficult in practice and can produce arbitrary results. Consider, for example, cross-border or electronic communications, documents stored in a location with no connection to the underlying transaction, or parties with legal advisors in different jurisdictions. The ‘closest connection’ approach can also be unwieldy where there is a large quantity of material with potentially different grounds for asserting a closest connection.
The ‘least favoured nation’ and ‘most favoured nation’ approaches
Two other methods are the ‘least favoured nation’ and ‘most favoured nation’ approaches. Under the ‘least favoured nation’ method, the tribunal chooses from the various options the law that provides the least privilege protection. Under ‘the most favoured nation’ method the tribunal chooses the law that provides the most privilege protection. Each approach has the advantage of treating all parties equally. On balance, however, the latter seems the sounder method.
The ‘least favoured nation’ approach is unlikely to be acceptable to a party who would have enjoyed greater protection under other privilege laws. It can also cause serious difficulties for the parties’ legal advisers, for example if they who would be committing a criminal offence in their home jurisdiction if forced to disclose information revealed to them by their clients.
The ‘most favoured nation’ approach, on the other hand, ensures that the parties’ minimum expectations as to what is privileged are met – even though it may go on to grant greater privilege protection to a party who may not have been expecting it.
The role of the supervisory court
A tribunal may be able to refer the question to the supervisory court; this should usually be a last resort, as it can lead to further costs and delay.
Is it possible to draft around the issues?
Parties could deal with the question of privilege in the arbitration agreement. In theory, that would be sensible as it would offer greater certainty, prior to communications being made, as to what will or will not be protected in subsequent proceedings. It could also avoid satellite disputes over privilege once a dispute arises. Moreover, one can imagine drafting the “perfect” privilege clause, circumventing the limitations of rules of privilege. For example, where legal advice privilege under English law is not limited by a narrow definition of who is the client, or where documents protected by the work product doctrine in the US would remain protected even if the other side could show substantial need and an inability to obtain the equivalent information elsewhere without due hardship. In practice, however, this is likely to take considerable time and be heavily negotiated. Most arbitration clauses are based on standard clauses and including a provision dealing with privilege is in most circumstances unlikely to be commercially acceptable.
Given the unlikelihood of a prior agreement between the parties on questions of privilege, the development of a fair default rule – such as the ‘most favoured nation’ approach – may be the best solution. There is also some strength to the suggestion that guidance on the approach to privilege should be incorporated into institutional rules so that arbitrators have a reference point on which to base their decisions and parties would not be put to the cost of arguing over the right approach. This could offer parties greater certainty as to what will or will not be privileged at the crucial point before a document is created.