Privilege and Confidentiality in International Commercial Arbitration

The-Attorney-Client-Privilege.jpg
Photo credit: Law Office of Terrence Marsh

Introduction

I would like to start this post by giving a practical example. An English Rugby team and an American Football team decide to play the game of ‘Rugby’. English had seen Americans playing Rugby which was not actually Rugby but American Football. But since both looks somewhat similar, the English team was under the impression that they are same. Both parties agreed to solve their dispute arising out of their match through a neutral arbitrator of a third country say Australia. Now English team which was following ‘Rugby’ rules contended that only 7 substitutions are allowed in a match whereas the Americans argued that there is no limit of substitutions under the rules of American football. To add to their miseries, the Australian referee held that only three substitutions are allowed as stated under Australian rules of football. When it comes to privilege and confidentiality in International Commercial Arbitration (ICA), the task of an arbitrator is exactly the same as that of this wretched referee. In ICA, most often parties come from distinct legal setup with a legitimate expectation of resolution of their dispute as per their own laws.  Although most legal system recognize the legal privilege but its contours may vary from place to place. Generally it is a protection from disclosure of communication and documentations of different forms between a lawyer/attorney and his client while pursuing client’s case. But one size doesn’t fit all and what may be protected as privilege in one jurisdiction may incur adverse inferences under privilege laws of another jurisdiction. The difference can be seen in the two major legal systems of the world – civil and common law systems. In common law, the lawyer-client privilege is generally considered as a rule of disclosure or evidence while in civil law it is a professional secret. Similar is the situation of without prejudice communications and settlement discussions. By way of this post, I will try to put forth the inconsistencies or conflict of legal systems on the issues, the prominent approaches to resolve it with some suggestions to conclude.

Conflict of applicable laws

As rightly stated by Jane Player & Claire Morel de Westgaver,[1] in addition to the plethora of laws applicable in ICA, the matter of privilege might depend on additional factors such as

  • “the law of the jurisdiction where the communication was made,
  • the law of the jurisdiction where the information is located,
  • the law of the judicial forum where enforcement of any order or award will be sought
  • the law of the jurisdiction where the lawyer giving the legal advice is admitted
  • the law of the jurisdiction where the client receiving the advice is based”

It takes us back to available set of laws or rules in practice addressing the privilege disputes which are discussed under next heading.

Current Legal Framework

There is, truth be told, almost no direction on this issue. It is relatively inconceivable for parties to give explicitly in their dispute resolution clause/agreement which privilege rules are to apply. In this regard, most arbitration laws and most institutional arbitral rules offer next to zero direction. For instance, on the whole the UNCITRAL Model Law, English Arbitration Act 1996, ICC Rules and LCIA Rules are quiet on this issue; they essentially give that, in absence of any agreement amongst the parties, it is for the arbitral tribunal to decide the procedural and evidential issues at its will, subject to superseding standards of fairness and equality of treatment.[2] Some of the rules providing guidance are as follows:

IBA Rules on Taking of Evidence in International Arbitration

The International Bar Association (IBA) rules on the taking of evidence in international commercial arbitration (IBA Rules) are a soft law which helps to cross over any barrier between common law and civil law approaches to evidence, including document production.[3] They represent a delocalised set of measures particularly suitable for arbitral practice, decoupling ICA from the strictures of local procedures and rules.[4]

The IBA gives an arrangement of model standards as a “resource to parties and arbitrators to provide an efficient, economical and fair process for the taking of evidence in international arbitration.”[5] These rules are drafted to guide the arbitration institutions and can likewise be authoritatively accepted by the parties in their arbitration agreement as a supplement to the rules followed by an institutional arbitrator.[6] They utilize a tribunal driven disclosure framework, through which parties can ask for particular data from the restricting party.[7] With regard to the inquiry of evidentiary privilege, the IBA Rules states: “[t]he Arbitral Tribunal shall, at the request of a Party or on it’s own motion, exclude from evidence or production any Document, statement, oral testimony or inspection [that serves as a] … legal impediment or privilege under the legal or ethical rules determined by the Arbitral Tribunal to be applicable.”[8] In giving further direction, the IBA Rules provides that the arbitral tribunal may consider the need to secure the private communications made regarding getting legal advice, the desires of the parties, and the need to keep up fairness and equality between the parties.[9]  While the IBA Rules perceive that clashing privilege issues can emerge in ICA, they leave noteworthy choice to the arbitrator in deciding how to apply the privilege.

The ICDR rule

The International Centre for Dispute Resolution International Arbitration Rules (ICDR Rules) are an exception as they offer some substantive direction, following what is generally known as the ‘most favoured nation’ approach (which is discussed in later part of this post). The dialect of these rules[10] explicitly expressly guides tribunal to represent the issue of privilege, particularly taking note of the attorney-client privilege.  

ICDR on the Exchange of Information (Guidelines for Arbitrators)

Likewise, the all around created note of the ICDR on the Exchange of Information (Rules for Arbitrators) states:

 “The tribunal should respect applicable rules of privilege or professional ethics and other legal impediments. When the parties, their counsel or their documents would be subject under applicable law to different rules, the tribunal should to the extent possible apply the same rule to both sides, giving preference to the rule that provides the highest level of protection.”

Why Privilege is required?

Before considering the methods by which tribunals may seek to maintain privilege, it is pertinent to think about the justification for their doing as such. What could it be that the tribunals are looking to protect and why? There are clear reasons why a tribunal may practice its discretion while dealing with this issue, which are all, to some extent, philosophical in viewpoint, however which likewise bear genuine pragmatic implications for the parties.

Legitimate expectation

Parties depending on a settled attorney-client privilege have a legitimate expectation that their information subject to the privilege will be kept secret. Under these conditions, requiring disclosure appears to be obviously uncalled for and in opposition to the party’s reasonable expectations at the time of contracting.

Parties expect that privilege will keep on applying if a correspondence was privileged when it was first made. They additionally expect that similar rules of privilege will apply to them paying little heed to the sort of dispute resolution method  to which they submit their dispute.

Party Equality

The rule of equal treatment of parties is entrenched in ICA as a piece of arbitral due process. This rule is integral to the topic of legal privilege as well since it binds the tribunal to treat parties unbiasedly in a way that one party may not be denied a right which is conferred on the other party.[11] The rules of privilege are satisfied when the parties are offered the same procedural rights and duties.[12] While dealing with a privilege dispute, the tribunal can give same procedural rights to the parties by applying one set of privilege standards to all the parties. In this way, the danger of breaching the parties equality rule by applying diverse principles to various parties can be avoided.

Various approaches towards dealing with Privilege

In ICA, there are various approaches which tribunals apply to address the issue, depending upon the facts and circumstances of the case. For each case, the tribunal must treat the parties fairly and equally and as per legitimate expectations. The common approaches adopted worldwide in ICA are as follows:

The ‘Choice of law’ approach

One strategy is the ‘choice of law’ approach – deciding the proper law governing privilege. The general principles regarding choice of law in ICA form the basis for any choice of law decision regarding legal privilege as well. The trouble with this is that there is no consensus in ICA community concerning whether privilege is a substantive or a procedural issue (this is dealt with in later part of this post). It is hence not as basic as choosing between the substantive governing law of the agreement and the procedural law of the arbitral seat.

Most favoured nations (‘MFN’) approach

As per this approach, the tribunal chooses the law that provides the greatest level of protection (although in some cases it may be difficult to determine which privilege rules are most favourable).[13] The MFN approach has the obvious advantage of treating the parties equally. Moreover, such an approach will do justice to the reliance interests of the parties because they could be confident that they would never be required to produce information that is considered privileged under their own laws. [14] On the other hand, this approach results in parties enjoying a greater level of privilege protection than it would legitimately expect under its own laws.

Least favoured nations (‘LFN’) approach

This approach includes the tribunal picking the law that gives the most minimized shared variable (lowest common denominator) regarding protection against disclosure of favored material.[15] Like the MFN approach, the LFN approach has the upside of treating the parties equally. Notwithstanding, one party will be denied the security that it could really expect under its domestic laws. Forced disclosure by that party may set up a future challenge to the award. It additionally may cause troubles for attorneys, for that client, if they are civilian lawyers. While this approach may not fulfill the legitimate expectations of the two parties, it constitutes minimal impedance with the accessible proof, and henceforth, the search for truth.

‘Closest connection’ or ‘Centre of gravity’ approach

This approach includes recognizing the law with the nearest association with the documents or communications in question. This might not be quite the same as the governing law of the underlying contract or the law of the seat. [16] The test includes a multi-factorial approach.[17] Several components, for example, the nature of the proof and where the document was made are relevant to the nexus between the evidence tried to be revealed and the privilege regime(s). Notwithstanding the level of association with at least one legal regime, tribunals are for the most part tilted to consider other variables such as standards of due process and the effect of their choice on the enforceability of their award. Arbitral due process incorporates standards of justice, fairness and equality of arms. These standards forced on arbitral courts are cherished in a few institutional arbitration rules and additionally national arbitration laws.

Matter of procedure or substance

There is an absence of accord concerning whether privilege is procedural or substantive in nature. In common law countries privilege has a tendency to be dealt with as substantive in nature. Conversely, in civilian jurisdictions it has a tendency to be dealt with as procedural in nature.[18]

Under English law, privilege is typically considered as being substantive, albeit some uncertainty remains. Lord Scott expressed in the landmark English case of Three Rivers [2003] EWCA Civ 474 that “there has been some debate as to whether [the right to legal advice privilege] is a procedural right or a substantive right. In my respectful opinion the debate is sterile. Legal advice privilege is both”.  In the United States, the courts address privilege as an issue of substantive law, at any rate as regards US diversity cases.  The position is less clear in civil law jurisdictions, where issues of admissibility and weight of evidence are in some cases recognized from the gathering of evidence with the former being substantive and the latter procedural.

If procedural, the lex arbitri will typically provide that absent party agreement, it is for the Arbitral Tribunal to determine the procedural and evidentiary matters at its discretion.[19] Conversely, if privilege is substantive in nature, adroitly the tribunal ought to apply conflict of law rules at the seat of arbitration. The tribunal at that point decides the relevant principles of law to be applied in resolving the privilege dispute. Strikingly, there is no committed conflict of law rule to decide the pertinent law in privilege disputes.[20].

Conclusion and Suggestions

In my view, given the farfetchedness of a prior agreement between the parties on issues of privilege, the advancement of a reasonable default rule –, for example, the ‘most favoured nation’ approach – might be the best arrangement. Likewise, there is some quality to the recommendation that guidance on the way to deal with privilege ought to be consolidated into institutional rules so that the arbitrators have a reference point on which to base their choices and parties would not be put to the cost of belligerence over the correct approach. This could offer parties more certainty with reference to what will or won’t be favored at the critical point before a document is made.

Privilege in ICA is mind boggling. It can’t sensibly be proposed something else. In any case, the comprehension of that intricate position is significantly further developed than current national laws, institutional standards, and principles of evidence might tend to indicate. As a general rule, there is an accord with regards to the principal alternative approaches which are accessible to tribunals. It is time that this agreement was perceived, through a detailing which isn’t prescriptive, however which advances conviction without constraining the tribunal’s discretion in this vital territory.

Based on my reading of the issues following are some of my suggestions to address the issue:

  • My first recommendation is to just forbid any evidentiary benefits in ICA. This approach will advances arbitral precision and proficiency however some trade off hosts to be finished with party expectations and fairness.
  • In alternate, I would suggest to just permit all attorney-client exchanges to be privileged for all proceedings. It would be effortlessly relevant and could expand the productivity of arbitration procedures by generally taking out the need to ask into these issues
  • Another suggestion is to have the tribunal apply the home country privilege rule for each party. This standard would put the parties on contrasting playing fields in negation of the essential idea of equivalent treatment.
  • Further, the tribunal could be permitted to make a determination as to each party’s home country privileges and consistently apply the standard that is the slightest defensive. This hosts the advantage of treating the parties similarly, effectuating the desires of at least one party, and to some degree advancing arbitral precision by permitting the confirmation of more probative evidence.
  • Finally, tribunals can apply the privilege standard set forward by the parties that is the most defensive of the attorney-client privilege.

[1] “Privilege in international arbitration”, Jane Player, Claire Morel de Westgaver, retrieved from https://www.twobirds.com/en/news/articles/2012/privilege-and-prejudice

[2] Cowley, R. “Conflict of privilege rules in international arbitration: A call for clearer guidance”. Retrieved from http://www.nortonrosefulbright.com/knowledge/publications/142444/conflict-of-privilege-rules-in-international-arbitration

[3] Tevendale and Cartwight-Finch, ‘Privilege in International Arbitration: Is it Time to Recognise the Conesus?’ (2009) 26 Journal of International Arbitration 823 at p. 826

[4] Nathan O’Malley, ‘The Procedural Rules Governing the Production of Documentary Evidence in international Arbitration – As Applied in Practice’ (2009) 8(1) The Law and Practice of International Courts and Tribunals 27 at p.28

[5] International Bar Association, IBA Rules on the Taking of Evidence in International Arbitration, Foreword (2010).

[6] Ibid

[7] Id. at art. 3, §§ 2-5.

[8] at Art. 9, §§ 1-2 (emphasis supplied)

[9] at Art. 9, § 3.

[10] International Centre for Dispute Resolution, International Dispute Resolution Procedures, art. 19, §§ 1,3 and art. 20, § 6. (2009).

[11] Arbitration Law of Sweden: Practice and Procedure. Juris Publishing 2003 at p. 260

[12] Ibid p. 261

[13] Jeffrey Waincymer, ‘Procedure and Evidence in International Arbitration’(Kluwer Law International, 2012) at [10.17.6]

[14] Klaus Berger, ‘Evidentiary Privileges: Best Practice Standard versus/and Arbitral Discretion’ (2006) 22(4) Arbitration International 501 at p. 519

[15] Jeffrey Waincymer Supra Note 11 at [10.17.5]

[16] Klaus Berger Supra Note 12 at p. 511

[17] Nathan O’Malley, Supra Note 2 at p. 55

[18] Waincymer Supra Note 11 [10.17.3]

[19] RetoMarghitola, ‘Document Production in International Arbitration’(Kluwer Law International, 2015) 70-89 at p.88

[20] Klaus Berger Supra Note 12 at p. 507-508

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