Introduction Existing guidance Tribunal methods Privilege clause Comment

Introduction

Where parties in international arbitration come from different legal jurisdictions, disputes over what is 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.

However, the precise rules vary across jurisdictions – sometimes significantly. What is accepted as privileged in one country will not necessarily be privileged in another.(1)

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.

Existing guidance

There is very little guidance on this issue. It is almost unheard of for parties to specify expressly in their dispute resolution agreement which privilege rules will apply. Most arbitration laws and institutional arbitral rules offer little to no guidance. For example, the United Nations Commission on International Trade Law Model Law, the English Arbitration Act 1996, the International Chamber of Commerce Rules of Arbitration and the London Court of International Arbitration 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 International Bar Association Rules on the Taking of Evidence in International Arbitration 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:

  • any need to protect the confidentiality of a document created or communication made for the purpose of conducting settlement negotiations or providing or obtaining legal advice;
  • the expectations of the parties and their advisers at the time that the legal impediment or privilege is said to have arisen;
  • any possible waiver of privilege; and
  • the need to maintain fairness and equality between the parties, particularly if subject to different legal or ethical rules.

However, this does not help the parties or the tribunal to ascertain which privilege rules should be applied. Nor does it answer other crucial questions, such as the following:

  • What happens when the expectations of the parties as to privilege are different?
  • What if the parties' expectations differ from those of their own advisers, who – particularly in cross-border transactions – might be based in different jurisdictions?
  • What if privilege could be waived according to the laws of one jurisdiction, but not another?
  • How can the tribunal 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 require tribunals to "apply the lawyer-client privilege and the work product immunity". 'Lawyer-client privilege' is a generic term, but 'work product immunity' is most commonly used in the United States. However, the rules fail to confirm whether the tribunal must apply US privilege rules or whether it can read into those terms a reference to equivalent privilege rules in other jurisdictions. If so, which jurisdiction's rules should the tribunal adopt?

The International Centre for Dispute Resolution International Arbitration Rules (effective June 1 2014) are an exception, as they offer some substantive guidance, following what is commonly known as the most-favoured nation approach, as discussed below.

Tribunal methods

In practice, tribunals can deploy a number of methods 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 to avoid exposing the award to later challenge.

Choice of law approach One method is the choice of law approach, which involves determining the proper law governing privilege. The difficulty with this approach 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 (eg, 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.

Least-favoured and most-favoured nation approaches Two other methods are the least-favoured nation and most-favoured nation approaches. Under the least-favoured nation approach, the tribunal chooses the law that provides the least privilege protection. Under the most-favoured nation approach, the tribunal chooses the law that provides the most privilege protection. Each approach has the advantage of treating all parties equally. However, on balance, the latter seems the sounder method.

The least-favoured nation approach is unlikely to be acceptable to a party which would have enjoyed greater protection under other privilege laws. It can also cause serious difficulties for the parties' legal advisers if, for example, they would be committing a criminal offence in their home jurisdiction if forced to disclose information revealed to them by their clients.

On the other hand, the most-favoured nation approach ensures that the parties' minimum expectations of what is privileged are met – even though it may grant greater privilege protection to a party which may not have been expecting it.

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.

Privilege clause

Parties could deal with the question of privilege in the arbitration agreement. In theory, this is sensible, as it offers greater certainty before communications are made as to what will be protected in subsequent proceedings. It can 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 (eg, 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 United States 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 to be heavily negotiated. Most arbitration clauses are based on standard clauses and including a provision dealing with privilege is unlikely to be commercially acceptable.

Comment

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 are not put to the cost of arguing over the right approach.

This could offer parties greater certainty as to what will be privileged at the crucial point before a document is created.

For further information on this topic please contact Matthew Kirtland at Norton Rose Fulbright LLP's Washington DC office by telephone (+1 202 662 0200) or email (matthew.kirtland@nortonrosefulbright.com). Alternatively, contact Ruth Cowley or Yasmin Lilley at Norton Rose Fulbright LLP's London office by telephone (+44 20 7283 6000) or email (ruth.cowley@nortonrosefulbright.com or yasmin.lilley@nortonrosefulbright.com). The Norton Rose Fulbright website can be accessed at www.nortonrosefulbright.com.

Endnotes

(1) Please see Norton Rose Fulbright's international arbitration report issues five and six on the US and English law on privilege.

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