Privilege in international arbitration

01 October 2009

Jane Player, Claire Morel de Westgaver

Issues of privilege often arise in international arbitration and yet the predictable outcome lacks certainty.  In the absence of an agreement by the parties, whether in the form of a reference to arbitration rules or a specific consensus, questions as to whether materials are protected by privilege remain at the discretion of the Tribunal.  Given the disparity in privilege regimes, there is a real risk inherent in discrepancies between the parties’ expectations at the time of the communication and what is subsequently deemed privileged by an arbitral panel.

This practical note aims to identify the areas which may need to be considered at an early stage in the relationship and to explore solutions extracted from common international arbitration practice. 

Availability of privilege in international arbitration

Like all arbitration regimes worldwide, the Arbitration Act 1996 (“Act”) is silent on the existence and treatment of issues of privilege.  Section 34 only provides that subject to the right of the parties to agree, the tribunal shall decide all procedural and evidential matters including “whether any and if so which documents or classes of documents should be disclosed between and produced by the parties and at what stage” and “whether any and if so what questions should be put to and answered by the respective parties and when and in what form this should be done”.  Under the terms of Section 34, unless the parties reach an agreement, tribunals have full discretion to decide all issues of privilege including its availability in arbitral proceedings. 

As a result, parties intending to resist claims of privilege might try to argue that by entering into an arbitration agreement, parties have waived their right to privilege or that privilege is a matter of procedure only and therefore only applies in the context of litigation and not in international arbitration.  However, parties running these arguments are unlikely to convince experienced arbitrators.  Section 43(4) of the Act suggests that tribunals should give effect to privilege assertions.  This provision states that “a person shall not be compelled by virtue of this section to produce any document or other material evidence which he could not be compelled to produce in legal proceedings.”  While Section 43(4) concerns the assistance of the court in relation to oral testimony and production of documents by witnesses rather than by parties, one may argue that its rule ought to be applied equally to parties.   More importantly, as a matter of practice it is usually accepted that privilege is available in arbitral proceedings and that an agreement to arbitrate does not amount to a waiver of the right to claim privilege.

Arbitration rules

Most of the leading arbitration rules, such as the arbitration rules of the LCIA, ICC, SCC and WIPO do not provide guidance on privilege. As a result, unless they can reach an agreement, parties are left in the hands of the tribunal.  A few sets of rules do make reference to privilege and in particular, legal professional privilege.

The International Arbitration Rules of the International Centre for Dispute Resolution (ICDR Rules) provide in their Article 20(6) that the tribunal “shall take into account applicable principles of legal privilege, such as those involving the confidentiality of communication between a lawyer and a client”.  Similarly, Rule 12.2 of the International Institute for Conflict Prevention and Resolution Rules for Non-Administered Arbitration states that: “[t]he Tribunal is not required to apply the rules of evidence used in judicial proceedings, provided, however that the Tribunal shall apply the lawyer-client privilege and the work product immunity. The Tribunal shall determine the applicability of any privilege or immunity and the admissibility, relevance, materiality and weight of the evidence offered.”  Finally, Article 38 of the Zurich Rules of Arbitration states inter alia that: “a witness may…refuse testimony which would infringe official or professional secrecy protected by criminal law, unless the witness has been freed of its secrecy obligations”.  The traditionally restricted disclosure and the nature of privilege in civil law jurisdictions may explain the slightly more limited scope of this last provision.

Moreover, Article 9(2)(b) of the IBA Rules on the Taking of Evidence in International Commercial Arbitration (“IBA Rules on Evidence”) – which are now commonly used as guidelines by international tribunals – states that arbitrators shall, at the request of a party or on their own motion, exclude from evidence or production any document, statement or oral testimony or inspection for any of the listed reasons, which include “legal impediment or privilege under the legal or ethical rules determined by the tribunal to be applicable”.  The same list further includes grounds such as commercial or technical confidentiality as well as special political or institutional sensitivity, particularly relevant in Bilateral Investment Treaty arbitrations.  If agreed upon, Article 9(2) should alleviate the concerns of parties engaged in arbitral proceedings at least with regard to their ability to claim good faith privilege assertions with a view to resist disclosure of documents or information.   

Law governing privilege and the tribunal’s discretion

In practice, in instances where privilege claimed is recognised under all the relevant legal systems, arbitrators might not be required to determine the law applicable to privilege assertions.  However, considerations pertaining to conflict of law issues may prove inevitable for parties coming from divergent legal cultures; not least because rules as to the existence, nature and scope of privilege as well as exceptions and waiver vary considerably from one jurisdiction to another.  By way of example, while generally considered as a rule of disclosure or evidence in common law countries, the lawyer-client privilege in contrast may be treated as a professional conduct duty or “professional secret” in civil law countries.  Equally, depending on the jurisdiction, privilege may or may not cover communications between an in-house counsel and the client.  Without prejudice communications and settlement discussions can also be treated very differently depending on the relevant legal system.

The general rule to ascertain the law applicable to a particular question in international arbitration is to ask oneself whether it is a matter of substance or procedure and apply accordingly either the substantive law chosen by the contract or the relevant conflict of law rule, or the lex arbitri (usually law of the place of arbitration).  Such reasoning, however, proves inadequate in respect of privilege. 

First, whether privilege is a matter of procedure or substance is unclear and again varies according to different jurisdictions.  Under English law, privilege is usually considered as being substantive, although some ambiguity remains. Lord Scott stated in the landmark English case of Three Rivers 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 least as regards US diversity cases.  The position is less clear in civil law jurisdictions, where issues of admissibility and weight of evidence are sometimes distinguished from the collection of evidence with the former being substantive and the latter procedural. 

Second, in addition to the law governing the dispute and the lex arbitri, further privilege rules need to be considered as possibly applicable to issues of privilege.  Depending on the privilege claimed, 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, may be relevant. Further, with regard to lawyer-client privilege, the law of the jurisdiction where the lawyer giving the legal advice is admitted and the law of the jurisdiction where the client receiving the advice is based may play a part in the analysis.

In practice, tribunals tend to apply the relevant choice of law rules or simply the “closest connection” or “centre of gravity” test in order to determine the law applicable to privilege to avoid making the substantive v procedural analysis.  Several elements such as the nature of the evidence and the place where the document was created are relevant to the nexus between the evidence sought to be disclosed and the privilege regime(s). For example, arbitrators will usually recognise a strong link between communications made as part of a mediation and the jurisdiction where the mediation took place, or between communication between a lawyer and his client and the jurisdiction where he is admitted to practice. 

In addition to the level of connection with one or more legal systems, tribunals are generally inclined to take into consideration factors such as principles of due process and the impact of their decision on the enforceability of their award.  Arbitral due process encompasses principles of justice, fairness and equality of arms.  These principles imposed on arbitral tribunals are enshrined in several institutional rules as well as national arbitration laws. By way of example, section 33 of the English Arbitration Act 1996 provides that the tribunal shall: (a) act fairly and impartially as between the parties giving each party a reasonable opportunity of putting his case and dealing with that of his opponent; and (b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters failing to be determined.  More specific to privilege and other considerations of confidentiality, Sub-section (g) of Article 9(2) of the IBA Rules on Evidence judiciously adds “considerations of fairness or equality of the parties that the arbitral tribunal determines to be compelling” as a further ground to exclude materials from evidence.

In the context of privilege, equality of arms implies that rules are evenly applied to all parties; whereas fairness will be relevant to the arbitrating parties’ expectations of privilege to information and documents. For instance, a panel sitting in Paris would probably apply English rules of privilege to documents recording an English solicitor’s advice in respect of previous litigation held in England. In this example, to apply the privilege rules of the lex arbitri could result in a document having to be made available for inspection, despite the disclosing party’s expectations that they would have been privileged and that therefore their communication was safe.

In order to overcome difficulties inherent in conflict of law issues, tribunals have also explored alternatives based on the common denominator of the parties’ respective privilege regimes.  One consists of applying to all parties without distinction a fictive privilege resulting from the combination of protections from which each party would benefit under the law of their own jurisdiction.  This so-called “most favoured nation rule” or “most-protective privilege rule” which is recommended in the ICDR Guidelines for Arbitrators Concerning Exchange of Information certainly enables a greater level of predictability and equality.  Its application might however result in a privilege the scope of which goes beyond the regimes of the parties’ legal systems, which would presumably limit the access to relevant evidence and hence arguably jeopardise the achievement of justice and the effectiveness of the arbitral proceedings.  On the other hand, the “least favoured nation rule” also ensures that parties are treated equally but its application may require the disclosure of materials that would have been protected by privilege in the disclosing party’s legal system.  Again, this risks a challenge or refusal to enforce the arbitral award on that basis (although the authors have found no record of such a challenge).

Decision on privilege

The tribunal’s decision on privilege entails evaluating the relevant evidence and law presented by the parties, who are generally required to prove the existence and application of the privilege claimed.  In practice this means that the tribunal will determine the privilege scope and possible exceptions, and provide a ruling on the privilege to apply to each circumstance.

Once the tribunal’s decision on privilege has been issued, questions as to the enforceability and challenge of such decision may arise.  The tribunal’s ruling will typically take the form of an order, of which enforcement is not covered by mechanisms applicable to arbitral awards.  Arbitral tribunals lack power to force a party to produce documents and an order on privilege which is not complied with voluntarily, is only enforceable through a competent national court.  In England, Section 41(5) of the Act empowers tribunals to make peremptory orders to disclose documents if, without showing sufficient cause, the relevant party fails to comply with the order or directions of the tribunal.  Pursuant to Section 42 of the same act, and upon application by a party or the tribunal, the court can then make an order requiring a party to comply with such peremptory order.  In the absence of recourse to court, a party’s failure to produce documents can only result in adverse inferences drawn by the tribunal. 

Furthermore, an order, unlike a partial award, can not be challenged in the court of the place of arbitration.  As a result, unless a party can convince the court of the arbitration seat that it should intervene in support of the arbitral proceedings, a party facing an unsatisfactory decision on privilege will have to wait until the final award is delivered to attempt to set it aside on the basis of grounds available in the relevant jurisdiction. These include serious irregularity within the meaning of section 68 of the Act, public policy or misconduct in refusing to hear evidence pertinent and material to the controversy. 

Alternatively, in matters where a decision on privilege would affect the outcome of the case, parties may attempt to obtain a partial award embodying the tribunal’s ruling on privilege.  On the basis that privilege is usually deemed as a substantive issue under English law, the requesting party may argue that the privilege issue should be dealt with as preliminary issue and determined in a partial award within the meaning of section 47 of the Act.  A partial award on privilege could then be enforced through the New York Convention 1958 (if applicable) and challenged as any arbitral award.

Conclusion

If predictability is impossible, parties should seek advice and decide if the flexibility offered in international arbitration is better balanced with the option to agree rules such as the IBA Rules on Evidence, or other more unequivocal rules. Exceptions and waivers can be agreed or sought out at an early stage and some degree of protection can thus be secured.