TeCSA & TECBAR Symposium: The Modern Law of Privilege – is it fit for purpose?
25 June 2013
Privilege in International Arbitration
Rupert Choat, Head of Construction Disputes, Partner and Solicitor Advocate, CMS Cameron McKenna LLP[1]
- Introduction
1.1One of the advantages of arbitration is that the strict rules of evidence do not necessarily apply. This is particularly useful in the context of international arbitration as it provides a certain amount of flexibility which can be important where parties of different legal backgrounds and cultures are in dispute. However, this flexibility has the potential to give rise to some quite tricky problems for international arbitration practitioners in relation to the admissibility of evidence for which claims of privilege are made. This paper briefly considers some of the issues that can arise in this area.
- The Issues
2.1The problems are best illustrated by considering a hypothetical arbitration case:
2.1.1CO (a main contractor from a common law system) engages CIVIL (a subcontractor from a civil law system) under a subcontract incorporating the FIDIC Conditions of Subcontract for Construction 2011.
2.1.2CIVIL makes a claim against CO for extensions of time and additional costs. CO disputes the claim and the dispute is eventually referred to arbitration. In the arbitration proceedings:
(a)CIVIL seeks disclosure of CO’s note of a without prejudice meeting between CO and its Employer, in which (as CIVIL rightly suspects) both parties recognise the merit of CIVIL’s claim (the “Note”); and
(b)CO seeks disclosure of advice given by CIVIL’s in-house lawyer, which (CO rightly suspects) is prejudicial to CIVIL’s claim (the “Advice”).
2.1.3Under the law of CIVIL’s “home country” (that of the party requesting disclosure), the Note may not be privileged (for example, this would appear to be the position under the law of the state of Qatar); under the law of CO’s “home country” the Note may be protected from disclosure on the basis of “without prejudice” privilege (e.g., under English law, as in Rush & Tompkins Ltd v Greater London Council (1989) AC 1280).
2.1.4Under the law of CIVIL’s “home country”, the Advice may not be privileged (this appears to be the position, for example, under Swiss law, where attorney/client privilege only attaches to external counsel, not to employed counsel); under the law of CO’s “home country” the Advice is privileged (e.g. legal advice privilege under English law).
2.1.5Thus, in the case of the Note, the document may not be privileged under the law of the “home country” of the party seeking disclosure (i.e. the legal system it is most familiar with) but may be privileged under that of the party who created it.
2.1.6In the case of the Advice, the problem is the reverse: the document would be privileged under the law of the “home country” of the party seeking disclosure, but might not be privileged under that of the party who created it.
2.1.7How should these types of issues be resolved?
- Fairness, the expectations of the parties and applicable laws
3.1In resolving these issues, the fundamental principle that arbitral tribunals should usually be expected to apply are to treat the parties fairly and give each party an opportunity of advancing its case and meeting that of its adversary. This principle is well established in the arbitration laws in a large number of jurisdictions: e.g.
3.1.1In England and Wales, AA96, section 33(1):
“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)adopting 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 falling to be determined.”
3.1.2UNCITRAL Model Law on International Arbitration (1985 with amendments 2006), Article 18:
“The parties shall be treated with equality and each party shall be given a full opportunity of presenting its case.”
3.2In addition, arbitral tribunals should generally be expected to take into account the legitimate expectations of the document creators as to the admissibility of such documents as evidence, with a view to avoiding unwelcome procedural surprises.
3.3Arbitral tribunals generally should also be expected to take into account the relevant laws that could be said to apply to the privilege issues that have arisen. Indeed, tribunals are usually required to decide the dispute before them in accordance with the law chosen by the parties as applicable to the substance of the dispute (see AA96, section 46(1) and UNCITRAL Model Law on International Arbitration (1985 with amendments 2006), Article 28).
3.4However, these approaches may not necessarily provide an obvious answer to the questions raised in the hypothetical case: for example, taking into account the legitimate expectations of the creator of the Advice would lead to the conclusion that it was not privileged and should be disclosed; fairness, however, might lead to the opposite conclusion. On the other hand, both the legitimate expectations of the creator of the Note and fairness might lead to the conclusion that the Note need not be disclosed.
- Arbitration Rules and Privilege
4.1If the arbitration rules that have been agreed by the parties address the question of privileged documents, the arbitral tribunal can be expected to apply those rules.
4.2However most institutional and standard arbitration rules (including the Rules of the ICC, the LCIA and UNCITRAL) are silent on the question of privilege.
4.3The International Dispute Resolution Procedures of the American Arbitration Association provide:
“The tribunal shall take into account applicable principles of legal privilege, such as those involving the confidentiality of communications between a lawyer and client.” (Article 20.6)
But this is of limited assistance, since the crucial question of what the applicable rules of privilege are is left open.
4.4Usually the arbitration law of the seat of the arbitration leaves it to the arbitral tribunal to decide matters such as the admissibility of evidence: e.g.
4.4.1AA 1996, section 34 expressly provides for this:
“(1)It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter.
(2)Procedural and evidential matters include –
(d)whether any and if so which documents or classes of documents should be disclosed between and produced by the parties…..
(f)whether to apply strict rules of evidence (or any other rules) as to the admissibility, relevance or weight of material ….. sought to be tendered on any matters of fact …..”
4.4.2UNCITRAL Model Law on International Arbitration (1985 with amendments 2006), Article 19:
“….the arbitral tribunal may, subject to the provisions of this Law, conduct the arbitration in such manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence.”
4.5The same is true of the standard arbitration rules frequently chosen by parties:
4.5.1ICC Arbitration Rules (2012), Article 19:
“The proceedings before the arbitral tribunal shall be governed ……., where the Rules are silent, by any rules which the parties or, failing them, the arbitral tribunal may settle on, whether or not reference is thereby made to the rules of procedure of a national law to be applied to the arbitration.”
4.5.2ICC Arbitration Rules (2012), Article 25.1:
“The arbitral tribunal shall proceed within as short a time as possible to establish the facts of the case by all appropriate means.”
4.5.3LCIA Arbitration Rules (1998), Article 14.2:
“… the Arbitral Tribunal shall have the widest discretion to discharge its duties allowed under such law(s) or rules of law as the Arbitral Tribunal may determine to be applicable…..”
4.5.4LCIA Arbitration Rules (1998), Article 22.1:
“…the Arbitral Tribunal shall have the power….
(e)to order any party to produce to the Arbitral Tribunal, and to the other parties for inspection, and to supply copies of, any documents or classes of documents in their possession, custody or power which the Arbitral Tribunal determines to be relevant;
(f) to decide whether or not to apply any strict rules of evidence (or any other rules) as to the admissibility, relevance or weight of any material tendered by a party on any matter of fact….”
4.5.5UNCITRAL Arbitration Rules (2010), Article 27:
“3.At any time during the arbitral proceedings the arbitral tribunal may require the parties to produce documents, exhibits or other evidence within such a period of time as the arbitral tribunal shall determine.
4.The arbitral tribunal shall determine the admissibility, relevance, materiality and weight of the evidence offered.”
- Privilege and the IBA Rules on the Taking of Evidence in International Arbitration
5.1The IBA Rules on the Taking of Evidence in International Arbitration (the “IBA Rules”) are intended to strike a balance between the civil law and common law approaches to the disclosure process in arbitrations. The IBA Rules provide for each the party to submit to the arbitral tribunal and to the other party the documents upon which it relies (Article 3.1) and for each party to request the other party to produce specific documents or classes of documents that the requesting party requires (Article 3.2). This is very similar to one of the so-called “menu options” in the new CPR31.5 introduced by the Jackson Reforms (see CPR31.5(7)(b)).
5.2The IBA Rules only apply if the parties agree to adopt them, but the parties can agree:
5.2.1to adopt them in part only;
5.2.2to vary them; or
5.2.3to use them as guidelines in developing their own procedures.
(see Preamble paragraph 2)
5.3The 2012 International Arbitration Survey by Queen Mary University of London School of International Arbitration (sponsored by White & Case) reported that the IBA Rules were used in 60% of arbitrations (in 53% as guidelines and in 7% as binding).
5.4The IBA Rules contain provisions regarding privilege. In their current version (2010) they provide that:
5.4.1Each party may serve a request to produce documents on the other, identifying the documents requested and the reasons why they are relevant to the case and material to its outcome (Articles 3.2-3.3).
5.4.2A party receiving a request may object to produce requested documents on grounds, inter alia, of “legal impediment or privilege” under the legal or ethical rules determined by the Arbitral Tribunal to be applicable (Articles 3.5 and 9.2(b)).
5.4.3Either party may request the Arbitral Tribunal to rule on the objection to produce (Article 3.7).
5.4.4If a party fails without satisfactory explanation to produce any document ordered to be produced by the Arbitral Tribunal, the Arbitral Tribunal may infer that such document would be adverse to the interests of that party (Article 9.5).
5.4.5In considering issues of legal impediment or privilege, and insofar as permitted under any mandatory legal or ethical rules that are determined by it to be applicable, the Arbitral Tribunal may take into account, inter alia:
(a)any need to protect the confidentiality of a document created or statement or oral communication made in connection with and for the purpose of providing or obtaining legal advice (Article 9.3(a) – e.g. English law legal advice privilege – in R (on the application of Prudential plc and anr) v Special Commissioner of Income Tax and anr [2013] UKSC 1 the Supreme Court confirmed (somewhat reluctantly) that legal advice privilege extended to legal advice provided by foreign lawyers “without (it would seem) regard to their particular national standards, regulations or rules with regard to privilege” (Lord Neuberger, at paragraph 45). Lord Neuberger observed that this rather undermined the principled justification for legal advice privilege being confined to cases where the advice is given by professional lawyers (see paragraph 73) (such justification was based, for example, on duties owed to the Court by members of the legal profession); Lord Sumption, on the other hand, argued that it was a reflection of the functional approach which English law has always taken to legal advice privilege (see paragraph 123));
(b)any need to protect the confidentiality of a document created or statement or oral communication made in connection with and for purpose of settlement negotiations (Article 9.3(b) – e.g. English law “without prejudice” privilege);
(c)the expectations of the parties and their advisors at the time the legal impediment or privilege is said to have arisen (Article 9.3(c)); and
(d)the need to maintain fairness and equality as between the parties, particularly if they are subject to different legal or ethical rules (Article 9.3(e)).
5.4.6The arbitral tribunal must, at the request of a party or on its own motion, exclude any document from evidence or production on the grounds of considerations of procedural economy, proportionality, fairness or equality of the parties that the arbitral tribunal determines to be compelling (Article 9.2(g)).
5.5The IBA Rules provide some assistance towards resolving issues regarding privilege; but they still leave open the question of exactly how the arbitral tribunal should decide what legal or ethical rules should be applied to any alleged “legal impediment or privilege” (see paragraph 5.4.2 above).
- The hypothetical arbitration case – consideration of laws relating to privilege
6.1In the hypothetical arbitration case outlined in paragraph 2, a number of different systems of law are potentially relevant to the questions which the arbitral tribunal must address.
6.2The law of the sub-contract:
6.2.1the FIDIC Subcontract (clause 1.8) provides that the law that governs the main contract will also govern the Subcontract. It may be doubted, however, whether this, or indeed most choice of law clauses, are to be read as including a reference to the law relating to privilege;
6.2.2further, the question of privilege may, under that chosen law (assuming that the clause does not exclude the chosen law’s conflicts of laws rules[2]), be a question of procedure rather than a question of substantive law. Common law systems tend to regard privilege as a substantive right whereas civil law systems generally regard such matters as procedural questions. Under English law, for example, legal advice privilege is a substantive right which belongs to the client (see R (on the application of Prudential plc and anr) v Special Commissioner of Income Tax and anr [2013] UKSC 1 paragraph 114). The position in regard to “without prejudice” privilege in English law is less clear. The rule rests partly upon public policy and partly upon an implied agreement by the parties that the relevant communications would not be referred to in court proceedings (see Prudential Insurance Company of America v Prudential Assurance Company Ltd [2003] EWCA Civ 1154 paragraphs 10-13). If the former is taken as the basis, it seems that it is a procedural rule (and (under English law) not capable of being given extraterritorial effect – see Prudential paragraph 20), if the latter is taken as the basis, it is a substantive right of the parties (capable of being enforced extraterritorially, subject to the relevant jurisdictional gateways permitting). For parties entering into “without prejudice” discussions in jurisdictions where it is uncertain whether privilege will apply, it is sometimes worthwhile, before engaging in the discussions, entering into a non-disclosure agreement with the other side with financial penalties for breach.
6.3The law of the seat of the arbitration:
6.3.1If the parties have chosen the seat in their contract, it may be doubted whether this necessarily means that they have chosen the law of the seat as the law applicable to the question of whether a document is privileged. This is even less likely where the parties do not choose the seat until after the arbitration has commenced, and therefore after the documents in question (the Advice and the Note) were created;
6.3.2again, the question of whether, under the conflicts of laws rules of the law of the seat, privilege is a procedural or a substantive right may affect the question of the relevance of the law of the seat.
6.4The law of the place where the document was created or communicated:
6.4.1If there is a close connection between the creation or communication of the documents in question and the country in which such creation or communication occurred, for example if the documents were created or communicated in the country where the party concerned had its principal place of business or where the construction site was located, there may be much to be said for giving considerable weight to the provisions of that law regarding privilege. On the other hand, if the place of creation or communication of the documents was purely incidental, the position would be very different.
6.5The law of the jurisdiction where the lawyers involved practise:
6.5.1Again, there may be a strong case for giving weight to this law if there is a close connection between the place where the lawyers concerned practise and the creation or communication of the documents concerned. The position may not be clear where the lawyers practise in more than one jurisdiction, particularly where different rules regarding privilege apply in those jurisdictions;
6.5.2the case for giving considerable weight to this law may be particularly persuasive where the lawyers involved may be prevented from disclosing the documents by the ethical rules that govern their conduct as lawyers.
6.6Where there has been a joinder of arbitrations (as contemplated by alternative Clause 20 of the FIDIC Subcontract), there may be further potentially relevant laws to consider.
6.7When considering the arguments as to whether the Advice and the Note are privileged, the arbitral tribunal might reach the conclusion that it would be advantageous for them to look at the documents concerned. This creates obvious difficulties. Should the arbitral tribunal choose to go down this route, they may be faced with allegations of bias and calls for their removal and the appointment of a new tribunal (for arbitrations seated in England, see Brown v CBS (Contractors) [1987] 1 Lloyd's LR 279; Francis James v Griffin Shopfitters Ltd, 8 March 1991 (unreported)). This can be avoided if the IBA Rules, mentioned in paragraph 5 above, are adopted (or the approach that they provide for is followed). The IBA Rules contain provision for the tribunal to appoint an independent and impartial expert, bound by confidentiality, to review a document to which objection to produce has been taken and to report on the objection (Article 3.8).
- Other approaches
7.1A consideration of the various laws relating to privilege may not provide a clear answer to the problem of disclosure. In the hypothetical case outlined in paragraph 2 of this paper, for example, it may be considered inequitable to direct that CIVIL should disclose the Advice if CO could not be directed to disclose similar advice in its possession. Other approaches may therefore be necessary.