Managing privilege issues in international arbitration

Out-Law Guide | 07 Nov 2019 | 12:48 pm | 5 min. read

Civil and common law jurisdictions treat lawyer-client confidentiality very differently, which can lead to challenges where international arbitration proceedings can involve parties and arbitrators hailing from a number of jurisdictions.

A common problem faced by parties in these situations is deciding the privilege rules which should apply to their disputes.

For instance, while the idea of lawyer-client confidentiality appears in various forms in almost every legal jurisdiction, the concept of 'litigation privilege' - where certain documents relating to legal proceedings cannot be ordered to be produced - is unique to common law jurisdictions such as Singapore, Australia and the UK. Such a concept, however, appears to be absent in civil law jurisdictions.

Notwithstanding the above, the treatment of privilege varies considerably across civil law jurisdictions so, as an example, we will refer to Swiss law's approach to attorney secrecy.

The problem

The divergence in the approaches of common law and Swiss law (civil) can be illustrated in the following aspects.

Generally, only communications concerning legal advice and litigation are protected by legal advice and litigation privilege under common law. Facts underlying those communications are not protected. Attorney secrecy, by contrast, protects any knowledge an attorney gains in their role as an attorney including facts, irrespective of how it was obtained.

Privilege-related conflicts are often hotly disputed – often leading to greater costs to be incurred by parties.

Privilege can be invoked by a lawyer or their client, and extends to in-house counsel and corporate clients. Attorney secrecy can only be invoked by an attorney when ordered to testify in court or to produce documents. It does not apply to in-house counsel and cannot be invoked by a corporate client, although an attorney may invoke protection on behalf of a corporate client.

Consider a scenario in which a dispute has arisen between a Singaporean company and a Swiss company. The Singaporean company possesses documents which are vital to the Swiss company's claim, but refuses to produce them on the grounds that they were prepared by the company's in-house counsel and therefore protected by privilege. The Swiss company, however, believes there is no reason for protection. Attorney secrecy does not distinguish between the types of employees in a corporation whether in-house counsel or otherwise;, and once a document is in the client's possession it can no longer benefit from protection.

Existing approaches

Unfortunately, there is currently a lack of formal guidance in this area whether in institutional rules or arbitration legislation. This means that parties, who are already in dispute, are left to their own devices to agree on matters of privilege. In our experience, such privilege-related conflicts are often hotly disputed – often leading to greater costs to be incurred by parties. When dealing with such matters, practitioners tend to favour a 'most protective privilege' or 'most favoured nation' approach where conflicts on privilege arises. But is that necessarily the best approach?

Different arbitral tribunals have applied different legal approaches where a privilege-related conflict arises. Broadly speaking, arbitral tribunals tend to choose between two types of approaches:

  • the choice of law approach; and
  • the 'most favoured nation' approach.

The choice of law approach

The choice of law approach works on the simple premise that the law of the jurisdiction is the law with the 'closest connection' to the documents or communications, or the dispute in question. The factors which tribunals have considered when undertaking the choice of law approach include, but not limited to:-

  • the law governing the parties' agreement or contract;
  • the law of the place that the parties have selected as the seat of the arbitration;
  • the law of the jurisdiction where the party claiming protection resides;
  • the law of the place where the communication or information was created;
  • the law of the place to which the communication or information was sent;
  • the law of the place where the record of the communication is stored;
  • the law of the place where the lawyer with whom the communication took place is admitted;
  • the law of the judicial forum where enforcement of any order or award will be sought;
  • general principles, without reference to any national law.

However, the choice of law approach has been criticised for a multitude of reasons. Primarily, the choice of law approach can give rise to arbitrary results which were never intended by the parties in the first place. What if the party claiming protection is a multinational corporation; or the communication was sent to more than one place? What if the communication was 'stored' across different jurisdictions or in the 'cloud', which is a commonplace occurrence with modern technology; or the lawyer is admitted in multiple jurisdictions or is an in-house lawyer?

Gary Born, in his leading text on international commercial arbitration, considered the choice of law approach. In doing so, he contemplated three factors commonly used when deciding on the proper choice of law: the law of the place where the lawyer is qualified to practice; the law of the place where the client is based; and the law of the place where the communication is made.

While academics appear to frown upon the most protective privilege rule, our view is it is the most practical.

Of the three, Born favoured the law of the place where the lawyer is qualified to practice. External lawyers are often more alert to issues of privilege, and should be well-placed to consider such issues from the perspective of their own legal system. On the other hand, the law of the place where the client is based may present certain difficulties, given the rising numbers of international companies with offices in different jurisdictions. Of the three tests, Born favoured the law of the origin of communication the least. In his opinion, the place where the communication is made is often fortuitious (and not intended by parties), and as such has little place in the resolution of international disputes.

The 'most favoured nation' approach

In contrast, the 'most favoured nation' approach requires the tribunal to choose the law which offers the most extensive privilege protection to the parties. In short, the 'most favoured nation' approach appears to guarantee that parties' minimum expectations as to the boundaries of privilege are met. Consequently, and perhaps inevitably, this may go on to grant greater privilege protection to a party who may not be expecting it.

Born also considered the 'most protective privilege' or 'most favoured nation' rule, which is preferred by practitioners. His view is that there is only a "superficial appeal" to this approach, as it is difficult to justify granting one party legal rights that it would not otherwise possess simply because its opponent enjoys them. However, he admits that it would be unfair to permit one party to rely on national privilege rules as a reason to withhold relevant materials from disclosure while requiring a counterparty to produce what are arguably similarly situated documents.

The International Bar Association (IBA) 2010 Rules on the Taking of Evidence (the IBA Rules) arguably came closest to creating an international standard on how disputes over privilege should be resolved. The IBA Rules state that an arbitral tribunal must account for "the expectations of the parties and their advisors at the time the legal impediment or privilege is said to have arisen". However, the tribunal must equally consider "the need to maintain fairness and equality as between the parties" when each is subject to different legal and ethical rules. This appears to lend support to the 'most protective privilege rule' in international arbitration.

To go back to our scenario, if the most protective privilege rule is adopted by the arbitral tribunal, the Singaporean company would likely be entitled to rely on its expectation that the documents would be privileged - but it would not then be entitled to compel disclosure of similar documents from its Swiss counterpart.

While academics like Gary Born appear to frown upon the most protective privilege rule for being a tool of rough justice lacking in analytical basis, our view is it would be practical for parties and tribunals to consider adopting the 'most favoured nation' approach. The savings in time and costs from not having parties and arbitral tribunal tussle over the sticky problem of privilege do appear to go some way in promoting expediency and cost-effectiveness in international arbitrations.

Research by Wynne Tay and Jason Yong, international arbitration experts at Pinsent Masons, the law firm behind Out-Law.