Part 3 Devising Rules for Attorney–Client Privilege in International Arbitration: A Draft Proposal, 11 Conclusions and Outlook
- Arbitrability — Privilege — Choice of law — Conflict of laws — Arbitral rules — Arbitration — Conduct of proceedings — Confidentiality
Comparative Overview of Concepts of Attorney–Client Privilege
11.02 The comparative overview of concepts of attorney–client privilege demonstrates that while the attorney–client privilege laws of the United States, England, Germany, and the European Union partly correspond, there are considerable differences in the nature and scope of the privilege between the laws of these jurisdictions. Differences exist, inter alia, regarding the issues of who may invoke the privilege, whether communications with in-house counsel attract privilege, whether communications with third parties are provided protection, whether communications or the underlying facts are protected, whether the privilege is lost because the communications or underlying information have been disclosed to third persons, whether the inadvertent disclosure of documents results in waiver, and to what extent the work product of the lawyer and the client is protected. These and other differences not only exist between the laws of the common law jurisdictions United States and England, on the one hand, and the law of the civil law jurisdiction Germany, on the other hand, but also between the laws of the two common law jurisdictions.
11.03 In the United States, England, and Germany, the privilege laws have developed as an element of the taking of evidence. The differences in the privilege laws can often be ascribed to the procedural particularities of each system. In particular, the scope of document production and witness examination has had an effect on the development of the privilege laws in these jurisdictions.
11.04 Due to the various differences in national privilege laws, arbitral tribunals usually cannot avoid determining the applicable attorney–client privilege standard in disputes involving parties and counsel from different jurisdictions. In a similar vein, national courts must determine the applicable privilege law in transnational civil litigation. In the United States and Germany, this determination has taken different forms. In cases involving parties from different states within the United States, US federal courts have applied the conflict-of-laws rules of the state in which they sit and thereby have mainly adopted the choice-of-law approaches used by state courts in other contexts. In total, five different approaches have been applied: (i) Sections 585 and 597 of the First Restatement, leading to the application of forum law; (ii) governmental interest analysis; (iii) the most significant relationship test of the Second Restatement; (iv) the centre of gravity test; and (v) Section 139 of the Second Restatement, resulting in the application of forum law or the law of the state that has the most significant relationship to the communication between lawyer and client.
11.05 In international cases, by contrast, US federal courts have mainly applied the touch base test or the functional approach. Under the touch base test, federal courts apply foreign privilege rules if the communications do not have a substantial connection to the United States and are not contrary to US public policy. Otherwise, they apply US law. Under the functional approach, federal courts apply US law and examine whether foreign legal professionals are functionally equivalent to US legal professionals.
11.06 The basic rule in Germany prescribes that matters of procedure are governed by the law of the forum. Most legal writers have also suggested applying German law to attorney–client privilege claims involving foreign legal professionals, provided that the latter are considered equivalent to German lawyers. They thereby implicitly characterized attorney–client privilege as a procedural matter. Insofar, the German approach is similar to the functional approach in the United States.
11.07 The CJEU and the GC have not applied national law to determine the privilege standard applicable in EU competition law investigations. They have also not created a privilege standard based on the broadest protection provided under the national laws of all Member States of the EU. Instead, they have chosen to devise an autonomous European standard inspired by the national privilege laws of the Member States.
11.08 In judicial assistance proceedings under the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters and Council Regulation (EC) No 1206/2001 of 28 May 2001 on cooperation between the courts of the Member (p. 325) States in the taking of evidence in civil or commercial matters, third persons summoned to testify or requested to disclose certain documents may rely on two different national laws: the law of the state where the judicial proceeding takes place or the law of the state where the evidence is to be obtained. As they may invoke the privilege rules of the state that provides the wider protection, this approach is referred to as the ‘most protective rule’.
Applicable Attorney–Client Privilege Standard in International Commercial Arbitration
11.10 Privilege is to be characterized as procedural. The legal framework governing procedural matters in international commercial arbitration, consisting of the national arbitration legislation at the seat of arbitration, and, where agreed, institutional arbitration rules or the UNCITRAL Rules and other soft law instruments such as the IBA Rules, does not contain substantive rules defining the scope of attorney–client privilege, nor does it specify how to determine the applicable privilege standard. Rather, arbitral tribunals have substantial discretion regarding the determination of the applicable privilege standard.
11.11 This discretion is restricted by the mandatory rules of the lex arbitri. While attorney–client privilege is not of a mandatory nature, the equal treatment of the parties and each party’s right to present its case constitute mandatory procedural provisions that arbitral tribunals need to respect to avoid the annulment of the award. The discretion of the arbitral tribunal is further limited in that arbitral tribunals need to recognize attorney–client privilege as a valid legal defence in order to avoid jeopardizing the enforceability of the arbitral award under the New York Convention. By contrast, the arbitral tribunal is not restricted in that it must apply the national privilege law of the place of enforcement. Moreover, the arbitral tribunal may choose between devising an autonomous standard and applying national privilege laws without risking the enforceability of the award.
11.12 Four potential approaches to determining the applicable attorney–client privilege standard exist: (i) the reference to general principles; (ii) the application of a single national law determined through a choice-of-law approach; (iii) the cumulative application of the national laws connected with the relevant lawyer–client communication; or (iv) devising an autonomous substantive standard. The general principles and the cumulative approach are generally to be preferred over the other two approaches. However, these options are often unavailable for the lack of clearly defined general principles and for the differences in the national laws on attorney–client privilege. If that is the case, arbitral tribunals should adopt (p. 326) the closest connection test to determine the applicable national laws. The closest connection is presumed to be with the domicile of the party claiming privilege. Arbitral tribunals should abstain from devising autonomous privilege standards, as lawyer and client are not in a position to foresee such standards at the time of their communications.
11.13 When arbitral tribunals apply the parties’ national privilege laws, they should level the playing field and apply the same privilege standard to both sides. In doing so, to foster predictability and certainty, and to not defeat the legitimate expectations of the parties, arbitral tribunals should apply the most protective privilege rules instead of the lowest common denominator of national laws.
Applicable Attorney–Client Privilege Standard in Investor–State Arbitration
11.14 In NAFTA Chapter Eleven arbitrations, the majority of arbitral tribunals have declined to apply national privilege laws. They have instead crafted free-standing standards on attorney–client privilege, work-product protection, and Cabinet privilege. Nevertheless, they have frequently considered national case law from the United States, Canada, and other common law jurisdictions to identify commonly applicable principles.
11.15 While an autonomous NAFTA standard appears to be emerging with respect to many core aspects of attorney–client privilege, an international standard of attorney–client privilege to which arbitral tribunals constituted under investment treaties other than NAFTA could refer has not yet evolved.
11.16 In investor–state arbitrations outside the NAFTA context, arbitral tribunals should adhere to the same principles as in international commercial arbitration. They should primarily refer to general principles or apply cumulatively the relevant national laws. Where necessary, they should adopt the closest connection test in conjunction with the most protective rule.
Proposed Rules for Attorney–Client Privilege in International Arbitration
11.17 Under the current legal framework governing procedural matters in international arbitration, the parties and their lawyers cannot predict the applicable attorney–client privilege standard when communicating with each other. The main purpose of attorney–client privilege is to encourage open and candid communication (p. 327) between lawyer and client. This goal is only achieved if lawyer and client know at the time of their communications whether or not these will be privileged. Predictability and certainty are of utmost importance. Therefore, rules that make the determination of the applicable privilege standard predictable are desirable.
11.18 To this end, hybrid rules setting out the core elements of attorney–client privilege but also including conflict-of-laws rules are preferable. A reference to conflict-of-laws that lead to the application of national laws is necessary for the events in which the substantive rule does not cover certain aspects of attorney–client privilege.
11.19 The proposed substantive rule for attorney–client privilege reads as follows: ‘The Arbitral Tribunal shall consider privileged confidential communications, whether written or oral, between an external lawyer and a client for the purpose of seeking or rendering legal advice. The client may waive the privilege.’
11.20 The proposed conflict-of-laws rules provide that ‘the Arbitral Tribunal shall apply the law of the country with which the communication between lawyer and client is most closely connected. It is presumed that the communication is most closely connected with the country where the party claiming privilege is domiciled. Equal treatment of the parties and fairness require the Arbitral Tribunal to apply the most protective rules to both sides.’
11.21 The IBA Rules are the most appropriate legal instrument to implement the proposed rules because they are the most comprehensive instrument in international arbitration dealing with the taking of evidence, have an unlimited territorial reach, and have gained wide acceptance in the international arbitration community.
2. The Arbitral Tribunal shall, at the request of a Party or on its own motion, exclude from evidence or production any Document, statement, oral testimony or inspection for any of the following reasons:
(a) lack of sufficient relevance to the case or materiality to its outcome;
(b) legal impediment or privilege under the legal or ethical rules determined by the Arbitral Tribunal to be applicable in accordance with Article 9.3;
(p. 328) (g) grounds of special political or institutional sensitivity (including evidence that has been classified as secret by a government or a public international institution) that the Arbitral Tribunal determines to be compelling;
(a) the Arbitral Tribunal shall consider privileged confidential communications, whether written or oral, between an external lawyer and a client for the purpose of seeking or rendering legal advice. The client may waive the privilege;
(b) if Article 9.3(a) does not apply, the Arbitral Tribunal shall apply the law of the country with which the communication between the lawyer and the client is most closely connected. It is presumed that the communication is most closely connected with the country where the party claiming privilege is domiciled. Equal treatment of the parties and fairness require the Arbitral Tribunal to apply the most protective rules to both sides.
4. In considering issues of without prejudice privilege, the Arbitral Tribunal may take into account any need to protect the confidentiality of a Document created or statement or oral communication made in connection with and for the purpose of settlement negotiations.
6. If a Party fails without satisfactory explanation to produce any Document requested in a Request to Produce to which it has not objected in due time or fails to produce any Document ordered to be produced by the Arbitral Tribunal, the Arbitral Tribunal may infer that such documents would be adverse to the interests of that Party.
7. If a Party fails without satisfactory explanation to make available any other relevant evidence, including testimony, sought by one Party to which the Party to whom the Request was addressed has not objected in due time or fails to make available any evidence, including testimony, ordered by the Arbitral Tribunal to be produced, the Arbitral Tribunal may infer that such evidence would be adverse to the interests of that Party.
8. If the Arbitral Tribunal determines that a Party has failed to conduct itself in good faith in the taking of evidence, the Arbitral Tribunal may, in addition to any other measures available under these Rules, take such failure into account in its assignment of the costs of the arbitration, including costs arising out of or in connection with the taking of evidence.
[The proposed changes are italicized.]
11.23 Considering that the IBA Rules have thus far been reviewed at intervals of more than ten years and that the latest revision only relatively recently culminated in the IBA Rules of 2010, it appears unlikely that the proposed rules for attorney–client (p. 329) privilege in international commercial arbitration will be included in the IBA Rules in the near future.
11.24 Because of their unlimited territorial reach and their standing in the international arbitration community, the IBA Rules are the preferred legal instrument to implement the proposed rules, but they are not the only suitable instrument. The proposed rules could also be incorporated in institutional arbitration rules or the UNCITRAL Rules. However, it is unclear whether arbitral institutions or UNCITRAL would be willing to take up the proposed rules. As these rules constitute fairly detailed procedural rules that limit the arbitral tribunal’s discretion, arbitral institutions and UNCITRAL might fear that their arbitration rules would lose appeal and, as a consequence, would be less frequently chosen.