Privilege and document production in International Arbitration

Privilege and document production in International Arbitration: how do arbitrators deal with different legal systems’ approaches?
Corina Gugler; Karina Goldberg

(*) (1)

The nature of international arbitration is such that parties and their counsel often come from various nationalities with different legal backgrounds. Such diversity is perhaps nowhere starker than in the context of privilege – the protection from discovery and disclosure that is typically afforded to communications between business management and the respective in-house counsel or outside counsel while soliciting legal advice.

When parties in an international arbitration have different understandings of privilege, disputes often arise when tribunals are dealing with requests for production of documents that may be considered “privileged” under certain regimes, but not others. Questions that frequently emerge are (i) how should the arbitrators proceed? (ii) which substantive and procedural laws should govern the dispute on privilege? (iii) and, therefore, which type of communications should the arbitrators protect and which documents should be produced? This article focuses on the possible routes arbitrators may follow in the presence of different legal systems' approaches to privilege when it comes to document production in international arbitration. First, it discusses the similarities and differences between various privilege regimes in North and South America, Europe, Australia, and Asia. Second, it provides an overview of the principles frequently drawn upon by arbitrators when selecting the applicable privilege law. Third, it sets out practical tips and potential approaches concerning the choice of applicable privilege law when parties come from different privilege regimes. Finally, a few concluding remarks.

I Introduction

In practice, without an express choice of substantive, procedural or privilege law by the parties, the arbitrators have significant discretion to settle each of these issues, limited by (i) public policy requirements of the law of the place of arbitration and (ii) general requirements of fair and equal treatment (1) .

This article focuses on the possible routes arbitrators may follow in the presence of different legal systems' approaches to privilege when it comes to document production in international arbitration. First, we discuss the similarities and differences between various privilege regimes in North and South America, Europe, Australia, and Asia.

Second, we provide an overview of the principles frequently drawn upon by arbitrators when selecting the applicable privilege law. Third, we set out practical tips and potential approaches concerning the choice of applicable privilege law when parties come from different privilege regimes. Finally, we provide a few concluding remarks.

II Different Privilege Regimes

International arbitration often involves parties, legal counsels or arbitrators from different legal backgrounds. This naturally leads to different views on the extent of a legal obligation to disclose information and to produce evidence that may be adversarial to a party's case. Parties to international disputes tend to follow the procedures according to the system most familiar to them. For example, common law practitioners are used to a legal system where courts will require the parties, early in the proceedings, to disclose the existence of all relevant (or potentially relevant) non-privileged documents, whether those documents bolster or undermine their clients' positions (2) .

For civil law practitioners, however, “the idea of producing all documents, both those which are helpful and unhelpful to one's case, is something most unpalatable” (3) . The complex issue of finding a common denominator for different legal approaches in evidentiary proceedings in international arbitration is aggravated by the fact that parties often invoke privileges to exempt production of certain evidence.

Privileges vary considerably from country to country in substance, scope, breadth, and in ownership. Due to the lack of international rules governing privilege, parties, counsel and arbitrators rely on different national laws and have different understandings and expectations of privilege in international arbitration proceedings (4) . The most common types of privilege involve attorney-client communications, as well as communications between business management and in-house lawyers.

a) Attorney-Client Privilege

Attorney-client communications are considered privileged in most legal systems, but a different approach is taken with regard to the types of communications entitled to privilege, the scope of privilege, and the waiver of privilege. Common law jurisdictions usually view privilege as a right that belongs to the client, which can also be waived by the client. Civil law jurisdictions, on the other hand, usually rely on the concept of professional secrecy (or professional ethical rules), which entails that privileged documents or information must be maintained as confidential by a lawyer even if a client has waived its rights concerning the confidentiality of the document or information (5) . Thus, as a general rule, in civil law countries information given to the attorney is protected (6) . Naturally, within various domestic legal systems there are many peculiarities to these general approaches, as can be seen from the examples of Brazil and the United States discussed below.

In Brazil, a very broad ethical duty of professional secrecy applies to any attorney-client communication, which requires the attorney not to disclose the information received from his client, including the underlying facts and documents shared by the client, as well as the opinions (i.e., work product) rendered by the attorney about those facts (7) . In the United States, the general elements to establish the attorney-client privilege are:

1) the asserted holder of the privilege is (or sought to become) a client; and

2) the person to whom the communication was made:

a) is a member of the bar of a court, or his subordinate, and

b) in connection with this communication, is acting as an attorney; and

3) the communication was for the purpose of securing legal advice. (8)

There are also a number of exceptions to privilege in the United States, including when:

1) the communication was made in the presence of individuals who were neither attorney nor client, or was disclosed to such individuals;

2) the communication was made for the purpose of committing a crime or tort; or

3) the client has waived the privilege (for example by publicly disclosing the communication or sharing it with third parties).

b) Common Interest or Joint Defense Privileges

There are specific situations in which attorney-client privilege can be extended to third parties. For example, in the United States and also in the United Kingdom, communications passing from one party to the attorney for another party where a joint

defense effort or strategy has been decided upon and undertaken by the parties and their respective counsel are protected by privilege (9) . However, communications made for purely business purposes that were not part of a legal strategy are not protected (10) . The conduit for the sharing of information should be the lawyers, not the clients. While the privilege may be claimed for communications exchanged among lawyers and clients for both parties or for statements at meetings where both lawyers and clients are present, a purely client-to-client communication is unlikely to qualify for the privilege. In AMBAC Assurance Corporation v. Countrywide Home Loans, Inc., the New York Appeals Court recently expanded the scope of the attorney-client privilege in the Mergers & Acquisitions context by holding that “in today's business environment, pending or reasonably anticipated litigation is not a necessary element of the common-interest privilege” (11) . The AMBAC decision holds that there is no litigation requirement.

Consequently, confidential communications among corporate entities and their counsel seeking or conveying legal advice concerning a shared legal interest or legal strategy are entitled to protection from disclosure.

c) In-House Communications

Internal communications with in-house lawyers are the ones that provide for the most different approaches with regard to privilege in the international playing field. For example, in the United States, Australia and Japan, confidential communications between corporate employees and inhouse counsel regarding legal advice are generally afforded the same attorney-client and work product protections as those involving outside independent counsel (12) . Inside the European Union (“EU”), one can find different approaches: while Belgium, Germany, the Netherlands and Spain do accept some form of in-house counsel privilege, France, Italy and Sweden do not (13) . The EU itself also does not accept the privilege of in-house counsel, as determined in the Akzo Nobel case (14) . In that case, the Court of Justice of the European Union held that “[a]n in- house lawyer, despite his enrolment with a Bar or Law Society and the professional ethical obligations to which he is, as a result, subject, does not enjoy the same degree of independence from his employer as a lawyer working in an external law firm does in relation to his client” (15) .

III Applicable Law to Privilege Disputes

There are no established choice-of-law rules governing privilege in arbitral proceedings. Most arbitral institutions (including the ICC, LCIA, and UNCITRAL) are silent and delegate the question to the arbitral tribunals. General guidance can be found in some institutional rules like the ICDR International Arbitration Rules, Article 22 (16) , as well as the IBA Rules on the Taking of Evidence in International Arbitration (17) .

If no agreement is reached by the parties, the following set of approaches to resolving privilege matters could be potentially applied in international arbitration cases on the discretion of the arbitral tribunal:

a) Law of the seat of arbitration. The advantage of applying the law of the seat of arbitration to resolve privilege matters is that it requires an evenhanded application of privilege, meaning that both parties will be subject to the same rule of law (18) . Since both parties have agreed on the place of arbitration ex ante, it might be argued that they have anticipated the application of that country's privilege law to any arbitration of a dispute arising out of that contract (19) . However, this rule raises the question of whether there is a link between the arbitral site and the communications between a lawyer and his or her client. Notwithstanding the selection of an arbitral forum, attorneys and clients are far more accustomed to communicating with each other with an expectation of traditional privilege protection under their respective domestic regimes (20) .

b) Law governing the substance of the dispute. It is questionable whether the parties, when agreeing on a substantive law in their contract, gave any thought to the rules of privilege available under that country's law. As privilege issues are usually regarded as a procedural matter, the application of the substantive law governing the contract may violate the parties' legitimate expectations (21) .

c) Law of the place where the document is located or created. This approach does not seem to be the most appropriate solution as communications are not “located” somewhere, nor is it simple to determine where they originated. Due to advances in modern technology (i.e., the increased use of laptops and cellular phones), a document's place of production may be difficult to determine. Furthermore, the location of a document may have no relation to the parties or the lawyers that produced or exchanged it (22) .

d) Law of the jurisdiction where the lawyer is registered. Even though it would be the most rational approach from the perspective of predictability and conforming to the parties' expectations, each party would likely be subject to a different law of privilege since the lawyers are unlikely from the same country. This frustrates the tribunal's mandate to give both parties fair and equal treatment. Nevertheless, this approach may also solve potential concerns about adhering to national rules of professional ethics (23) .

e) Law most closely connected to the allegedly privileged communication or document. Arbitrators may consider several factors, such as the nature of the evidence, where it was created or occurred, and whether the parties expected a particular rule of privilege to apply to that specific communication. This approach gives effect to the parties' expectations and is based upon legal privileges that will be familiar to international lawyers (24) . However, case-by-case examination will likely be burdensome for arbitrators and it can be difficult to determine which country a document is most closely connected to (see, e.g., phone calls or emails going across borders) (25) .

f) Least Favored Nation Approach. This approach mandates that between the two parties' opposing privilege regimes, the tribunal should apply the least protective privilege standard to both parties. The benefit of this rule is that both parties receive the same treatment, and the tribunal has access to a greater amount of documents. However, this approach tends to compel the admission of evidence, frustrating parties that would normally be entitled to broader privilege. Counsel for the parties may be asked to sacrifice their ethical duties by participating in a process where they are unable to protect what they are bound to protect (26) .

g) Most Favored Nation Approach. On the other hand, the most favored nation approach would require the arbitrator to apply the privilege law with the most protective standard to both parties, considering the law of the jurisdiction where the party has its residence. This approach meets the parties' legitimate expectations and levels the playing field by protecting the parties' reliance interests. (27) However, this approach may favor the exclusion of relevant and important evidence (28) .

The choice of rules may differ depending on the tribunals' view on whether the question of privilege is a matter of procedure or substance. Civil law systems generally characterize it as one of substantive law. Common law jurisdictions generally characterize it as an issue of procedure (29) . If the tribunal considers the privilege as a factor of procedural law, then it is generally governed by the law of the seat of arbitration (lex arbitri). In case privilege is considered as a matter of substance, then the applicable law is more likely to be the one governing the substance of the dispute or one with a “close connection” to the evidence in question. In our view, the most practical and suitable choice for a default rule is the most favored nation approach, as it promotes compliance with party expectations without sacrificing equality of arms.

IV Practical Tips and Approaches

As a practical matter, parties should raise the issue of privilege at the earliest possible point in the case to establish what standards or common rules will apply. Practitioners should raise privilege issues with the tribunal at the first case management conference (or at the latest when agreeing on the Redfern Schedule draft). In the Redfern Schedule, it is important for counsel to agree on key language to be used, such as a note that the parties agree to produce “non-privileged documents relating to” such and such matters. At that time, parties should also consult and agree on whether a privilege log (i.e., a list of the documents that will not be disclosed due to privilege) will be prepared and, if so, the format of such a log.

If a dispute arises whether a particular piece of evidence or document falls under the established privilege standard, tribunals will usually require parties to brief the issue. Tribunals will usually ask for a brief description of why a party believes that a document is privileged without disclosing the information. Tribunals will generally decide the issue based on the description of the evidence at issue. In exceptional circumstances, tribunals may have the documents examined by a third-party expert (potentially a legal expert on the law chosen by the tribunal to govern privilege) before deciding whether a document is privileged or not. If the privilege is accepted, the requested evidence will not be part of the proceedings (or only produced in redacted form) (30) . If the arbitral tribunal denies the privilege, it will order that the evidence be produced. In some instances, the tribunal might (i) require parties to sign non-disclosure agreements; (ii) rule that the information can be shared only with the opponent's counsel, but not with the opposing party (31) ; or (iii) rule that the information can be shared only with the tribunal and not the opposing party.

After the tribunal's ruling on privilege, a party could still refuse to comply with a tribunal's order to produce certain evidence by relying on an alleged privilege. In such a case, the tribunal may then draw adverse inferences from the party's refusal to comply with the order; meaning that the tribunal may presume that the requested documents confirm the proposition advanced by the requesting party. Arbitral tribunals will generally draw adverse inferences when (i) a party fails to persuade the tribunal that the requested documents are in the possession, custody or control of the requesting party and (ii) the party failing to produce the evidence at issue has offered no satisfactory explanation for its failure to produce (32) . Still, adverse inferences drawn by the tribunal may not always provide for a satisfactory substitute for the evidence.

V Conclusion

Privilege is a very delicate process in international arbitration given the parties' cultural and legal differences. Arbitrators have significant discretion when deciding on privilege issues. Parties from a specific legal background can be surprised by an argument of having waived privilege, or that there would be no privilege at all in situations that would not be regarded as such in their own legal systems (for example, arguments that privilege applies only to the legal advice itself and not to underlying documents given to counsels). From all of the possible choice-of-law rules that can potentially govern privilege situations in international arbitrations, applying the law of the seat of arbitration (lex arbitri) may give the parties more predictability about the standards and potential disclosure obligations. Then again, applying the most favored nation approach as a default rule may satisfy the parties' expectations without sacrificing equality of arms. In any event, parties and their counsels to an international arbitration must be aware of the existence of different privilege rules and address the issue of which privilege rules should apply at the earliest possible stage in the proceedings to avoid undesirable surprises.

References

*) Corina Gugler: The views expressed in this article are solely those of the authors.

Associate in the New York office of Debevoise & Plimpton LLP.

1) Karina Goldberg: Partner at Ferro, Castro Neves, Daltro & Gomide Advogados in São Paulo.

1) See Richard M. Mosk & Tom Ginsburg, Evidentiary Privileges in International Arbitration, 50 The International and Comparative Law Quarterly No. 2; 345, 345 (referring to a general “flexibility with regard to evidentiary matters” in international arbitration); id. at 385 (“Nevertheless, the appropriate invocation of privileges involves fairness to those who rely on them, and advances important goals of public policy.”).

2) Brower, Charles and Sharpe, Jeremy, Determining the Extent of Discovery and Dealing with Requests for Discovery, in NEWMAN, Lawrence e Hill, Richard (eds.), The Leading Arbitrator's Guide to International Arbitration, 2d ed., 308 (2008).

3) C.Reymond, Civil Law and Common Law Procedures? Which is the More Inquisitional? A Civil Lawyer Response, Arbitration International, 360 (1989).

4) For an overview on the complex array of laws and understandings on privilege that arbitrators may have, see generally Rachel Reiser, Applying Privilege in International Arbitration: the Case for a Uniform Rule, 13 Cardozo J. of Conflict Resol. 653 (2012).

5) See Gary Born, International Commercial Arbitration, 2d ed., 2868 (2014). Patricia Shaughnessy, Dealing with Privileges in International Commercial Arbitration, Scandinavian Studies in Law 451, 468 fn. 80 (“Traditionally, in civil law countries with privileges emanating from the Napoleonic Codes, the privilege is ‘owned’ and thus controlled by the lawyer as compared to common-law countries where the privilege- holder is the client.”).

6) Reiser, supran. 4, at 664.

7) The attorney-client privilege relationship is regulated in Brazil by the Federal Law no. 8.906/94 (Brazilian Bar Association Statute) and also by the Brazilian Bar Association Code of Ethics and Discipline. The provisions also apply to in-house counsels, who are entitled to professional secrecy in their relationship with management or the company's other employees.

8) See, e.g., Colton v. United States, 306 F.2d 633, 637 (2d Cir. 1962), cert. denied, 371 U.S. 951 (1963), citing United States v. United Shoe Mach. Corp., 89 F. Supp. 357, 358-59 (D. Mass. 1950).

9) See, e.g., United States v. Schwimmer, 892 F.2d 237, 243 (2d Cir.1989); Arrow Trading and Investments and another v. Edwardian Group Ltd. [2004] EWHC 1310 (Ch).

10) See, e.g., Craig v. Rite Aid Corp., No. 4:08-CV-2317, 2012 WL 426275, at *6-7 (M.D. Pa. Feb. 9, 2012) (after noting that “courts have eschewed broad claims of privilege premised upon the involvement of in-house counsel in multi-participant corporate restructuring processes, in favor of a far more narrowly tailored and fact-specific analysis of privilege claims,” the court held documents seeking feedback from in- house counsel and senior management on a draft proposal relating to business restructuring are not privileged as no clear legal advice was sought); Visa U.S.A., Inc. v. First Data Corp., Civ. No. 02-1786, 2004 WL 1878209, at *4 (N.D. Cal. Aug. 23, 2004)

(holding that an analysis of the risks and concerns of entering into a new private arrangement for transactions that was transmitted to Visa's board is admissible notwithstanding the fact that attorneys were involved in reviewing and editing such a document; the document was originally created by Visa's consultants for a business purpose to aid Visa in making a business decision, and the analysis would have been undertaken even if no attorneys were involved).

11) Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 124 A.D.3d 129, 130 (N.Y. App. Div. 2014).

12) See generally Sara Altschul, et al., Attorney-Client Privilege Around the World, ACC-GNY Ethics Marathon (Apr. 1, 2014);Patrick Robinson and Jane Larner, A world tour of the rules of privilege, in PLC (Sept. 30, 2013)

13) Id.

14) Case C-550/07, Akzo Nobel Chems. Ltd. & Akcros Chems. Ltd. v. Comm'n, 2010 E.C.R. I- 08301.

15) Id. ¶ 45.

16) Int'l Ctr. for Dispute Resolution, Int'l Dispute Resolution Procedures (2014), Art. 22 (“The arbitral tribunal shall take into account applicable principles of privilege, such as those involving the confidentiality of communications between a lawyer and client. When the parties, their counsel, or their documents would be subject under applicable law to different rules, the tribunal should, to the extent possible, apply the same rule to all parties, giving preference to the rule that provides the highest level of protection.”).

17) Int'l Bar Assoc., Rules on the Taking of Evidence in Int'l Arbitration (2010), Art 9.2 (“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: … (b) legal impediment or privilege under the legal or ethical rules determined by the Arbitral Tribunal to be applicable;…). See also William Ralph Clayton, et al. v. Gov't of Canada, PCA Case No. 2009-04, Procedural Order No. 12 (May 2, 2012), ¶¶ 18-19. Using the IBA Rules as a guideline, the tribunal found that on the basis of Article 15 of the UNCITRAL Rules and Article 9.2(b) of the IBA Rules, it would have the discretion to determine the legal rules applicable to attorney-client privilege and work product privilege. On the issue of whether the scope of privilege equally extends to attachments to privileged communications, the tribunal held that “attachments created for the purpose of obtaining or providing legal advice and intended to be kept in confidence fall within the scope of the privilege. An attachment with an independent existence by way of its origin or release outside the attorney-client relationship that does not qualify as privileged on its own does not obtain privileged status by having been appended to a privileged communication, but may nevertheless fall within the scope of the privilege if its disclosure would compromise the protected content of the underlying source communication by inference.” Id. ¶ 27.

18) Reiser, supran. 4, at 669.

19) Id.

20) See id. at 669-70.

21) See id. at 668-69.

22) See id. at 671-72.

23) See id. at 670-71.

24) See, e.g., Philip Morris Asia Ltd. v. Commonwealth of Australia, PCA Case No. 2012-12, Procedural Order No. 12 (Nov. 14, 2014), ¶ 4.6. The parties agreed that the IBA Rules on the Taking of Evidence may be used as a guideline. The tribunal concluded that “while the home rules of either Party might provide useful analogies, they cannot provide the basis for the Tribunal's decision or can be otherwise determinative in the present case.” The tribunal then took a “general approach” and decided per document whether the respective party could rely on privilege. Id. ¶ 4.8.

25) See Reiser, supran. 4, at 672-73; Mosk & Ginsburg, supran. 1, at 383.

26) See Reiser, supran. 4, at 673; Shaugnessy, supran. 5, at 466-67.

27) See, e.g., Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic, ICSID Case No. ARB/13/8, Procedural Order No. 6 (Jul. 20, 2014), ¶¶ 16-17. The tribunal in that case, concerned with applying different standards on the matters of privilege to in-house counsel that would affect the balance and equality of treatment of parties in international arbitration, ruled that “the Parties should be bound by the standard that affords the broadest protection and that protects the expectations of both parties in international arbitration.” Therefore, the respondent's request to direct claimants to produce all communications that they had withheld on purported grounds of attorney-client privilege was denied.

28) See Reiser, supran. 4, at 673-75.

29) See Jose Alvarez, Evidentiary Privileges in International Arbitration, in International Arbitration 2006: Back to Basics? 663, 684 (2006); Shaughnessy, supran. 5, at 458 fn. 80.

30) See, e.g., Reineccius and others v. Bank for Int'l Settlements, ICGJ 375 (PCA 2002), Procedural Order No. 6 (June 11, 2002). The dispute arose from the Bank of International Settlement's amendment of its statutes to exclude private persons as shareholders. Claimants were private shareholders who filed an arbitration for compensation. During the course of the arbitration, the tribunal allowed production of documents in redacted format. In the sixth Procedural Order, the parties agreed that the Secretary to the Tribunal would review the documents in their unredacted form and provide the parties recommendations regarding the relevance of the redacted portions.

31) See, e.g., South American Silver Ltd. v. Bolivia, PCA Case No. 2013-15, Procedural Order No. 2 (Dec. 1, 2014). The tribunal noted that “[t]he Respondent's right to due process must guarantee that its counsel has access to, and is allowed to analyze all evidence to be presented before the Tribunal. Otherwise, the Respondent's right to substantiate its claims or put forward its case could be undermined.” ¶ 28. The tribunal further held that the respondent should “refrain from trying to access this information itself or from disclosing it should it ever become available to it.” ¶ 30.

32) See Brower and Sharpe, supran. 2, at 343.

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