Paul Peter Nicolai
What Privilege Rules Apply In International Arbitration?
Updated: Aug 10, 2022
International arbitration means different parties from different jurisdictions. Each jurisdiction may have different rules for the legal professional privilege. What is privileged in one country may not be privileged in another. Whose jurisdiction privilege rules can the parties rely on?
The arbitration agreement itself will almost always be silent on which legal professional privilege rules apply. Disputes are unlikely to have arisen when contract terms are being agreed upon. Even if future disputes may be predictable, the potential scope of documents to be produced in relation to those disputes may not be. If considering privilege rules at the transactional stage, parties may not know what privilege rules will ultimately prove helpful to themselves or their opponents in protecting against the production of sensitive documents in future arbitration proceedings. Parties may consider that the issue is best put off to be addressed if, and only if, required during the arbitration proceeding.
If parties to a dispute are inclined to agree to the applicable rules of legal professional privilege, a convenient time to do so might be in the arbitration's first procedural order, which usually sets out the procedural rules and timetable for document requests and production. This may assist parties in making their claims of privilege in response to requests to produce and manage their risks of waiving privilege as the arbitration progresses. From a more practical perspective, parties will also have greater certainty in undertaking their internal privilege review of documents and reduce the risk of repeating this costly process if the wrong privilege rules are applied.
Arbitral tribunals will commonly have the discretion to determine the applicable privilege rules in a dispute. In practice, arbitral tribunals will likely adopt one of the following approaches to resolve questions of what privilege rules to apply:
The closest connection test looks at various factors connected with the document in question to determine what jurisdiction the document has the closest connection to. Factors include the jurisdiction where the document was created, the jurisdiction of the lawyers it was produced by or for, the jurisdiction of the parties, and the jurisdiction the document is located in. This test can result in disparate rules of privilege applying to different documents.
The most favored nation test or the least favored nation test means the arbitral tribunal will apply to all parties' documents the privilege rules of the jurisdiction with the most favorable privilege rules or the jurisdiction with the least favorable privilege rules. This achieves fairness with the consistent application of privilege rules to all parties. The drawback is that parties' expectations of what privilege rules applied, and the protections therefore available, when the documents were created may not be met and parties could gain or lose privilege protection accordingly.
An autonomous privilege code involves the arbitral tribunal creating its privilege code. This could perhaps seek to address drawbacks with the closest connection test or the most favored nation/least favored nation tests, but risks creating unfairness between the parties if the code is not equally weighted.
Generally, arbitral tribunals are focused on bringing equality of treatment between the parties and ensuring the parties’ legitimate expectations as to relevant protections from disclosure are satisfied to ensure the final award in the arbitration is not potentially open to challenge.
What if a party does not agree with the arbitral tribunal's determination on privilege and does not produce a document that the party has been ordered to produce?
An inference from the failure to adduce evidence can be drawn at common law but this is limited to an inference that the evidence would not have assisted the party that failed to adduce the evidence.
Adoption of the IBA Rules would permit the arbitral tribunal to draw a more robust inference in such a situation - that such evidence would be adverse to the interests of the party that failed to give it.