Author: Marc Baumberger**
Last year, Samaa A.F. Haridi,† Partner at Hogan Lovells US, introduced the hot topic of Legal Privilege in International Commercial Arbitration in a TagTime episode with Dr. Kabir Duggal and Amanda Lee. This series is run by Delos Dispute Resolution.
This blog post summarizes her presentation about how legal privileges and commercial confidences can be protected in international commercial arbitration and investment treaties. She discussed and focused on the definition of (legal) privilege and commercial confidence, the practical issues with privilege claims and possible approaches towards privilege claims.
Legal privilege and commercial confidence in international commercial arbitration is a difficult topic for tribunals. There is no universally applicable legal privilege although it would be advantageous to have one to provide parties with more certainty. Each arbitrator must think about how the relevant rules should be applied. Therefore, the arbitrator must be sensitive to these rules and mindful to the parties expectations.
According to Ms. Haridi, it must be emphasized that tribunals must handle legal privilege and commercial confidence with sensitive care. A current useful tool for tribunals is privilege and redaction logs.
Consequently, Ms. Haridi ends her presentation with the quote from Prof. William W. Park, which shows in a nutshell the consequences when a tribunal does not give the topic on hand enough consideration: “Giving one side a stark procedural handicap is an excellent way to invite challenge to an award.”
Legal privilege is “the right to withhold certain testimonial or documentary evidence from a legal proceeding, including the right to prevent another from disclosing such information.”
A legal privilege appears in different forms. In a legal context, it is probably the attorney-client privilege (e.g., giving, seeking or receiving legal advice) and the litigation privilege (e.g., confidential communications or exchange of documents between either of them or with a third party such as an expert). These two affect almost everyone in a legal proceeding. Further privileges are medical privileges, business secrets and many others. The idea behind legal privilege is that the protection of client communications, certain interests, confidentiality or non-disclosure is more important than its disclosure in a trial or in an arbitration proceeding. Although disputed and controversial, the higher weighting of lawyer-client communication exists for public policy reasons. Legal privilege, however, preserves the integrity of many objectives and relationships and it is often difficult to accomplish those goals.
In the common law system, the reason why there is a legal privilege is to encourage open communication between the lawyer and his client. A lawyer can often only provide the right advice and suggest the right legal strategy when he can understand the client’s goal and has a full picture of the facts.
Not all information which a party does not want to disclose falls under legal privilege. A delimitation is necessary between the business or trade secrets of a company and commercial confidence. Commercial confidence is information that a party does not want to disclose in a legal proceeding because of the business secrets it contains (e.g., formulas and price calculations).
Therefore, the difference between commercial confidence and legal privilege is the actual principle: why a party wants to withhold information. The policy behind commercial confidence is business related whereas the one behind legal privilege concerns the legal proceeding.
ISSUES WITH LEGAL PRIVILEGE/COMMERCIAL CONFIDENCE
The contours of legal privilege and commercial confidence are often not clearly defined by national law. Moreover, for commercial confidence, there is not even a clear definition besides the fact that is must be compelling to justify putting in place the protection. This has practical impact for international arbitration proceedings when parties claim privileges. In an international arbitration proceeding, it is the tribunal which decides what evidence comes into the proceeding and what does not. There are several practical issues to consider in connection with such a decision.
A first issue concerns the definition of privilege. The understanding of the scope and nature of privileges are different around the world. Therefore, this issue comes up all the time in international arbitration. Each party has a different understanding of privilege because of the jurisdiction the party is coming from. In her webinar, Ms. Haridi illustrates this different understanding of the scope and the issuance of the waiver of the privilege, with the following examples: Although in Switzerland, Italy, France and Sweden, privilege does not extend to in-house counsels, it does in the United States and the United Kingdom. With regard to the waiver, again the US and the UK are different compared to the other countries. There, only the client can waive the privilege but the lawyer cannot do so without the client’s consent. In addition there are even more differences. For example, in Switzerland and Germany, the client cannot waive the professional secrecy privilege; only the lawyer can do so.
A second issue is that an arbitrator must be aware when she has to decide upon a claim of privilege. The arbitrator will have to consider which law to apply to the privilege claim. This matter is known under the term substance vs. procedure. Ms. Haridi explains the importance with a comparison between U.S. federal law and civil law jurisdiction. Whereas in the U.S., privilege claims are substantive in nature, in civil law jurisdictions, privileges tend to be considered procedural in nature. The decision is important because it has a huge effect. If the tribunal considers the privilege claim to be procedural, then the law applicable to the privilege claim will likely be the law of the arbitral seat.
Further matters to consider are the different parties’ expectations or the plurality of ethical rules (e.g., a lawyer is confronted with the legal professional ethics rules of multiple jurisdictions, which may clash with those of her own jurisdiction). The latter also reveals a possible unfairness because one side’s counsel may be permitted to conduct certain acts while the other side’s counsel is not since they come from different jurisdictions.
OVERVIEW OF APPLICABLE RULES
The issue with legal privilege and commercial confidence would be less problematic if there were universal applicable rules. However, many authorities, including institutions in international arbitration, are silent on rules of privilege or have rules that are too general to provide clear answers:
- In the UNCITRAL Arbitration Rules (2013), Article 27 deals with the tribunal’s power to require documents and evidence which it defines as necessary (Section 3) and gives the tribunal the absolute right to determine the admissibility of evidence (Section 4). Other provisions do not cover legal privilege or commercial confidence.
- The ICC Rules are also generic on the topic. Article 22 gives the tribunal the power, at a party’s request, to take measures for protecting trade secrets and confidential information (Section 3). However, the ICC Commission Report on Managing e-Document Production deals with privilege and notes that documents, including electronic documents, may be withheld from production in international arbitration on grounds of privilege.
- The London Court of International Arbitration Rules do not discuss privilege and leave it to the tribunal to decide.
- The ICDR Rules mention privilege explicitly. They state that 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 the documents would be subject under applicable law to different rules, the tribunal should, to the extent possible, apply the same rules to all parties, giving preference to the rules that provides the highest level of protection (Article 22).
- The IBA Rules on the Taking of Evidence in International Arbitration mention privilege explicitly. Article 9 (Admissibility and Assessment of Evidence) however, which addresses the Privilege does not identify the nature or content of Legal Privilege or indicate how it should be applied.
APPROACHES TOWARS PRIVILEGE CLAIMS
At the beginning of her presentation Ms. Haridi indicated that the policy according to which legal privilege gets more weight and is considered more important than truth-finding is controversial. After she discussed the practical issues and how arbitration rules deal with its Legal Privilege, she focused in in the second part on possible approaches towards privilege claims and the controversy.
Professionals address the issues with options such as wide discretion, choice of law, closest connection test, most protective law and other less effective approaches such as least protective law. Ms. Haridi focused on these four approaches as the other approaches are not realistic. In fact, the least protective law approach could put legal counsel in violation to the rules of their bar.
- Wide Discretion
Under this approach the tribunal has a wide discretion to determine the rules governing the proceedings and can decide upon issues of privilege. The advantage of this approach is that the decisions on privileges are based on an existing framework or doctrine/jurisprudence which is available to the tribunal and the parties. This gives parties a certain security as they know that the tribunal’s discretion will draw upon existing doctrine or precedent. The downside of this approach is, however, that the tribunal’s discretion is wide and the parties still might face an unexpected decision.
Several arbitral institutions’ rules have included this approach such as the ICC Rules (Article 22) and the IBA Evidence Rules (Article 9).
- Choice of Law
According to the choice of law approach, the applicable law will determine the rules relevant for issues with privilege. However, the dispute resolution clause will not contemplate the question of which law applies to privilege claims. Furthermore, the applicable law to the contract may not be sufficient as arbitrators have a different view whether privilege claims are substantive or procedural.
In case there is a clause which deals with the applicable law for privileges claims, the arbitrators should follow the choice of the parties. However, in cases where the agreement between the parties is silent on this issue, the tribunal has several options to define the choice of law. Some of these options are: the substantive law of the contract; the lex arbitri (the law of the seat); the law of the jurisdiction where the party claiming the privilege resides; or the jurisdiction where the enforcement of the award will be sought. The issue with these options is, however, that it can lead to the same problems discussed above or that the outcome is not fair because either the parties did not think about this issue when they were drafting their agreement or because the parties are not treated the same since they come from jurisdictions which have a different understandings of legal privilege.
The advantage of this approach is predictability and efficiency. However, as Ms. Haridi explained, this approach is very complex and, because arbitration has no roots in a specific national legal system, it is perhaps impossible to exercise.
- Closest Connection
For the closest connection test, the closest link of a document or communication to a jurisdiction leads to the applicable law. For the attorney-client relationship this test includes several examples such as the forum state, the state in which the underlying cause of action arose, the client’s domicile, the state of the attorney’s practice etc.
Although the closest connection test is logical and must be carried out for every document that a party holds, it is very difficult and complex in cases where there are many documents from different jurisdictions. Furthermore, the test is not predictable and does not give the parties the certainty they seek.
- Most Protective Law
The most protective law approach is (also called the most favored nation approach) has the Tribunal applying the most protective law of all the possible applicable laws to the parties. In this case, the most protective privilege standard is applied to both parties equally (even though one party might not have this standard in its home jurisdiction).
The most protective law approach does not lead to injustice between the parties as it means that the parties are not faced with pro-disclosure surprises. The difficulty with this approach is that it requires a complex analysis of the laws. Furthermore, one party is entitled to a better protection than actually expected because it acted in accordance with its applicable laws. In addition, it can lead to a run to the most protective jurisdictions.
This approach is followed by the ICDR rules of the American Arbitration Association.
- Further Approaches
Beside the approaches discussed in depth by Ms. Haridi, she points out that there are also other interesting theories of approaches. One promising possibility could be the creation of a universally applicable legal privilege. Other approaches that can deal better with the expectations of the parties include the application of existing IBA Rules or allowing the tribunal or a third-party to decide the real nature of the communications on a case-by-case and ex parte basis.
Besides these approaches, it is usually quite useful for tribunals to ask for a privilege and redaction log. This privilege and redaction log is gaining traction in international and investment arbitration. It is a log in which sets forth the document or the information over which is the privilege is claimed, the ground for claiming the privilege and the subject matter of the document. It is ordered by tribunals to assist them in determining whether these claims of privilege are valid or not in the most objective way possible.
INVESTMENT TREATY ARBITRATION
Legal privilege and commercial confidence is not only an issue in commercial arbitration. In her presentation, Ms. Haridi explains that in the field of international investment treaty arbitration, there is some appeal to the notion that stand-alone international standards should be formulated. In particular, that such standards should be separate from domestic law. However, there is no clear approach in investment arbitration and this has brought recent disputes. Ms. Haridi explains the difficulty using Global Telecom Holding S.A.E. v. Canada as an illustration. In this case the tribunal stated: “the Tribunal does not consider that there is evidence that an autonomous legal standard governing privilege claims has yet crystallized in international law”. Furthermore, the tribunal stated that “an MFN approach is far from being upheld as an international principle of law and applying it as the sole standard could defeat the parties expectations, which is a key feature in the IBA rules.”
In conclusion, practitioners of both commercial and investment arbitration must closely follow the latest developments in commercial and investment arbitration in order to stay up to date on this very important topic.
 Samaa Haridi, Legal Privilege in International Commercial Arbitration, TagTime (Sep. 16, 2020), available at https://member-delosdr.org/video-tagtime-samaa-a-haridi-on-legal-privilege-in-international-commercial-arbitration/.
 Richard M. Mosk & Tom Ginsburg, Evidentiary Privileges in International Arbitration, 50 Int’l Comp. L. Q. 345, 346 (2001).
 Julian D M Lew, Document Production a Legal Privilege in International Commercial Arbitration, in Practising Virtue: Inside International Arbitration 348 (2015).
 The disclosure of Commercial Confidence such as price calculations can also be relevant under antitrust laws.
 Certain exceptions apply in criminal law.
 Purists will say that international tribunals do not have a lex arbitri, but the majority will likely look to the law of the seat.
 Iris Ng, Rethinking Counsel Ethics in International Arbitration, Kluwer Arb. Blog (Dec.. 12, 2019), http://arbitrationblog.kluwerarbitration.com/2019/12/12/rethinking-counsel-ethics-in-international-arbitration/.
 UN Comm’n on Int’l Trade Law (UNCITRAL), Arbitration Rules (2013), art. 27.
 Int’l Chamber of Commerce (ICC), Arbitration Rules, (2021), art. 22 [hereinafter ICC Rules].
 ICC Commission Report, Arbitration Commission Report on Managing E-Document Production, ICC (2012), https://iccwbo.org/content/uploads/sites/3/2016/10/ICC-Arbitration-Commission-Report-on-Managing-E-Document-Production-2012.pdf.
 London Ct. Arb. (LCIA), Arbitration Rules (2020).
 Int’l Ctr. for Disp. Resol. (ICDR), Commercial Arbitration Rules (2013), art. 22.
 Int’l Bar Ass’n (IBA), Rules on the Taking of Evidence in International Arbitration (2010), art. 9 [hereinafter IBA Evidence Rules].
 ICC Rules, supra note 9, art. 22.
 IBA Evidence Rules, supra note 13, art. 9.
 Diana Kuitkowski, The Law Applicable to Privilege Claims in International Arbitration, 32 J. Int’l Arb. 65 (2015).
 Lew, supra note 3, at 348.
 Global Telecom Holdings S.A.E. v. Canada, ICSID Case No. ARB/16/16, Procedural Order No. 5(Dec. 13, 2018), https://www.italaw.com/sites/default/files/case-documents/italaw11268.pdf.
 Id., Annex A at 11.
 Id., Annex A at 12.
* This post is part of a series summarizing episodes of Delos Disputes Resolution TagTime webinars. A list of past TagTime webinars is available at https://delosdr.org/index.php/past-webinars/.
** Marc Baumberger is an LL.M. candidate at Columbia Law School graduating in May 2021. Marc is a qualified Swiss attorney and has over three years of experience in transnational legal issues.
† Samaa Haridi is a Partner at Hogan Lovells based in New York. She also leads Hogan Lovells’ Middle East practice. Samaa is a civil and common law-trained, trilingual lawyer with over 20 years of experience representing clients from all over the world in international commercial and investment arbitration, under the rules of all major arbitral institutions.