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Bhavana Chandak Dhoundiyal and Pratyush Khanna*
I. INTRODUCTION
Legal privilege refers to the right of individuals/entities to withhold certain communications, documents, and advice from being disclosed to the court or other persons.
Legal privilege serves as a fundamental protection for any information shared/ communication made between a client and their lawyer. Privilege ensures that such information/ communication remains confidential, promoting an open and honest dialogue between parties and their legal advisors and simultaneously provides the lawyers a suit of armor to defend their client’s interests.
The concept can be traced back to the days of the Roman empire as per some, while others believe it is one of the oldest privileges recognized by the Anglo-American jurisprudence. Irrespective of its origin, it can be said that the concept of privilege a cornerstone of the legal profession around the world. However, the application of legal privilege is widely debated.
In a domestic arbitration, privilege is rarely an issue since both parties belong to the same jurisdiction/ legal system. However, in the context of international arbitration, where parties often hail from different legal traditions, the application of privilege becomes a contentious issue. The divergence between common law and civil law approaches to privilege lies at the heart of this contention, often resulting in a lack of clarity. This uncertainty creates challenges in determining which legal framework would govern issues related to privilege, potentially undermining the fairness and efficiency of the arbitral process. A homeward trend, where parties or arbitrators favour their own legal traditions, exacerbates these challenges by introducing bias and inconsistency, further compromising the neutrality that arbitration seeks to uphold.
Recognizing these challenges, the Inter-Pacific Bar Association (“IPBA”) in 2014 for the first time tried to develop guidelines on privilege. In 2019, the IPBA published a set of uniform guidelines aimed at governing privilege in international arbitration. However, these guidelines saw only a “limited regional reach” in the international sphere (a prime reason for the same was also the outbreak of COVID-19 shortly after their release).
The International Bar Association (IBA) formed a Task Force on Privilege in 2021 for formulating guidelines re. privilege in view of the growing concerns. The Task Force's report published earlier this year offers much-needed guidance, aiming to harmonize the application of privilege in international arbitration and provide clarity to both arbitrators and parties involved.
This article explores the key contentions surrounding privilege in international arbitration, particularly in light of the IBA Task Force's findings and recommendations. The key findings of the Task Force’s Report on Privilege are highlighted and the contentious nature of ‘legal privilege’ is examined, followed by an analysis of the complexities involved in determining the applicable privilege rules. The purpose of the article is two-fold: first, to outline the current parameters used to understand and apply the theory of 'legal privilege’ in international arbitration in a holistic manner and second, to provide an assessment of the IBA Report and its implications in the present context.
II. WHY IS PRIVILEGE CONTENTIOUS IN INTERNATIONAL ARBITRATION
The norms governing privilege in international arbitration are fraught with challenges, primarily due to the intersection of differing legal traditions and the lack of a universally accepted framework. When parties from different jurisdictions come together in arbitration, their expectations and understanding of privilege can vary widely, leading to disputes and complications. Several factors contribute to why privilege remains a contentious issue in this context:
a. Inherent multi-jurisdictional nature of international arbitration- Unlike domestic legal proceedings, where the rules of privilege are typically clear and consistent within a single legal system, international arbitration often involves parties, arbitrators, and counsels from various jurisdictions, each with its own set of rules and interpretations regarding privilege. When parties from different jurisdictions are involved, determining which rules of privilege apply can lead to significant disputes. Jurisdictional differences can cause uncertainty, potentially undermining the fairness and efficiency of the arbitration process. Given the complexities involved, it is crucial for arbitrators and practitioners to adopt a transnational approach/ standard wherein they establish clear guidelines on which rules of privilege should govern the proceedings. This would allow for establishing certainty and predictability in this sphere. The lack of a unified approach can lead to inconsistent decisions, which may affect the parties' rights and the overall outcome of the arbitration.
For example, in common law jurisdictions, privilege is often seen as an absolute right that protects all communications between a client and their lawyer, regardless of their content. This is exemplified by the U.S. doctrine of attorney-client privilege, which broadly shields confidential communications made for the purpose of obtaining legal advice, as seen in Upjohn Co. v. United States. In contrast, civil law jurisdictions, such as France and Germany, adopt a narrower approach, protecting only documents prepared for legal defense. This divergence can lead to significant disagreements about what should be protected under privilege in an international arbitration setting.
b. Increase in Cross-border disputes: The growing prevalence of cross-border disputes and the increased complexity of international transactions have amplified the importance of privilege in arbitration. For example, Indian parties have been involved in 160 cases as per SIAC’s chart of ‘Top 10 foreign users in 2023’ in comparison to a decade back in 2014 when it was a meagre 37 in number.
An illustration of the complexities in cross-border arbitration can be illustrated via a “football” example. Consider the Premier League an English football league that awards contracts to players from all over the world, including Americans. One English club signs a contract with an American footballer, Nicolas Jackson. The contract includes an arbitration clause specifying that any disputes would be resolved by a neutral arbitrator of Australian origin. When disputes arise between the English club and Jackson regarding brand endorsement negotiations and discussions with their legal teams, arbitration is initiated. The arbitrator then encounters a significant challenge. Which rules of privilege should apply to the legal advice provided–English or American?
c. Uncertainty and unpredictability of approach: Arbitrators, often left to decide which jurisdiction's privilege rules to apply, may adopt different standards depending on their own legal backgrounds or the specifics of the case. This inconsistency can lead to unequal treatment of parties and can undermine the perceived neutrality of the arbitration process. Gary Born has recognised this issue and commented that: “[t]here has historically been limited authority concerning the appropriate treatment of privileges in international arbitration’ and ‘[g]iven the frequency with which privilege issues arise, and their potential importance, this lack of authority is unfortunate”.
The contentious nature of privilege in international arbitration also raises concerns about fairness. If one party's communications are protected by privilege while the others are not, this could create an imbalance, potentially giving the former an unfair advantage. Moreover, parties may be less willing to share critical information with their legal advisors if they believe that such communications could be disclosed in arbitration. This in turn could hinder their ability to prepare their case effectively.
III. DETERMINING THE APPLICABLE PRIVILEGE RULES IN INTERNATIONAL ARBITRATION
The non-consensus of the international community on rules of privilege is evident from the approach adopted by arbitral institutions around the world. Most institutions only provide guidelines regarding the applicable privilege rules, leaving significant discretion to the arbitral tribunal to determine applicable rules. For instance, the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA) do not impose specific rules on privilege, allowing Tribunals to decide applicable rules based on the circumstances of the case. On the other hand, Article 25 of the International Centre for Dispute Resolution (ICDR) Rules (2021) is among a handful of institutes which offer meaningful direction, specifying that in cases where parties are governed by differing privilege rules, the Tribunal should apply the standard that offers the greatest level of protection. The IBA Rules on the Taking of Evidence, which are a benchmark in international arbitration, recommend that Tribunals should consider a variety of factors in deciding which law of privilege to apply, such as the importance of privilege in the parties' home jurisdictions and the potential impact on the fairness of the proceedings.
Given the diversity of approaches and the lack of a universally accepted standard, arbitrators and parties must navigate a complex landscape to decide how privilege should be handled in each case. As a result, various tests and approaches have emerged in international arbitration to address these challenges, some of which are as follows:
a. Pre-determined Rules: The best-case scenario would be when the parties have agreed in advance on the rules of privilege that will apply, either in their arbitration clause or at the outset of the arbitration proceedings.
b. Lex Arbitri Approach: One common approach is to apply the law of the seat of arbitration, also known as the lex arbitri, to determine issues of privilege. The rationale behind this approach is that the seat of arbitration provides the procedural framework for the arbitration, including the rules that govern the conduct of the proceedings. However, this approach can be problematic if the seat's legal rules on privilege are significantly different from those of the parties’ home jurisdictions, potentially leading to dissatisfaction or perceived unfairness.
c. Lex Causae Approach: Another approach is to apply the privilege rules of the substantive law governing the contract, also known as the lex causae. This approach is based on the idea that the law governing the contract should also govern related procedural matters, including privilege.
d. Arbitrator Discretion: In some cases, the arbitral tribunal may exercise discretion in determining which privilege rules to apply, taking into account the specific circumstances of the case, the parties’ expectations, and the need to ensure fairness and efficiency in the proceedings. This approach allows for flexibility and can be tailored to the needs of the parties, but it also introduces a level of uncertainty, as different tribunals may reach different conclusions in similar cases.
IV. IBA TASK FORCE REPORT ON PRIVILEGE
In response to the complex and contentious nature of privilege in international arbitration, the International Bar Association (IBA) had established a Task Force on Privilege in 2021 to provide guidance and much-needed clarity. The Task Force has considered the IBA Rules on Taking of the Evidence in International Arbitration (“IBA Rules”) while preparing the report. The IBA Task Force Report on Privilege, published early this year, offers a comprehensive examination of the issues surrounding privilege in arbitration and provides recommendations for arbitrators and counsel navigating this often-confusing area. The Report is a significant step forward in addressing the inconsistencies and uncertainties surrounding privilege in international arbitration.
Given the current state of privilege rules and the interest from the arbitration community, the Report concludes that creating uniform guidelines on privilege is beneficial. It then undertakes the complex task of determining whether such guidelines are feasible, focusing on six types of legal privilege. The six types of privilege are discussed below:
a. Re. Legal Advice Privilege
Legal advice privilege refers to confidential communication between a client and their legal adviser made for the purpose of seeking or giving legal advice. Concepts like attorney-client privilege and the work-product doctrine are included in this category. According to Article 9.4(a) of the IBA Rules, arbitral tribunals may consider protecting the confidentiality of documents or communications created for legal advice, subject to applicable legal and ethical rules.
The Privilege Task Force conducted a survey of 24 jurisdictions from both civil and common law systems, and identified broad consensus on key principles of legal advice privilege. These principles include the protection of communication between attorney and client, the exclusion of communications related to criminal or wrongful activities from protection, the potential waiver of privilege through the disclosure of otherwise protected communications, and the recognition that public order considerations do not prevent the application of varying privilege rules in international arbitration.
However, there are notable differences across jurisdictions, such as whether privilege extends to communication in the possession of clients, whether it covers in-house counsel and foreign lawyers, and the conditions under which privilege can be waived. Despite these variations, the Task Force concluded that the differences are not substantial enough to prevent the creation of uniform guidelines for legal advice privilege in arbitration.
The Report suggests that a uniform rule is achievable, especially given the shared understanding that attorney-client communication should be protected and that such rules would not conflict with public order. However, certain limitations may be necessary, especially regarding disclosure from law offices or lawyers, where national laws protect professional secrecy. Other exceptions may apply in cases of criminal activity, fraud, or where the lawyer holds a business role rather than acting solely as legal counsel.
b. Re. Litigation Privilege
Prima facie this might sound similar to the legal advice privilege. However, litigation privilege is much narrower in scope and only protects confidential communication between a client, their lawyer, and third parties related to pending or anticipated legal proceedings. Although not explicitly mentioned in the IBA Rules, its rationale applies in arbitration, allowing parties to prepare without fear of disclosure. The Privilege Task Force found broad recognition of this privilege across jurisdictions, with the following common conditions: communications must involve counsel or third parties, be made for legal proceedings, be confidential, and not involve criminal activity. The Task Force concluded that a uniform guideline on litigation privilege is possible, but further study is required to refine its scope internationally.
c. Re. Without Prejudice/Settlement Privilege
Settlement privilege generally excludes evidence of negotiations, particularly admissions against a party’s interests, when aimed at resolving a dispute. The IBA Rules acknowledge its relevance in arbitration, stating that tribunals may protect the confidentiality of communications made during settlement negotiations.
The Privilege Task Force's study found that settlement privilege encourages good-faith negotiations and avoids prolonged arbitration. After reviewing laws in eight jurisdictions both from common las and civil law, the task force opined that a uniform rule may not be feasible, as settlement privilege primarily stems from common law systems and is not as developed in civil law countries. Nonetheless, the study notes that some civil law jurisdictions, such as France, the Netherlands, Portugal, Russia, and occasionally Germany, have similar mechanisms that protect communications between opposing attorneys from disclosure, sometimes even shielding them from their clients. .
Despite the challenge of uniformity, the study suggests that settlement privilege is already recognized in international arbitration and reflected in the IBA Rules. The Task Force recommends developing uniform guidelines on settlement privilege, as there are no public policy barriers to doing so.
d. Re. Public Interest Immunity
The Report states that “while public interest privilege almost always exists in some form across jurisdictions, it varies widely in scope and applicability.” The Privilege Task Force notes that many States consider public interest immunity essential, often enshrining it in legislation. Consequently, arbitral tribunals typically evaluate claims of public interest immunity on a case-by-case basis, taking into account the relevant laws and the significance of the information. The Task Force finds that while a uniform guideline for public interest immunity would be beneficial, the significant differences in how it is applied across jurisdictions and public policy concerns make this difficult.
e. Re. Common Interest Privilege
The Privilege Task Force found that Common Interest Privilege is typically justified by the need to promote open communication and improve legal advice. It facilitates the sharing of information in various contexts, such as ensuring truthful advertising, applying for patents, and conducting due diligence. However, significant differences exist between jurisdictions, as common interest privilege is not uniformly recognized and is largely confined to common law jurisdictions. In places without this privilege, third parties generally cannot claim it, even when receiving information confidentially from those who can. Establishing a consistent rule for common interest privilege in international arbitration is challenging due to these variables and the complexities introduced by local regulations. While creating a level playing field for common interest privilege in arbitration is desirable, the Task Force concludes that a standalone uniform rule may not be feasible at this time.
f. Re. Privilege against Self-Incrimination
The Task Force notes that the application of this privilege in civil procedures and arbitrations varies widely across jurisdictions. In many cases, jurisdictions tend to limit the scope of the privilege. For example, witnesses may be required to specifically claim the privilege, and general or blanket assertions are generally insufficient to prevent evidence from being disclosed. Furthermore, the privilege is not absolute and can be overridden by statute. Ultimately, the Task Force concludes that creating uniform rules for the privilege against self-incrimination in international arbitration is not feasible due to differing perspectives and public policy concerns across jurisdictions.
The Report finds that three categories of privilege i.e., legal advice privilege, legal proceedings or litigation privilege, and without prejudice or settlement privilege—share enough similarities across jurisdictions to be standardized. For each of these, the Report notes that no public policy rules would obstruct the implementation of uniform guidelines in international arbitration. However, other types of privilege, such as public interest privilege and privilege against self-incrimination, do not easily lend themselves to uniform rules. Some, like common interest privilege, may be more appropriately considered in the context of waiver. For these categories, the Task Force suggests implementing a uniform choice-of-law guideline, which would provide greater clarity and consistency in determining the applicable rules for these privileges in international arbitration.
V. CONCLUDING REMARKS
The issue of privilege in international arbitration remains one of the most complex and contentious aspects of the process. The lack of a unified global standard, compounded by the stark differences between common law and civil law traditions, makes it challenging for arbitrators and parties to navigate. The choice of applicable privilege rules can significantly impact the fairness, efficiency, and outcome of arbitration, underscoring the need for greater clarity and consistency.
The recent IBA Task Force Report on Privilege represents a crucial step toward resolving these issues. By emphasizing the importance of fairness, discretion, and respect for the parties' legal backgrounds, the report offers a flexible framework that can be adapted to different arbitration contexts. It also encourages early party agreements on privilege rules, which can prevent disputes from arising later in the proceedings and enhance the predictability of outcomes.
Despite these advances, the application of privilege in international arbitration is likely to remain a topic of debate. As arbitration continues to evolve in response to globalized business and cross-border disputes, so too will the approaches to managing privilege.
The authors commend the IBA Task Force Report for its nuanced analysis and explanation of privilege, highlighting its implications for legal practice in cross-border contexts. The Report’s guidance provides a foundation for ongoing discussion and improvement in this area, but there is still much work to be done to ensure that privilege is handled consistently and equitably across all arbitration forums. The authors opine that the IBA Report represents a crucial and much-needed preliminary step towards establishing a uniform set of rules on privilege in international arbitration. However, it will be imperative to stress that practitioners, arbitrators, and institutions must persist in their collaborative and innovative efforts to further refine and advance the handling of privilege in this evolving field.
*Associates, Kachwaha & Partners, New Delhi
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