This blog post was first published on the Practical Law arbitration blog.
“It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter”, including “whether any and if so which documents or classes of documents should be disclosed between and produced by the parties and at what stage.”
However, this flexibility is tempered by the tribunal’s obligation under section 33(1)(a) AA 1996 to act fairly and impartially as between the parties. Further, where the International Bar Association (IBA) Rules on the Taking of Evidence in International Arbitration apply, Article 9.3(e) requires the tribunal to take into account:
“… the need to maintain fairness and equality as between the Parties, particularly if they are subject to different legal or ethical rules”, and Article 9.3(c) requires the Tribunal to have regard to “the expectations of the Parties and their advisors at the time the legal impediment or privilege is said to have arisen”.
The need to treat both parties fairly and equally therefore has to be balanced against the fact that, where (as is often the case) the parties come from different jurisdictions, they may have taken advice from their respective legal advisers (whether internal or external) on the basis that it would be protected by the rules of privilege that apply in their jurisdiction(s).
The “closest connection” test in international arbitration
One approach is simply to impose the privilege rules of either the law of the seat or the governing law of the contract and therefore require both parties to take the same approach to privilege issues that may arise during the document production process. However, tribunals are often reluctant to do so in case the outcome does not accord with the legitimate expectations of the parties at the time when the legal advice in question was given (for example, whether or not advice given by an in-house lawyer would be privileged). This may be a particular concern where the parties have chosen a seat of arbitration or a substantive governing law on the basis of its neutrality, and it has no connection to the nationality of either party or their legal advisers at the time when the advice was given.
Some tribunals therefore adopt a “closest connection test” as an alternative. This seeks to balance a number of different factors in order to determine the law applicable to privilege issues. These may include the:
- Governing law of the contract.
- Law of the seat of arbitration.
- Place where the advice was given.
- Place where it was received.
- Jurisdiction where the lawyer giving the advice was admitted.
- Country where the documents are held.
The approach of the English courts: the RBS Rights Issue Litigation
However, this approach now stands in sharp contrast to the decision of the English High Court in December 2016 on the availability of legal advice privilege. In the RBS Rights Issue Litigation, the High Court confirmed that the English courts will apply English law, as the lex fori, when determining questions of privilege.
The judgment in the RBS Rights Issue Litigation was concerned with the availability of legal advice privilege over records of interviews conducted by US lawyers in a fact-gathering investigation (in circumstances where litigation privilege was therefore unavailable). One of the issues that arose for determination was whether the availability of legal advice privilege fell to be determined under English law, or whether (as RBS contended) the English court should have applied US privilege rules, which would have afforded the interview records a much broader degree of protection against disclosure.
While acknowledging the long-established position (dating back to Lawrence v Campbell) that the English courts will apply English rules of privilege, as the lex fori, RBS proposed an entirely new choice of law rule:
“Save where to do so would be contrary to English public policy, the English court should apply the law of the jurisdiction with which the engagement or instructions, pursuant to which the documents came into existence or the communications arose, are most closely connected.”
This proposed rule was rejected by the High Court on the basis that it was established practice to apply English law as the lex fori, and there was no reason (including the regularity with which multi-jurisdictional litigation is now heard by the English courts) to depart from it. In doing so, the court recognised that this was in part driven by practical considerations: if a different test were to be applied, the English courts could be required to apply different rules of privilege depending on the particular case. There were also relevant considerations of public policy: the English system of litigation prefers “the fullest available record” of documentary evidence to be available to assist the decision-maker.
RBS’s proposed “closest connection test” focussed on the circumstances in which the advice was given, rather than taking into account the laws applicable to the dispute. It is worth noting that, on the basis of the “closest connection test” as it is understood in international commercial arbitration, an English-seated tribunal may well have concluded that notes of interviews carried out by US lawyers, (at least in part) in the USA, and which were understood to be privileged at the time when they were created, were protected by legal advice privilege.
It is understood that RBS will not appeal the first instance decision. This aspect of the judgment therefore potentially puts the approach of the English courts to the law governing applicable rules of privilege at odds with the approach often taken in English-seated international arbitrations. Of course, there is nothing inherently wrong in that from a legal perspective; there is no reason why parties who have agreed to arbitrate in England should be subject to the rules applicable to English court practice. Furthermore, given the relatively broad scope of privilege under English law, the instances when one party looks to assert a broader scope of privilege than that provided for under English law may be relatively rare in practice. Nonetheless, in an era where (as acknowledged in the RBS Rights Issue Litigation judgment) English law increasingly views legal advice privilege as a substantive right, and large multi-jurisdictional disputes are regularly brought to England for resolution in both litigation and arbitration (often simply because it is a neutral forum), any significant disparity in the level of protection that parties might be able to assert over their documents may be regarded by some as a surprising outcome.