21 July 2022

In most complex litigation, the exchange of documentary evidence is essential to the fact-finding process. The same is true of document production in arbitration, which, while not mandatory, is frequently used. A common ground for withholding a document requested by a counterparty is that the document is protected by legal privilege. However, several challenges may arise concerning privilege claims.

Parties to an arbitration tend to have little guidance on the law applicable to issues of privilege and on the more practical question of how they should set out their privilege objections. The parties generally will not have addressed these issues in their arbitration agreement. Equally, beyond reference to the use of a Redfern Schedule in the document production phase, detailed provisions regarding privilege objections are rarely provided in procedural order (PO) 1.

There is a wide scope for divergent views. Inevitably, parties will put forward one of the many possible choices of law rules that favour their position, which may be unfavourable for the other party. A party’s jurisdiction will also determine its legitimate expectations, something the tribunal will likely consider when deciding what documents may be protected or not. For example, parties from civil law countries may not expect communications with their in-house lawyers to be protected, whereas a party from a common law country would expect such communications to be covered. The parties may also have different views on the mechanism for airing the objection: whether the above issues should be addressed in the Redfern Schedule or a privilege log, and in what level of detail.

The debate between the parties on these issues can be costly and inefficient. That said, there are a few practical matters that counsel can bear in mind during document production. These are:

• Being aware of the most common choice of law rules and applicable privileges.
• Thinking strategically on the format of the privilege debate.
• Considering the client’s potential interests in other proceedings.

First, counsel in international arbitrations should be aware from the outset of the approaches most used by tribunals when determining applicable law and the main types of privileges.

In the absence of guidance from the parties and the legal framework (which is generally silent on issues of privilege), tribunals have significant discretion in determining the applicable law, taking into account the specifics of a particular case and the arguments advanced by the parties. The parties’ legitimate expectations should be considered, as well as equality between the parties.

The choice of rules may depend on the tribunal’s view on whether the question of privilege is a matter of procedure (for example, lex arbitri) or substance (for example, law that applies to the contract). However, it is generally accepted that the parties may not have foreseen either of these laws as being applicable to questions of privilege and that these may not be appropriate to resolve the issue.

The following are examples of approaches often observed in practice to determine the applicable law (though others exist and may be preferable depending on the case):

• Tribunals may apply the law most closely connected to the privileged communication or document. The closest connection is usually determined by looking at several criteria, including where the lawyer or client is based.
• Tribunals may also determine applicable national legal privilege rules by choosing the “most” or “least” favourable regime available. Under the “most favourable” legal privilege approach, the tribunal will apply the national legal privilege rules providing the widest protection. The “least favourable” privilege approach applies the rules that offer the least protection.

Privilege types that are common to most jurisdictions include:

• Legal advice privilege, which concerns legal advice by a party’s legal counsel and is the most frequently invoked privilege. The rationale is to protect and promote candid communications between clients and lawyers, which, in turn, improves the quality of legal advice.
• Work product privilege (or litigation privilege), which protects documents prepared in anticipation of litigation, exchanged with the lawyers and sometimes third parties, when litigation is “foreseeable”.
• In-house counsel communications. In common law jurisdictions where the threat of litigation and discovery is higher than in civil law countries, in-house counsel communications are generally privileged, whereas they are not in most civil law jurisdictions.
• Other privilege types. Tribunals have also had to decide on other privilege types, such as cabinet privilege and deliberate process privilege, concerning state entities and important state documents.

These approaches by tribunals and privilege types are by no means exhaustive, and each case will raise its own considerations. These issues should be thought through at the outset of the case, or at the start of the document production phase, to ensure maximum protection of privileged documents. In this regard, counsel should clarify which approach they consider appropriate when making their submissions. They should not shy away from raising multiple privilege laws and privilege types if this can be substantiated. For instance, if an international client has a legitimate interest in arguing that several privilege laws protect the documents requested. This may allow a higher protection (as some privilege laws are more protective than others).

It is advisable to consult counsel who are qualified in the jurisdiction whose laws are said to be applicable to the privilege claimed. This ensures that the privileges claimed are accurately set out and substantiated.

Second, strategic thinking on privilege issues is key.

The parties can save considerable time and cost by thinking ahead regarding their preferred, and possibly agreed, approach to privilege issues. This includes not only the law(s) to be applied, but also how objections based on privilege should be addressed in, or along with, a Redfern Schedule.

The lack of guidance on privilege issues could result in a disorganised debate between the parties, especially if the issues raised are complex. This can be the case, for example, where a large volume of documents are concerned, where multiple privilege laws and privilege types are raised at once or if waiver issues arise.

If the tribunal provides no contrary instruction, the parties may attempt to address the privilege objections in their Redfern Schedule. However, the format of the Redfern Schedule can leave the parties in the dark as to what issues they should address. For example, the requested party might raise a privilege law (for example, English law) without substantiating the choice of law (for example, why English law applies). They might fail to explain why the privilege type raised (for example, legal advice privilege) applies to the document or categories of documents at issue, or fail to provide a description of the withheld document(s) that makes the application of the privilege type raised clear (for example, a category of documents is identified as protected by litigation privilege, but there is debate as to whether litigation was foreseeable at the time). This can lead to extensive debate and correspondence between the parties and complicate the document production process.

A common proposed solution to this is the use of a privilege log. It may be submitted in addition to the Redfern Schedule, or simultaneously as documents are produced (for instance, if the tribunal ordered the production of a certain category, ”subject to privileged documents being identified in a privilege log”). The purpose of the log is to identify the documents or group of documents withheld based on privilege for each category of document requests. The format for these logs can vary if the tribunal did not provide specific instructions. However, to assist with the above challenges, the privilege log should, as a minimum, include:

• The document request concerned.
• The privilege law(s) invoked and justification for its or their application.
• The privilege type applied.
• A document description that makes sufficiently clear why the privilege type applies to the document withheld.

The parties could therefore consider agreeing, with the tribunal’s input, on the use of a privilege log and its contents or format. This could be included in PO1 or, alternatively, a separate agreement can be reached closer to the document production phase when the issues that will arise become clearer. The latter can be useful even if the parties have not been able to agree the law applicable to privilege objections, as it will provide a much-needed structure for the debate.

Third, the client’s interests in other proceedings should be considered.

Clients may be engaged in separate proceedings or investigations. This can raise further complexities for the document production phase in the arbitration, particularly if the same potentially privileged documents are involved.

For example, a client may have asserted privilege in another dispute. Producing the document in the arbitration could, in that other dispute, be interpreted as a waiver concerning some or all related privileged documents. The client may then be forced to produce what might otherwise have been protected. In the same vein, a client may be under investigation by public authorities in one or several jurisdictions. This client (as is its right in the context of an investigation) may have withheld documents from those authorities based on the applicable privilege laws. However, these laws, may differ from the privilege law applied in the arbitration. The client may not wish to explain to public authorities that documents were produced to a third party in an arbitration but withheld from the authorities, and waiver risks arise again.

Similarly, a party may be faced with the tribunal’s order that a document be produced, despite the privilege objection. If this occurs, the client’s interests both in and outside the arbitration should be considered and balanced. In the arbitration, non-compliance with a tribunal’s order may have adverse effects. The tribunal may draw an adverse inference from the omitted documents; it may presume that the documents withheld are in the other party’s favour. Alternatively, it may consider the non-compliance when determining the allocation of costs at the end of the case.

In any event, the cost of non-compliance in the arbitration may be weighed by the cost this disclosure may have in other proceedings. For instance, if criminal responsibility or significantly larger sums are at play for the client. In this regard, the risk of an adverse inference may, depending on the circumstances, not be as significant as it first seems. Tribunals can be fairly reluctant to rely on adverse inferences, and they tend to rely on other evidence instead. The parties will have to be heard before such an inference is drawn, and there would be an opportunity to explain its non-compliance and argue against the application of the adverse inference.

All options should therefore be considered, and waiver issues should be investigated before producing a privileged document.

To conclude, while privilege objections in document production give rise to several challenges, the above considerations can facilitate the process and secure maximum protection of privileged documents.

This blog was first published on the Practical Law Arbitration blog.