1. Why is privilege important in international arbitration?

The world of international arbitration is complex in many regards, among others because it interweaves diverse legal traditions and practices.[1] Privilege – understood as a right or obligation (depending on the legal system) to withhold evidence from production – finds itself at the crossroad between common and civil law traditions. Although privilege is recognised in many jurisdictions, it varies considerably from country to country in substance, scope and application. For example, whereas work produced by in-house counsel is protected by attorney–client privilege in some jurisdictions (e.g. the United States or Spain, just to mention a few), this is not the case in others (such as Switzerland). What is privileged in one country may thus not necessarily be privileged in another. 

Parties who seek legal advice and share confidential information with their attorney – both prior or during a dispute – have a great interest in preventing it from being disclosed to the other party or to a third-party. Understanding which privilege rules of which jurisdiction may be applicable in international arbitration is particularly important during document production, where a party may request the opposing party to produce a document relevant and material to the case that is not in the possession or control of the requesting party. It goes without saying that document production is a particularly sensitive phase in an arbitral procedure as it may decisively influence the outcome of the arbitration. However, when it comes to privilege, parties are often faced with legal uncertainty. Unless the parties have agreed on the law applicable to the privilege (which is rarely the case), the reality is that no uniform rule exists to determine the applicable legal privilege.
 

This blog provides an overview of the methods an arbitral tribunal may resort to in order to determine the applicable legal rule on privilege. For sake of clarity, the authors will focus on the attorney-client privilege, giving practical advice on how to safeguard privileged information and enhance the chances of validly objecting to a counterparty’s request for document production. 

2. Types of privileges in international arbitration 

While in its core the concept of privilege is known in many jurisdictions, there are conceptual differences between civil law and common law jurisdictions. In a nutshell: while common law considers privilege as the client’s right not to disclose evidence and be protected from disclosure, civil law perceives privilege as a legal obligation of the attorney to withhold protected information, often under threat of sanction in case of violation.[2]
 

There are many different kinds of privilege that may become relevant in arbitration proceedings, such as the attorney-client privilege, the without prejudice privilege, the mediation privilege, trade secrets, state secrets, the patent agent privilege and the medical privilege.[3] As mentioned before, this blog will focus on the attorney-client privilege.[4]

3. Regulation of Attorney-client privilege under Swiss law

A. Attorney-Client Privilege

There is a common understanding that the attorney-client privilege protects any communication between a client and an independent attorney[5] admitted to the bar that is related to the attorney’s typical professional activity.[6] This also includes any facts that the attorney learns from the client in connection with the mandate and any work products that have been created by the attorney or by third parties upon the attorney’s instructions. 
 

Under Swiss law, the attorney-client privilege may be waived subject to the client’s consent. However, even in such case, because the privilege is considered to be not only a legal obligation of the attorney, but also his or her right, the attorney has no obligation of disclosure. Besides the client’s consent, the attorney may only disclose information if he or she is authorized by the cantonal supervisory authority. An attorney may request such authorization, provided the client refuses to waive the privilege or if consent cannot be obtained and there is a prevailing interest justifying the disclosure sought. This is usually the case in disputes over attorney’s fees.[7]
 

The principle of attorney-client privilege is protected in various provisions of Swiss law:[8]

1. Article 13 of the Federal Act on the Free Movement of Lawyers (FMLA)[9] provides that any EU or EFTA-qualified attorneys that represent clients before judicial authorities in Switzerland are bound by professional secrecy in all matters entrusted to them by their clients. In case of violation, the supervisory authority may order disciplinary measures, such as a reprimand, a fine as well as a temporary suspension or permanent disqualification from practicing.[10]
2. According to Article 321 of the Swiss Penal Code (PC), the violation of professional secrecy by attorneys is a criminal offence punishable by imprisonment of up to three years or a monetary penalty. This provision is also applicable to foreign attorneys irrespective of their nationality or the jurisdiction in which they practice, provided that the violation is committed within Switzerland.[11]
3. Attorney-client privilege is also protected under article 4 of the Swiss Code of Professional Conduct (SSR) [12], as well as in cantonal code of conducts for attorneys. In Canton Zurich, for instance,[13] professional secrecy and the rules of professional conduct contained in the FMLA apply mutatis mutandis to lawyers who practise the legal profession but are not subject to the FMLA.
    

B. In-House Legal Counsel

In many common law jurisdictions, such as England and the United States, legal privilege also includes communication with in-house legal counsel. There are also some civil law jurisdictions, such as the Netherlands and Spain, that extend attorney-client privilege to in-house counsel, too.[14] In France and Italy the attorney-client privilege is also only available to external counsel admitted to the bar.[15] In Germany, different rules apply depending on the nature of the proceedings. While in civil proceedings, legal privilege applies to in-house counsel admitted to the bar, in criminal proceedings in-housel counsels may not refuse testimony and their documents may be seized.[16] 

In Switzerland, the attorney-client privilege does not extend to communications between an in-house counsel (i.e. legal counsel that is an employee of a corporation other than a law firm irrespective of his/her admission the bar) and the clients or employees of the corporation.[17] In 2015, a parliamentary initiative was submitted requesting to introduce the right for in-housel counsels to refuse to disclose information in civil proceedings before Swiss judges. As part of a partial revision of the Civil Procedure Code (CPC), a new art. 167a shall be introduced in the CPC, which provides that an in-house counsel in Switzerland will have the same procedural privileges in civil proceedings as external lawyers admitted to the bar, provided they fulfil the conditions set forth in art. 167a (2) of the draft CPC (E-CPC).[18] This provision will come into force on 1 January 2025. In essence, it aims at eliminating procedural disadvantages of Swiss companies compared to companies from other jurisdictions where such a privilege exists. It is important to stress that the CPC is not as such applicable to international arbitration seated in Switzerland and therefore it remains to be seen whether arbitral tribunals seated in Switzerland will – by analogy – apply the new art.167a (2) CPC when called to decide upon whether in-house counsel’s communications are privileged. For the time being, in-house communications are not privileged as a matter of Swiss law. To give an example: internal communications or work products from an in-house counsel providing legal advice to other departments of the company are not privileged under Swiss law.  

4. How arbitral tribunal may determine the applicable legal privilege

A. Complexity of Privilege in International Arbitration 

In international arbitration, it is not uncommon that the same dispute involves several jurisdictions. This makes determining the applicable privilege rule extremely complex. For example, differences of approaches concern the qualification of privilege as substantive or procedural law, whether the privilege also covers in-house counsel or whether work-products [19] are protected.   

Parties may of course agree on specific legal privilege rules or the applicable law governing the legal privilege in the arbitration agreement or at a later stage. This is however rarely done in practice.

If there is no agreement on legal privilege, an arbitral tribunal will look into the applicable arbitral rules or guidelines for guidance.  

However, generally, the applicable arbitration rules provide little to no guidance, leaving the decision on which legal privilege rules to apply to the broad discretion of the arbitral tribunal.[20] The IBA Rules on the Taking of Evidence in International Arbitration of 17 December 2020 (IBA Rules),[21]for instance, provide that privilege as a general concept is to be respected, and that evidence may be excluded on the basis of “legal impediment or privilege under the legal or ethical rules determined by the Arbitral Tribunal to be applicable”.[22] Certain factors, such as the need to protect the confidentiality of communications or documents made in connection with the provision of legal advice or for purposes of settlement negotiations, the expectations of the parties at the time the legal privilege arose, any possible waiver of privilege by consent or earlier disclosure or the need to maintain fairness and equality between parties must, on this front, be considered.[23] However, the IBA Rules do not contain clear rules to determine which privilege rules of a particular jurisdiction apply.

In the absence of parties’ explicit agreement, indication of parties’ intent or any guidance in the applicable arbitration rules or guidelines, the determination of the applicable privilege rules lies in the discretion of the arbitral tribunal. One of the core principles that must lead the arbitral tribunal’s decision is to guarantee fairness and equality between the parties, as well as the parties’ legitimate expectations as to the application of a certain privilege standard. Arbitral Tribunals have developed the following methods to determine the applicable privilege rules.
 

B. Possible Methods to determine the Applicable Legal Privilege 
 

1. Qualification of Privilege as Procedural or Substantive Issue

A first method is to analyse whether legal privilege is procedural or substantive in nature. While in most common law jurisdictions, such as the United States and UK, legal privilege is considered to be substantive in nature, mainly civil law jurisdictions, such as Germany, Italy and the Netherlands, qualify legal privilege as a procedural issue, mainly because it relates to the production of evidence.[24] This is also the approach under Swiss law, where protection of legal privilege is part of Swiss procedural law.[25]

The qualification as a substantive or procedural issue is not trivial. If qualified as a procedural matter, the arbitral tribunal would have to apply the privilege rules governed by the lex arbitri. If the issue is deemed to be substantive in nature, the arbitral tribunal would have to apply the law of the underlying agreement or the law determined by the general conflict of law rules.[26] However, the application of either of these laws might go against the parties’ expectations and thus not provide a fair solution. The parties might have chosen the law governing the underlying contract and the seat of the arbitration for other reasons, not having in mind that these laws could also find application to their attorney-client privilege.[27]

Since legal privilege is qualified as a procedural matter in Switzerland, one should first look into the Swiss lex arbitri. For international arbitration seated in Switzerland, the PILA is silent on legal privilege, though. Article 182 (1) PILA simply provides that the applicable procedural law is determined by the parties’ choice, either by reference to specific rules of arbitration or by submitting the arbitration to a national procedural law of their choice. In the absence of a choice by the parties, Article 182 (2) PILA provides that the arbitral tribunal shall determine the applicable procedural law, either directly or also by reference to a statute or to rules of arbitration. As shown above in sect. IV.A., however, generally rules of arbitration do not provide for any specific privilege rules. The choice of a national privilege law by the parties would be more useful, as many jurisdictions recognise some kind of legal privilege, however in practice parties almost never agree to apply the national procedural law of a specific country. Be as it may, the authors’ opinion is that recourse to Article 182 PILA to determine the applicable legal privilege would not provide an ideal solution because it implies that privilege is a procedural issue: as explained above, such an approach does not rely on a general consensus in international arbitration. In practice, Article 182 PILA is thus of little help and arbitral tribunals will likely look for guidance in the methods presented hereafter.
 

2. Closest Connection Approach

A second method is to seek to establish with which jurisdiction a communication or information has its closest connection. Pursuant to the closest connection approach (also called centre of gravity test), the arbitral tribunal applies the law of the jurisdiction with which the information or communication is most closely connected.[28] This might be, for example, the law of the country where the client has its seat or performs its business, the place of residence of the attorney, the place of creation of the relevant documents, the place where communication between client and its attorney were exchanged or the current location of the documents.

However, this approach might be very difficult to apply in practice and can be time-consuming in cases of cross-border communications and with large quantities of communications and documentations involved. What happens, for example, if a party opposes disclosure based on legal privilege with regards to various documents, some of which were created in Switzerland, but other were created in Spain and in Italy? An arbitral tribunal would then have to apply three different legal privilege rules. This is not practical and might, besides obstructing efficient proceedings, create legal uncertainty for the parties involved.[29]
 

3. The Most or Least Favoured National Privilege Rule Approach

Further methods that can be used are the most favoured or least favoured nation approach. Under the least favourable privilege approach, the arbitral tribunal applies the law that provides the lowest standard of protection among the laws potentially applicable. In contrast, with the most favourable privilege approach, the arbitral tribunal applies the law with the highest standard of protection, with the result that under this approach production of documents is harder. For a Swiss party in a dispute with a US party, this approach would have the benefit that they could object the disclosure of communication with their Swiss in-house counsel based on the applicable US privilege law.[30]

The positive side of both approaches is that the same rules apply to all parties and thus the parties are treated equally. A disadvantage of the least favourable privilege approach is that it might contravene with the privilege rules of an attorney’s home jurisdiction and even lead to a situation where an attorney would be committing a crime in their home jurisdictions if forced to produce documents in the arbitration proceedings. This problem does not exist with respect to the most favourable nation approach.[31] However, this approach also comes with its shortfalls. Applying the strongest privilege law might prevent the arbitral tribunal and the parties from finding out important facts that are relevant and material to the outcome of the case. Nevertheless, this approach ensures that the minimum expectations of the parties as to the scope of their privilege are in principle met. 

5. Practical tips to safeguard the attorney-client privilege in international arbitration

In view of the legal uncertainty regarding the applicable national rules on the attorney-client privilege, clients must be mindful of the appropriate actions to take in order to safeguard the attorney-client privilege. Some practical tips include: 
 

a. During the contract negotiation phase: Parties are best advised to consider legal privilege issues and the danger of potential disclosure of their client-attorney documentation already when negotiating a new contract with a business partner. Parties may either mutually establish specific legal privilege and document disclosure rules or define the law applicable to legal privilege issues. Parties may also already at this stage contractually agree on confidentiality measures to protect the attorney-client privilege, in particular in situations where the attorney-client privilege may be waived under the applicable rules. 
 

b. Prior to the arbitration: Once a dispute has started, while not required to maintain privilege, but in order to avoid inadvertent disclosure, it is advisable to mark any attorney-client communication as “privileged and confidential”. Furthermore, the attorneys of a party in dispute should as soon as practical analyse the possible applicable national privilege laws and, to the extent possible, take the necessary measures. If, for example, there is a possibility that Swiss law on legal privilege applies, the attorney should ensure that any relevant communication for the case is exchanged between the client and the attorney. Furthermore, in internal communications with in-house counsel or with third parties, an external attorney should be copied (the same applies for communications during the arbitration, see below). Additionally, as soon as a dispute is anticipated, a party must immediately instruct its employees to stop communicating with each other without the involvement of an external attorney. If an external attorney is not yet available, crucial matters should only be discussed among employees in conference calls instead of emails. Parties are best advised to establish specific communication rules allowing them to instruct the employees quickly and efficiently in the event of a foreseeable conflict. 
 

c. During the arbitration: At the beginning of the arbitration procedure, it is advisable to propose to the arbitral tribunal and the counterparty to jointly agree on privilege issues as early as possible (ideally during the Case Management Conference and in the first procedural order). At that point, the attorney should analyse if a high or low protection of privileged information is best suited for the client’s case and propose an approach to the arbitral tribunal that best fits the case strategy. If it is foreseeable that the outcome of the case will depend on disclosure of documentation or information from the opposing party, it is advisable to opt for the least favourable national privilege rule, and vice-versa.
 

During the documentation protection it is particularly important for a party to take appropriate action to safeguard documents subject to attorney-client privilege. It is important for a party to thoroughly check if any of the requested documents is subject to privilege and to avoid internal communications without copying external lawyers.

Arbitral Tribunals may appoint neutral third-party experts to assist them in reaching their decisions. In cases where essential facts can only be determined by review of an allegedly privileged document, an arbitral tribunal may decide to not review the document itself, but instead appoint a neutral third-party expert to review the document.[32] This ensures that the arbitral tribunal is not being influenced by the privileged part of the document.

It is further important to mention that a decision by the arbitral tribunal on the taking of evidence qualifies as a procedural order. In many jurisdictions, including Switzerland,[33] it is not possible to directly challenge a procedural order. Under Swiss law, the arbitral tribunal’s decision on document production may only be challenged with the award on the merits, likely for violation of the principle of equal treatment or the right to be heard (Art. 190 (2) (d) PILA). On this front, if a party considers that the arbitral tribunal’s decision on document production breached the principle of equal treatment or its right to be heard, the party must immediately raise an objection. Otherwise, it may forfeit its right to challenge the award at a later stage on those grounds (Art. 182 (4) PILA[34]). The likelihood of success of such a challenge is however generally low, as under Swiss law the arbitral tribunal’s anticipated assessment of evidence is not open to review.[35]

6. Conclusion

Legal privilege in international arbitration is complex due to the cultural and legal disparities among parties, attorneys and arbitrators. In the absence of uniform rules, arbitral tribunals hold a considerable discretion when it comes to determining the applicable privilege rules. Parties and attorneys should therefore be mindful of the complexity of privilege in international arbitration, take it into consideration already at an early stage of the dispute and even when negotiating an arbitration agreement. 
 

We are at your disposal if you seek legal assistance in this regard. 

[1]    This blog entry only covers international arbitration in Switzerland, governed under Chapter 12 of the Swiss Private Law Act (PILA). Domestic arbitration subject to Part 3 of the Swiss Civil Procedure Code (CPC) is not considered here. 

[2]    Nicolas Grégoire, Evidentiary Privileges in International Arbitration, a comparative analysis under English, American, Swiss and French Law, p. 1.

[3]    Nicolas Grégoire, Evidentiary Privileges in International Arbitration, a comparative analysis under English, American, Swiss and French Law, p. 9.

[4]    The attorney-client privilege is also called “legal privilege”. Both terms are used in this blog.

[5]    Meaning an attorney that works in an independent practice, including employed lawyers, provided their employer is an independent attorney or an independent law firm.

[6]    An attorney’s typical professional activity includes legal representation and legal advice. Business activities (for example asset management or acting as board member or escrow agent) are not protected by the attorney-client privilege.

[7]    Article 321 (2) Swiss Penal Code.

[8]    For the sake of completeness, note that in judicial proceedings in Switzerland attorney-client privilege is also protected (articles 160, 163 and 166 Swiss Civil Procedure Code, articles 171 and 264 Swiss Criminal Procedure Code, articles 13, 16 and 17 Swiss Federal Act on Administrative Procedure). Those provisions are however not directly applicable in an international arbitration seated in Switzerland, not even by analogy.

[9]    In connection with Art. 2 FMLA.

[10]   Art. 17 FMLA.

[11]   The duty of care and loyalty under a mandate agreement pursuant to Art. 398 (2) of the Swiss Code of Obligations (CO) also imposes a duty on the attorney to protect the client's interests. In contrast to Art. 13 of the FMLA and Art. 321 PC, under Art. 398 (2) CO only the client's intention to maintain secrecy is decisive for the question of whether certain information is subject to confidentiality under private law. The private law regulation of the lawyer's duty of confidentiality lacks the institutional component that is inherent to the legal privilege protected under criminal and professional codes of conduct.

[12]   In addition, attorney-client privilege is also protected at European level under art. 2.3 and 2.4 of the Code of Conduct for European Lawyers, which is also applicable to attorneys registered in Switzerland.[12] Further information can be found in: Code of Conduct for European Lawyers 2006:Code of Conduct.qxd (advokatsamfundet.se)).

[13]   §14 of the Lawyers Act of 17 November 2003 (215.1) of the Canton of Zurich. 

[14]   Klaus Peter Berger, Evidentiary Privileges: Best Practice Standards versus/and Arbitral Discretion, Arb. Int 22 (2006), at 501 et seq., p. 505.

[15]   Klaus Peter Berger, Evidentiary Privileges: Best Practice Standards versus/and Arbitral Discretion, Arb. Int 22 (2006), at 501 et seq., p. 505.

[16]   Germany: Legal Professional Privilege and Implied Undertaking, November 2021, available at: Germany: Legal Professional Privilege and Implied Undertaking | Deutschland | Global law firm | Norton Rose Fulbright.

[17]   Decision of the Swiss Supreme Court 1B_101/2008, 28 October 2008.

[18]   Pursuant to Art. 167a (2) E-CPC, invoking the right to refuse to cooperate in civil proceedings requires that (i) the party concerned is registered as a legal entity in the Swiss Commercial Register or in a comparable foreign register, that (ii) its legal service is managed by a person with a cantonal licence to practise law or by a person who fulfils the professional requirements to practise law in his or her home state, and that (iii) the activity in question can be considered equivalent to an external attorney’s legal advice. 

[19]   Work-products means any material and tangible things prepared in anticipation of legal proceedings. In Switzerland, for example, attorney-client privilege extends to work products produced by a client or a third party at the instruction of an attorney in connection with his or her typical professional activity. 

[20]   An example of arbitration rules providing concrete guidance on how to deal with privilege are the rather US-orientated rules of the International Center for Dispute Resolution (ICDR Rules). According to art. 25 ICDR Rules, 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 their documents would be subject under applicable law to different rules, the tribunal should, to the extent possible, apply the same rule to all parties, giving preference to the rule that provides the highest level of protection.

[21]   In 2018, the Rules on the Efficient Conduct of Proceedings in International Arbitration (known as the Prague Rules) were issued by civil law practitioners as an alternative to the more common law-centric IBA Rules. In line with civil law tradition, under the Prague rules document production is provided as an exception. The requested documents must be relevant and material to the outcome of the case, not be in the public domain and must be in possession of another party.  The Prague Rules do not contain any further guidance on the admissibility of documentary evidence, in particular regarding exclusion of evidence based on legal privilege. 

[22]   Art. 9(2)(b) IBA Rules.

[23]   Art. 9(4) IBA Rules.

[24]   Klaus Peter Berger, Evidentiary Privileges: Best Practice Standards versus/and Arbitral Discretion, Arb. Int 22 (2006), at 501 et seq., p. 507/508.

[25]   Is the Attorney-Client Privilege and the Work Product Doctrine Relevant Abroad? - Pitfalls and Best Practices, Legal Professional Privilege in Switzerland, CMS von Erlach Henrici, October 2010. 

[26]   Klaus Peter Berger, Evidentiary Privileges: Best Practice Standards versus/and Arbitral Discretion, Arb. Int 22 (2006), at 501 et seq., p. 508.

[27]   Thomas Stouten and Denise Jansen, Legal privilege issues: at the mercy of the arbitral tribunal, June 2021.

[28]   Klaus Peter Berger, Evidentiary Privileges: Best Practice Standards versus/and Arbitral Discretion, Arb. Int 22 (2006), at 501 et seq., p. 511.

[29]   Thomas Stouten and Denise Jansen, Legal privilege issues: at the mercy of the arbitral tribunal, June 2021.

[30]   Rachel Reiser, Applying Privilege in International Arbitration: the case for a uniform Rule,p. 673/674.

[31]   Rachel Reiser, Applying Privilege in International Arbitration: the case for a uniform Rule,p. 673/674.

[32]   This power of the arbitral tribunal is explicitly provided for in Art. 3 (8) IBA Rules.

[33]   The procedural orders do not qualify as awards under Swiss law and therefore cannot be challenged under Art. 190 PILA.

[34]   Art. 182 (4) PILA: “A party that continues with the arbitration proceedings without objecting immediately to a breach of the rules of procedure of which it is aware or which it would have been aware had it exercised due diligence may not invoke this breach at a later point in the proceedings.”

[35]   See for instance decision of the Swiss Supreme Court 4A_170/2023 of 28 June 2023, reason 5.1.1, with references.