White & Case partner Phillip Capper told an audience at GAR Live Stockholm yesterday he had reconsidered his one-time opposition to having more rules in arbitration and suggested more provision on privilege in those rules.
In a lunchtime keynote address, the London-based lawyer, who is also a professor at the Centre of Construction Law and Dispute Resolution at King’s College London, noted that much discussion at the conference had revolved around the proliferation of rules and “soft law” that has grown up around international arbitration.
“Flexibility has been the hallmark of arbitration and yet we are getting more and more rules.” he said.
Capper imagined how the pioneers of international arbitration would have reacted.
“A wonderful giant like [the late] Pierre Lalive would have said, ‘Why do you need these rules? If we need to do these things you just do them.’ “
But Capper said “you have to be great like Lalive to be able to hold such a strong view, because the world is not willing to accept that now.”
More recently, he said leading commentators like William W Park - in his 2002 lecture "Arbitration's Protean Nature - have advocated a rules-based system for international arbitration, so that users benefit from a “basic template” of what to expect.
Capper said he used to disagree with that, but has changed his mind.
“There are so many actors, so many players in arbitration, that actually we do need more predictability, more certainty on what is involved in order that the choices are well-known.”
He said the time when arbitration was practised by “a relatively small number of players in a relatively small number of countries” is over. Now, arbitration is too popular to be peculiar.
“In the old days, arbitration was an alternative to something. Now it’s not an alternative to anything: world business has made it clear that the preferred option for final resolution of cross-border disputes is arbitration.”
“That means we can no longer be a cadre of western Europeans who insist that arbitration is best when it is flexible. World business wants this method, but it also wants predictability of process – a system that works.”
In this spirit, Capper went on to call for consideration of rules on an additional area, telling his audience, “We haven’t fixed privilege.”
He said that perceptions of legal privilege – the circumstances under which documentary evidence can be legitimately withheld from arbitrators – are diverse throughout the world but privileged documents can comprise legal advice, evidence created in contemplation of a dispute, or without prejudice settlement offers.
In some jurisdictions, he said, the concept is largely unknown – normally those jurisdictions that have no document production and think it the preserve of the "crazy English."
“If you are from a country where production of evidence by way of an elaborate order system is not normal, then you don’t need to have developed special rules as to which bits are privileged," he said.
Similarly, he said that in some jurisdictions how to conduct “without prejudice negotiations” is part of lawyers' training – “it stays with your forever and it’s obvious”.
“If you train in another country, it may make no sense at all.”
“I still have ringing in my ears a conversation with an exasperated French client who rang me up and said, ‘Philippe – when am I going to write to them with prejudice?” Capper continued. Rather than by privilege, lawyers in civil law jurisdictions are bound by attorney-client secrecy obligations, he said.
Capper said he felt strongly about the need for more certainty on what privilege entails following an experience he had as counsel to a European client in a dispute with an Asian party. The parties had agreed to ICC arbitration in London under English law, and ultimately chose a tribunal entirely made up of English QCs.
“Things got intolerable when the other side argued over whether some documents were privileged. Before we could make our argument, the chair of the tribunal had decided the question," Capper said. When he himself argued that the decision should be the subject of submissions, the puzzled chair said that by agreeing to London-seated arbitration the dispute was subject to English law on privilege.
“But we were not interested in English law – we were interested in what was the applicable law to this question,” Capper said. “It seemed this had not occurred to the tribunal.”
Capper continued that the uncertainty over whether privilege is a substantive or procedural question is unsatisfactory and the rules of the institutions and soft law instruments are mostly silent on privilege generally.
He noted a paper by Stockholm University academic Patricia Shaughnessy – who was present in the room – which said that, while parties may have opted out of national procedural rules when they chose arbitration, they probably did not expect to opt out of the privilege they enjoy in their national legal system.
“I agree with that. The problem with privilege is that it is as likely to be dictated by the provenance of the document at the time of its creation as by anything else,” Capper said. “That’s problematic for my French friend who wants to write a proposal to the other side that is not to be disclosed, because if his system doesn’t have the idea of such privilege then what did he expect when creating the document?”
Of the rules and guidelines in existence, he said the IBA Rules on the Taking of Evidence in Arbitration come the closest to addressing privilege but their provisions “don’t tell you very much”, referring only to the rules “determined to be applicable”, without telling parties how to make that determination.
The rules include a checklist of types of documents which might be privileged, he said. “But they don’t tell us where to go for the answer.”
Capper added that the AAA-ICDR’s guidance note on exchange of information is not widely known but also “well worth looking at.”
This suggests that, where there are competing privilege regimes, the tribunal should favour the most protective regime.
“It seems to me that has a very good, simple logic and utility to it,” Capper said.
Capper went on to argue that the uncertainty as to what privilege includes could become disruptive if parties seek to make sealed settlement offers in line with the ICC’s new guidance on the subject.
“If you haven’t used sealed offers, you absolutely should”, Capper recommended – adding that his team once won an arbitration in money terms by use of such an offer, which otherwise would have been lost in money terms.
“But the problem with sealed offers is that they are made by one party to another proposing to settle a case at a given figure. That’s not something you want to tell the tribunal before the decision on liability and quantum – but you do want to tell them before they apportion costs.”
In England, this is not difficult because of the “without prejudice save as to costs” concept, Capper said. This unilaterally asserts privilege over the settlement offer up until the point where costs are discussed and allocated.
Elsewhere it's more complicated. “What the ICC is now doing, which is immensely useful, is offering to administer a sealed offer system which is well-regulated and administratively sound,” Capper said. "Even a loser who would perhaps expect then to pay costs may avoid paying costs from the period of the offer until the time of the award.”
But Capper had a question: “What if the other side, having received the offer, discloses it? The tribunal can’t unread what it has read.”
This opens up still more questions about confidentiality and privilege, he said.