A dimension of the problem that should not be overlooked is that counsel in international arbitrations often will leap at the opportunity to accuse an adversary of an ethical violation. This is rather commonplace in the rough-and-tumble context of American civil litigation, and the problem in international commercial arbitrations exists substantially but not entirely because of the participation of American litigators in the process. The tactical deployment of ethical accusations challenges arbitrators to establish rules and regulate attorney conduct even though their jurisdiction to do so is not well-established by national arbitration laws or institutional rules.
I had a recent encounter with such an issue, while appearing as counsel in an international arbitration seated in New York. It involved the use in the proceedings of client-to-client communications related to settlement. American counsel from New York were on both sides, representing US and Chinese parties, respectively, in a contract dispute governed by Hong Kong law and seated in New York. The Sole Arbitrator hailed from a “Commonwealth” nation.
One counsel (your correspondent) submitted in the proceedings e-mails sent from the Chairman of Party X to the CFO of Party Y. The purpose of the use was to show Party X’s intent to arrange its own finances so as to frustrate enforcement of an eventual award. The communications related to settlement, at least to the extent of saying in substance “you should have been willing to settle for a modest sum, because now that we are arbitrating we will make sure there is nothing left when the time comes to enforce the award.” No agreement of confidentiality had been made regulating use of the communications in the proceedings.
Party X’s counsel claimed an ethical violation by Party Y’s counsel, and sought not only a sanction against Party Y counsel but also the exclusion of the e-mails as evidence in support of Party Y’s application for provisional relief. This claim of an ethical infraction was made without citation to any allegedly applicable law, rule, or code of ethics.
Without revealing how the Sole Arbitrator addressed the matter, I raise the question: How should it be addressed? What legal standards should govern?
In terms of arbitral choice of ethical rules, this case was relatively simple: The opposing counsel were admitted to practice in the same jurisdiction (New York) and that jurisdiction also was the juridical seat of the arbitration. The fact that one party was of Chinese nationality and that the law of Hong Kong was to be used to determine the merits does not point in the direction of using the ethicsÂ rules applicable to Hong Kong-licensed lawyers to measure the conduct of New York-admitted counsel. New York’s Code of Professional Responsibility does not address the issue of confidentiality of settlement communications or their use in proceedings. Federal and New York rules of evidence for trials before courts do address the subject as a rule of admissibility, and generally provide that such communications may be admitted as evidence for a purpose other than to prove liability or damages. This left the Sole Arbitrator free to adopt an appropriate rule as a matter of discretion. But in this context, following the rules that apply in federal and New York judicial proceedngs would seem to be in keeping with the reasonable expecations of counsel on both sides.
But suppose that the same alleged infraction occurred in an arbitration seated in Geneva, with French Party X represented by French counsel and New York Party Y represented by its New York lawyer. Suppose further that the French code of professional ethics governing courtroom advocacy would prohibit any use of a client communication related to settlement in a judicial proceeding, but would nevertheless allow a French-licensed advocate when practicing before an international tribunal to follow a more liberal rule applicable in that tribunal. Suppose further that the Swiss code of ethics on this point was essentially the same as French code, including the suspension of the rule’s application in proceedings before an international tribunal that adheres to a more liberal rule.
One can readily see why there such energy being devoted to the enactment of some form of universal code. In this scenario just described, the arbitrators’ sensible first instinct might be to look to Swiss ethics laws for guidance and seek to hold both counsel to the Swiss law ethical standard based on the parties’ agreement on Geneva as the juridical seat of the arbitration (although even this is debatable, as the parties likely agreed upon the seat of arbitration for a number of reasons probably not including its judicial rules of ethics governing advocacy). But the Swiss law in this instance would not provide the needed guidance because it permits compliance even by Swiss-licensed counsel with a rule governing the arbitral proceedings even if the same conduct would be an ethical violation in judicial proceedings. There being no applicable rule concerning use of settlement communications to be found in institutional rules of arbitration or (I presume) in Swiss international arbitration law, the arbitrators are in a position to decide what rule should apply.
One solution certainly is a provision in a uniform ethical code that prohibits all use, or allows particular limited uses, of communications relating to settlement. But until such a code becomes a reality, what is the best practice for arbitrators to follow? As to rules that touch upon advocacy (use of documentary evidence, use of legal authorities, preparation of witnesses, questioning of witnesses, etc.) there must of course be “equality of arms,” and arbitrators would do well to cover a number of such subjects in the first procedural orders. By doing so, tribunals may avoid having to address claims of ethical infractions later on, and will often relieve counsel of a conundrum: whether to engage in the same tactics as the adversary, on the premise that they may be ethically acceptable to the tribunal, or to refrain from such tactics while claiming an ethical infraction, at the risk of giving the other side an advocacy advantage if the tribunal finds the conduct to have been ethically acceptable.
An illustration of this process may be found in the adoption by many tribunals, early in the case, of the IBA Rules of Evidence as “guidelines” for the proceedings. Rule 4.3 of the IBA Rules declares that communications by a party or its counsel with the party’s witnesses in advance of their testimony, to discuss the testimony, is not improper — and this rule is essentially an ethical rule even though it is found in “Rules of Evidence.” The general acceptability of witness contact in international arbitrations, despite its illegality in judicial proceedings in many countries, has come about substantially by virtue of the adoption into procedural orders of the IBA Evidence Rules as guidelines (if not as governing prescriptions).
Much of this ground can be covered with the agreement of the parties, who are likely to be accommodating to the wishes of the tribunal on abstract principles of counsel ethics early in the case. Thus tribunals should have little difficulty securing the agreement of all counsel in most cases that: (i) communications between opposing counsel shall be confidential and not used in the proceedings except by agreement, unless the unilateral use is necessary to disclose that the adversary has acted dishonestly or in bad faith toward the tribunal; (ii) any agreements of the parties concerning the confidentiality of their communications during the proceedings shall be binding upon their counsel regarding use in the proceedings; (iii) counsel shall have an affirmative duty to direct their clients to preserve evidence that may be relevant and material to the proceedings, (iv) counsel shall have an affirmative duty to bring to the tribunal’s immediate attention any circumstances involving an attempt by counsel to influence a witness not to tell the truth, and (v) counsel shall have an affirmative duty to bring to the tribunal’s immediate attention any circumstances indicating a substantive ex parte communication between a party or its counsel and a member of the tribunal.