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The United States Supreme Court Restricts Discovery for International Arbitration

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The United States Supreme Court Restricts Discovery for International Arbitration

posted 10 months ago

On June 13, 2022, the U.S. Supreme Court issued a decision enabling the district courts to assist only foreign governmental or intergovernmental adjudicative bodies regarding U.S. style discovery under 28 U.S.C. § 1782 The Court ruling illuminated the conflict that private adjudicatory bodies, including private arbitral tribunals, do not constitute “foreign or international tribunals” in section 1782, the relevant statute. The Court decision is concentrated on the literal and legal meaning of the “foreign or international tribunals” while interpreting the historical background.

Before the ruling it was highly debated that whether the parties to a foreign arbitration proceeding may avail themselves of the “aid” of the relevant section.

The district courts are sharply divided on the answering this question, a good number holding that arbitration panels do qualify as “tribunals” under 1782, and a good number holding that they do not.

According to the Seventh Circuit decision, “A foreign or international tribunal is ‘within the meaning of the statute authorizing a district court to provide discovery assistance to such a tribunal, is a sponsored, public, or quasi-governmental tribunal, and the term does not include private foreign arbitration.”

However, in the relevant case, Petitioner filed a letter to dismiss, and the Court ordered dismissal upon joint stipulation of the parties. Until 2021, the Supreme Court had not had a chance to make a major pronouncement regarding this issue.

In the debates, some people argued that discriminating against private international tribunals not only does violence to the plain and clear text of Section 1782, it also fails to give consequence to the repeatedly re-affirmed public policy favoring arbitration.

Historically, Section 1782 not only intended to continue the provision for this assistance but eliminated the requirement that the international tribunals be established by agreement to which the United States is a party. Indeed, the broad term “international tribunal” was intended to cover all international arbitral tribunals.

The Supreme Court’s opinion addresses two cases in which the lower courts permitted discovery under section 1782. Both cases involved a party seeking discovery in the U.S. for use in arbitral proceedings abroad. The first involved allegations of fraud in a business transaction. ZF Automotive US, Inc., a Michigan-based subsidiary of a German corporation, sold two business units to Luxshare, Ltd., a Hong Kong-based company. After the deal was concluded, Luxshare claimed that ZF had concealed information about the business units. The parties had agreed to private commercial arbitration in Munich subject to the rules of the German Institution of Arbitration (DIS). Before commencing arbitration, Luxshare filed an ex parte application under section 1782 in the U.S. District Court for the Eastern District of Michigan seeking information from ZF and two of its senior officers. The District Court granted the request. ZF moved to quash the subpoenas, but the Sixth Circuit Court of Appeals denied the request for a stay.

In the second case, a Russian investor claimed that the Lithuanian government improperly expropriated certain investments while expropriating SNORAS, a failed Lithuanian bank. The Fund for the Protection of Investors’ Rights in Foreign States—a Russian corporation and the assignee of the Russian investor—initiated proceedings against Lithuania under a bilateral investment treaty between Lithuania and Russia. The treaty provides that if the parties could not resolve their dispute, it could be submitted to one of four different forums. The Fund chose an ad hoc arbitration pursuant to the UNCITRAL arbitration rules. The Fund then filed a section 1782 application in the U.S. District Court for the Southern District of New York seeking information from third parties Simon Freakley and AlixPartners about Freakley’s role as temporary administrator of SNORAS. The District Court granted the Fund’s request and the Second Circuit affirmed. 

The Court’s Reasoning

The Supreme Court first determined the phrase “foreign or international tribunal” in section 1782 includes only governmental or intergovernmental bodies. The Court then determined that neither of the arbitral panels in the two cases qualified as governmental or intergovernmental bodies.

1. Foreign or international tribunal

Section 1782(a) provides in relevant part that: The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal […]

Although the Court found that “tribunal” as used in section 1782 refers to any adjudicatory body, and not as a synonym for «court», the word “tribunal” must be read in context with the words “foreign” and “international”. The Court explained, the word “tribunal” should be understood as an “adjudicative body that exercises governmental authority”. According to the Court, the word “tribunal” is to be interpreted as referring to governmental authority because it is a word with “potential governmental or sovereign connotations” and, therefore, “foreign tribunal” refers to a tribunal of a foreign nation.

The Court further stated section 1782, presumes that the “tribunal” will follow “the practice and procedure of the foreign country”, which would be an odd assumption to make about a private adjudicatory body. The Court found that “international tribunal” refers to a tribunal involving or comprising two or more nations, “meaning that those nations have imbued the tribunal with official power to adjudicate disputes”; therefore, the terms “foreign tribunal” and “international tribunal” complement each other.

The Court also emphasized that “permitting federal courts to assist foreign and international governmental bodies” means encouraging “reciprocal assistance”. As stated above, from 1855 until 1964, section 1782 at its antecedents covered
assistance only to foreign “courts”.

When combining laws, Congress established a Commission on International Rules and Judicial Procedure to improve the process of judicial assistance “between the United States and foreign countries” and “the rendering of assistance to foreign courts and quasi-judicial agencies”. When, in 1964, Congress adopted the Commission’s proposed legislation, which became section 1782, it did not, according to the Court, “signal an expansion from public to private bodies, but rather an expansion of the types of public bodies covered”.

2. What Constitutes a Governmental or Intergovernmental Adjudicative Body?
The Court stated, when deciding whether an adjudicative body is governmental or intergovernmental, the relevant question, is whether the nations intended to imbue the body in question with governmental authority. By contrast, it is not dispositive whether an adjudicative body shares features of other bodies that look governmental.

Accordingly, the Court found that the arbitration panel at issue was not a governmental body because no government was involved in creating or prescribing its procedures. Although the ad hoc arbitration panel at issue in the Fund’s dispute with Lithuania presented a “harder question” for the Court, it found that neither Lithuania’s presence nor the treaty’s existence were dispositive because no governmental authority was conferred on the ad hoc panel formed pursuant to the treaty. The Court did not foreclose the possibility that sovereigns might imbue an ad hoc arbitration panel with official authority, or that other forms of arbitration, such as those provided for by the International Centre for Settlement of Investment Disputes, might be considered governmental or intergovernmental adjudicative bodies. Rather, the Court concluded that a body does not possess governmental authority simply because nations agree in a treaty to arbitrate their disputes.


With this ruling The Court has reduced the threat that parties to private commercial arbitration will face expensive and protracted discovery or discovery disputes in the U.S.

This determination is likely in keeping with most parties’ intent when they enter into an arbitration agreement, and upholding that intent is one of the bedrock principles undergirding private commercial arbitration.



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