The international arbitration world went into overdrive earlier this Summer when the US Supreme Court handed down a decision that effectively reduced access to the so-called “1782 disclosure”. Thus, in this article, we explain what is the so-called “1782 disclosure”, look at how it was used in international arbitration, and assess what if anything is left unresolved by the U.S. jurisprudence.
Author: Hamish Lal, Partner at Akin Gump Strauss Hauer & Feld LLP
Section 1782 Explained
Title 28 of the United States Code, Section 1782 headed “Assistance to foreign and international tribunals and to litigants before such tribunals” enables a party to a legal proceeding outside the United States to apply to an American district court with competent jurisdiction in order to obtain documents and evidence for use in the foreign proceeding. The pertinent portion of the text reads as follows:
(a)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, including criminal investigations conducted before formal accusation. The order may be made pursuant to a letter rogatory issued, or request made, by a foreign or international tribunal or upon the application of any interested person and may direct that the testimony or statement be given, or the document or other thing be produced, before a person appointed by the court. […]
In short, Section 1782 empowers a U.S. district court to order a person who either “resides” or “is found” in the court’s district 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”.
In order for a Section 1782 application to succeed, it must comply with three statutory requirements: (i) the district court has jurisdiction over the person from whom evidence is sought (in other words the individual targeted is either physically present or maintains a residence in the district and / or the corporation targeted is incorporated or has its principle place of business in the district - but - also if the business would be subject to personal jurisdiction in that district by virtue of its systematic and continuous activities there); (ii) the evidence is sought for “use in a proceeding in a foreign or international tribunal”; (iii) the request is being made by “a foreign or international tribunal” or an “interested person”. Further factors a court should consider when exercising its discretion to grant or deny a discovery request include: (i) whether the target is a participant in the foreign proceeding; (ii) the nature of the foreign tribunal, the character of the proceeding underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal-court judicial assistance; (iii) whether the request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the U.S. and (iv) the request contains unduly intrusive or burdensome demands1.
Section 1782 in international arbitration
Section 1782 was generally understood to represent a compelling strategic tool that could happily provide the benefit of liberal U.S. discovery rules as a means to obtain broader discovery for use in international arbitration seated outside of the U.S. The U.S. rules permit discovery of any non-privileged matter that is relevant to any party’s claim or defence and proportional to the needs of the case, which implies extensive discovery of documents and electronically stored information, and also allow for depositions. The benefits of using Section 1782 are clearer in the context of foreign litigation proceedings where discovery rules are strict, such as in civil-law systems. However, arbitration proceedings are more nuanced and Redfern or Stern Schedules codify respective document production requests (typically made commensurate with so-called soft law). There is a tangible lack of empirical data available on how often 1782 applications were made but there is a view that the unclear limits on arbitrators’ discretion to compel documentation production and the restricted means available to sanction non-compliance on document production made Section 1782 a handy mechanism in Counsel’s tool box. Further, patently gathering evidence required to comply with document production orders can be challenging when documents and witnesses are located abroad or belong to third parties such that seeking the assistance of the local courts may be easier. From an academic or intellectual perspective, Section 1782 has unique and distinctive features as set out below by case law2:
- The application needs to be made by an “interested person” which is intended to include not only litigants before foreign or international tribunals but also foreign and international officials and any other person who has a “reasonable interest” in obtaining judicial assistance;
- The applications may be made on an ex parte basis by a party directly to a district court, without the need to notify in advance the party from whom discovery is sought or the adverse party in the foreign proceeding;
- The foreign proceeding need not be pending or even imminent but “in reasonable contemplation”. In essence, this means that an interested person can therefore seek pre-action discovery;
- An applicant is not constrained by the fact that the sought-after material or deposition testimony would not have been discoverable had the proceedings been located in the “foreign tribunal” to which the application relates;
- Section 1782 enables an applicant to obtain information from an individual / entity which is not a participant in the foreign arbitration or litigation proceeding.
Parties to international arbitration have petitioned to U.S. district courts to seek discovery from third-parties based in the U.S., such as the parent companies and subsidiaries. In addition, the availability of Section 1782 had an obvious impact on experts appointed in arbitration proceedings.
Some practitioners would be nervous about appointing U.S.-based experts given that they could be subject to broad discovery obligations and others sought to use Section 1782 as a means to obtain work product and related documents from such experts. Against this backdrop, a threat emerged that arbitral parties may use / abuse Section 1782 in order to obtain discovery in a manner that would not have been permitted by the foreign arbitral tribunal. However, it ought to be noted that the U.S. courts managed applications differently in the context of international arbitration and were more deferential to the will of the arbitrators3. In some cases it had been suggested that Section 1782 discovery should only be granted if the request is either made by the arbitrators themselves or with the consent of the arbitrators (thus restricting the availability of Section 1782 assistance after the appointment of the tribunal) so as to aid the international arbitration process and not distort it4. Others have viewed Section 1782 as a judicial intrusion into arbitration and considered that it would burden the arbitral process, increase the cost and duration of the document production phase of the arbitration and that applications under Section 1782 would bring undesirable publicity to confidential arbitrations.
End of section 1782 in private arbitration
The wording of Section 1782 had led to conflicting decisions with regards to the meaning of the term “foreign or international tribunal” and whether Section 1782 encompassed all international arbitration. This question had been the subject of a long-standing “circuit-split”. The 2nd, 5th, and 7th Circuits have held that 28 U.S.C. Section 1782 did not extend to private international arbitration, but in 2019 and 2020 respectively, the 4th and 6th Circuits held that it did.
In its decision dated 13 June 20225, the U.S. Supreme Court determined that Section 1782 is not available in support of foreign private international commercial arbitrations and at least some investor-state arbitrations.
The ZF Automotive decision concerned two separate disputes, later consolidated:
- The first dispute involved a private commercial arbitration between Luxshare Ltd., a Hong Kong-based company and ZF Automotive U.S., Ing, a Michigan-based manufacturer and subsidiary of a German corporation. In support of its fraud allegations against ZF Automotive in a sales transaction, Luxshare sought evidence from ZF and its officers based in the U.S. relying on Section 1782. The arbitration was seated in Berlin, governed by German law, administered and subject to the rules of the German Arbitration Institute: Deutsche Institution für Schiedsgerichtsbarkeit (“DIS”). The District Court granted the request and the U.S. Court of Appeals for the Sixth Circuit denied ZF’s request for a stay.
- The second case involved an ad hoc investor-state arbitration, governed by the UNCITRAL Rules, brought pursuant to the Russia-Latvian bilateral investment treaty between a Russian entity, the Fund for Protection of Investors’ Rights in Foreign States, and the Republic of Lithuania. The arbitration related to the alleged expropriation of AB bankas Snoras a Lithuanian bank whose Russian investor assigned its rights to the Fund. The fund sought discovery from AlixPartners LLP, a New York based consulting firm, and its CEO who was appointed temporarily as Snoras’ administrator. The District Court granted the Fund’s discovery request and the U.S. Court of Appeals for the 2nd Circuit affirmed the decision.
The U.S. Supreme Court has now clarified that a “foreign tribunal” is one that exercises “governmental authority” conferred by a single nation and an “international tribunal” is one that exercises governmental authority conferred by two or more nations. Therefore, an arbitral body may qualify as such if the relevant foreign nation or nations authorise the arbitration panel to exercise governmental authority – this is not likely in the context of international commercial arbitration. The Supreme Court therefore concluded that none of the arbitral panels qualified as such: (i) the first dispute is a “creature of an agreement between private parties who prescribe their own rules”6 so that no government is involved in creating the arbitral panel or prescribing its procedure, and (ii) Section 1782 did not apply to the second dispute because “the [BIT] does not itself create the panel” but “instead it simply references the set of rules that govern the panel’s formation and procedure if the investor chooses that forum.”7 It appears that access to Section 1782 in international commercial arbitration is now closed-off. Some may celebrate this latest legal development.
What next?
The U.S. Supreme Court has made clear that Section 1782 does not apply to international commercial / construction arbitration. This may now mean that arbitration agreements in international construction contracts should be amended by parties to expressly allow for broad / broader discovery. However, many of the limitations in respect of noncompliance will remain.
Experts working in international commercial arbitrations and who are based in the U.S. are likely to be happier following the ZF Automotive opinion.
With regards to investment arbitration, the ZF Automotive opinion only concerned ad hoc investor-state disputes, governed by the UNCITRAL Rules. It therefore remains unclear whether this ruling applies to investor-state disputes conducted under the International Centre for Settlement of Investment Disputes (“ICSID”) Convention since an ICSID arbitral tribunal could meet the description of an intergovernmental adjudicative body that exercises governmental authority, for the following reasons:
“ICSID was created by Member States through a treaty under public international law as a permanent institution that serves a public purpose common to the States participating in it.
ICSID is governed by a body composed of representatives of the States participating in the ICSID Convention. It is administered by a Secretary-General, who is elected by that intergovernmental body.
ICSID is a publicly funded international institution.
ICSID is an organization under public international law with legal personality. It enjoys the typical privileges and immunities of an international organization under public international law.
The participating States, through designations of persons to the Panel of Arbitrators and through the appointment of arbitrators in particular cases, enjoy a strong influence on the composition of ICSID arbitral tribunals and annulment committees.
The institution of ICSID arbitration proceedings is subject to a screening process by the Secretary-General, an officer elected by a body composed of State representatives.
The jurisdiction of an arbitration tribunal under the ICSID Convention is subject to two separate expressions of consent by the State party to the dispute. The first expression of consent is made through the ratification of the ICSID Convention, and the second expression of consent is made most frequently through a treaty or through national legislation. The focus on investment disputes between the host State and the foreign investor means that the origin of the dispute lies most often in governmental acts affecting the investment.
ICSID arbitration takes place under arbitration rules adopted by an intergovernmental body.
ICSID awards are not subject to the scrutiny of domestic courts - ICSID has its own self-contained system of annulment. Once an ICSID award is upheld by an ICSID annulment committee, it is final and must be enforced by Member States under Article 54 of the ICSID Convention.
ICSID awards are recognized and enforced in all Member States like final domestic judgments of the national courts of those States.”8
Similar open questions relate to arbitrations conducted pursuant to the Convention for the Pacific Settlement of International Disputes which established by the Permanent Court of Arbitration. It is possible that arbitrations before this intergovernmental organisation among 122 states9, could be said to exercise governmental authority to resolve disputes.
Originally written as part of the Driver Trett Digest, issue 24. To view the publication, please visit: www.driver-group.com/digest-compendium
1 Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 246–47 (2004) (“Intel Corp.”), at [264-265].
2 See in particular Intel Corp. at [256-264].
3 28 U.S.C 1782 As A Means Of Obtaining Discovery In Aid Of International Commercial Arbitration – Applicability And Best Practices, New York City Bar International Commercial Disputes Committee, February 29, 2008 at pages 30-32.
4 Hans Smit, American Assistance to Litigation in Foreign and International Tribunals: Section 1782 of Title 28 of the U.S.C. Revisited, 25 SYRACUSE J. INT’L L. &COM. 1, 5 (1998), at page 8 “Recourse to Section 1782 should be left as simple as possible in order to keep the provision of assistance to foreign and international speedy and efficient.”
5 ZF Automotive US inv. V. Luxshare Ltd., No. 21-401, together with No. 21–518, AlixPartners, LLP, et al. v. Fund for Protection of Investors’ Rights in Foreign States (U.S. Jun. 13, 2022)
6 ZF Automotive, Opinion of the Court at slip. 8.
7 ZF Automotive, Opinion of the Court at slip. 14.
8 Webuild S.p.A. (formerly Salini Impregilo S.p.A.) v. Republic of Panama, ICSID Case No. ARB/20/10, Legal Opinion by Christoph Schreuer, The Nature of ICSID Arbitration for purposes of 28 U.S.C 1782, dated 7 July 2022.
9 https://pca-cpa.org/en/about/introduction/contractingparties/