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US Supreme Court Rules Discovery Not Available in Aid of Foreign Private Arbitration

News & Insights 22 July 2022

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Key words: US discovery rules in foreign arbitration

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On 13 June 2022, the US Supreme Court decided the consolidated cases of ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401; and AlixPartners, LLP v. The Fund for Protection of Investors’ Rights in Foreign States, No. 21-518. The ruling settles a years-long circuit court split on whether 28 USC § 1782 (Section 1782 or 1782) can be utilized to obtain discovery in connection with an international arbitration. 

Section 1782 is a federal statute that allows US district courts to order a company or person residing or found within their districts to provide discovery ‘for use in a proceeding in a foreign or international tribunal.’ The court considered whether the phrase ‘foreign or international tribunal’ includes a private arbitration panel. The issue was examined in the context of the two consolidated cases. 

In a unanimous decision, the court held that only a governmental or intergovernmental adjudicative body constitutes a ‘foreign or international tribunal’ under Section 1782. The court ruled that Section 1782 does not permit federal courts to order the production of evidence for use in a foreign private commercial arbitration or investor treaty arbitration. 

ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401 

ZF Automotive involved alleged fraud in a sales contract between ZF Automotive and Luxshare. The dispute was subject to German arbitration. Luxshare sought discovery in the US of ZF Automotive and its officers, pursuant to Section 1782. The district court granted the request finding the private German arbitration tribunal constituted a foreign tribunal within the meaning of Section 1782. The Sixth Circuit Court of Appeals refused to stay the decision. 

AlixPartners, LLP v. The Fund for Protection of Investors’ Rights in Foreign States, No. 21-518 

AlixPartners involved a dispute between an insolvent Lithuanian bank and a Russian investor fund. The fund initiated arbitral proceedings under a treaty between Lithuania and Russia promoting favourable investment conditions between investors in each country. Among the four specified forums under the treaty, the fund selected an ad hoc arbitration panel to be constituted under the arbitration rules of UNCITRAL. The fund also invoked Section 1782 to obtain discovery in the US from a US-based administrator and his company (Alix Partners). The district court granted the request. The Second Circuit Court of Appeals affirmed the decision. 

Supreme Court decision 

On appeal, the Supreme Court examined the word ‘tribunal’ and considered dictionary definitions along with the prior version of the statute. The court recognized ‘tribunal’ does not itself exclude private adjudicatory bodies. However, in the court’s view, the term is ‘best understood as an adjudicative body that exercises governmental authority’ since the statute uses the modifiers ‘foreign or international’ in describing the tribunals within 1782’s scope. In reaching its decision, the court also highlighted that excluding private bodies from 1782 avoids significant tension with the Federal Arbitration Act (FAA) which governs domestic arbitration. Otherwise, Section 1782 would permit much broader discovery than the FAA allows, an anomalous result. 
 

Comment 

Before the issue was settled by the Supreme Court, Section 1782 was a potentially useful mechanism in many cases involving charter party or other contractual disputes subject to arbitration in London or elsewhere. 

The court’s ruling essentially means that parties with contracts to arbitrate their disputes before a private arbitration panel overseas may not be able to rely on Section 1782 to request discovery from a US-based company or person to aid in their arbitration. The typical international arbitral forums for shipping matters (ie, LMAA, SCMA) would likely not qualify for use of Section 1782.
 

Link to the judgement can be found here 

Category: Caselaw

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