Comments on: U.S. Discovery in Aid of International Arbitration: Recent Developments http://kluwerarbitrationblog.com/blog/2009/02/03/us-discovery-in-aid-of-international-arbitration-recent-developments/ An optional catch phrase or slogan goes here Thu, 29 Jul 2010 09:42:06 -0500 http://wordpress.org/?v=2.8.6 hourly 1 By: Ben Steinbrück http://kluwerarbitrationblog.com/blog/2009/02/03/us-discovery-in-aid-of-international-arbitration-recent-developments/comment-page-1/#comment-35 Ben Steinbrück Fri, 06 Feb 2009 08:03:55 +0000 http://kluwerarbitrationblog.com/?p=219#comment-35 It is certainly to be welcomed that US courts have started (again) to grant § 1782 discovery to foreign arbitral tribunals. Although Intel did not squarely address this issue, the Supreme Court offered a clear definition of the kind of tribunals to which § 1782 applies: While Justice Ginsburg referred to "first-instance decision-makers", Justice Breyer spoke of "adversary proceedings on the basis of proofs and argument.” Since private arbitral tribunals whose awards are final and binding have undoubtedly adjudicatory power, it is difficult to maintain that they are not "tribunals" under § 1782. The district court's decision in Comisión Ejecutiva, Hidroeléctrica del Río Lempa v. El Paso Corp. is a rather feeble attempt to defend the untenable 5th Circuit's interpretation of § 1782 in the Biederman case. Whether the availability of US discovery is good or bad for international arbitration depends on how US courts will exercise their discretion under § 1782 in the arbitral context. As some US lawyers have rightly pointed out, granting US-style discovery to foreign arbitrations might put US parties at a considerable disadvantage vis-à-vis non-US parties, as the latter will be able to seek extensive evidence in the United States while US parties may not have a similarly generous access to information in foreign countries. In order to avoid such negative impacts on the procedural equality of the parties US courts will have to tailor judicial assistance to the specific circumstances of the case. In this respect it is important to stress the limited function of state-court support in the taking of evidence in arbitral proceedings. Arbitration rules usually do not provide for a full-blown discovery procedure. Thus, § 1782 may not become a tool for fishing expeditions prior to the arbitration. Judicial assistance only comes into play during the arbitral proceedings if the arbitral tribunal and the parties are not able to obtain information or evidence, which they deem necessary for a just adjudication. In such cases, the information will typically be in the hands of third parties that are not bound by the arbitrators' orders. If the evidence is crucial for the outcome of the case, a court order compelling its production under § 1782 is necessary to maintain the equality of arms in the arbitration proceedings. In order to assess a discovery request two factors appear to be of primary importance: First, any agreement by the parties on the taking of evidence (eg the application of the IBA Rules on the Taking of Evidence) has to be respected. Second, a discovery order should only be made if the arbitral tribunal has given its approval, ie - in the Intel terminology – if it has indicated its receptivity to the requested evidence. Under these conditions the tribunal retains control of the arbitration proceedings and may therefore accommodate any disparity concerns. As it is first and foremost the arbitral tribunal's task to guarantee the procedural balance between the parties, the question whether other states also allow for cross-border court assistance to foreign arbitrations becomes less important (although not completely irrelevant as the tribunal might take this fact into account when considering the need for state court support). The decision in Babcock Borsig is a good example of how such an approach can operate in practice. Since the arbitral tribunal had not yet been constituted when the request was filed, the judge denied the discovery order but indicated that he might issue it at a later stage. If discovery measures are urgently needed (in particular for the preservation of evidence) before the arbitral tribunal is set up, an application under the general federal discovery rules will usually be successful. Cases such as Deiulemar Compagnia di Navegazione S.P.A. v. Pacific Eternity, S.A., 198 F.3d 473 (4th Cir. 1999) or In the Matter of the Application of Campania Chilena de Navegacion, 2004 WL 1084243 (E.D.N.Y.) show that these orders are also granted to foreign arbitrations. It is noteworthy that, apart from § 1782, US courts may also render cross-border judicial assistance to foreign private arbitrations on the basis of state law implementing the Uniform Interstate and International Procedure Act or the Uniform Foreign Deposition Act. One (rare) example is the decision Quijada v. Unifrutti of America Inc., 12 Pa. D. & C. 4th 225 (1991). Here a court in Pennsylvania ordered a non-party to produce documents according to 42 Pa.C.S.A. § 5326 in support of a Geneva arbitration. Whether such requests can also succeed in states in the 2nd Circuit (like New York) and the 5th Circuit (like Louisiana) is uncertain, however. In these states, the case law on § 1782 might well be regarded as pre-empting the application of the respective state law provisions. Given the unsatisfactory legal situation in the 2nd and 5th Circuit one can only hope that both Courts of Appeal will soon get a chance to reconsider their interpretation of § 1782 in the light of Intel and the general pro-arbitration policy of US arbitration law. In the two leading cases Mitsubishi Motors and Scherk the Supreme Court stressed that especially on the international plane states courts need to support the arbitral process. And this policy is otherwise perfectly implemented. Especially the US practice to enforce foreign arbitration agreements is unrivalled: no other legal system, as it seems, empowers its courts to issue compelling orders (according to § 206 Federal Arbitration Act) or anti-suit injunctions (see, eg, Ibeto Petrochemical Industries, Ltd. v. M/T „Beffen“, 412 F.Supp.2d 285, S.D.N.Y. 2005) even when the arbitral seat is abroad. (In England, for example, anti-suit injunctions are reserved for the protection of the London arbitration business, as the House of Lords went out of its way to emphasise in the West Tankers case). The pro-arbitration policy would be seriously undermined if the recent trend of granting § 1782 discovery to foreign arbitration were not continued. Since § 1782 offers such a flexible, well-balanced and viable rule, there is simply no reason why access to evidence located in the United States should be denied in the future. Ben Steinbrück, Max Planck Institute for Comparative and International Private Law, Hamburg It is certainly to be welcomed that US courts have started (again) to grant § 1782 discovery to foreign arbitral tribunals. Although Intel did not squarely address this issue, the Supreme Court offered a clear definition of the kind of tribunals to which § 1782 applies: While Justice Ginsburg referred to “first-instance decision-makers”, Justice Breyer spoke of “adversary proceedings on the basis of proofs and argument.” Since private arbitral tribunals whose awards are final and binding have undoubtedly adjudicatory power, it is difficult to maintain that they are not “tribunals” under § 1782. The district court’s decision in Comisión Ejecutiva, Hidroeléctrica del Río Lempa v. El Paso Corp. is a rather feeble attempt to defend the untenable 5th Circuit’s interpretation of § 1782 in the Biederman case.
Whether the availability of US discovery is good or bad for international arbitration depends on how US courts will exercise their discretion under § 1782 in the arbitral context. As some US lawyers have rightly pointed out, granting US-style discovery to foreign arbitrations might put US parties at a considerable disadvantage vis-à-vis non-US parties, as the latter will be able to seek extensive evidence in the United States while US parties may not have a similarly generous access to information in foreign countries. In order to avoid such negative impacts on the procedural equality of the parties US courts will have to tailor judicial assistance to the specific circumstances of the case.

In this respect it is important to stress the limited function of state-court support in the taking of evidence in arbitral proceedings. Arbitration rules usually do not provide for a full-blown discovery procedure. Thus, § 1782 may not become a tool for fishing expeditions prior to the arbitration. Judicial assistance only comes into play during the arbitral proceedings if the arbitral tribunal and the parties are not able to obtain information or evidence, which they deem necessary for a just adjudication. In such cases, the information will typically be in the hands of third parties that are not bound by the arbitrators’ orders. If the evidence is crucial for the outcome of the case, a court order compelling its production under § 1782 is necessary to maintain the equality of arms in the arbitration proceedings.

In order to assess a discovery request two factors appear to be of primary importance: First, any agreement by the parties on the taking of evidence (eg the application of the IBA Rules on the Taking of Evidence) has to be respected. Second, a discovery order should only be made if the arbitral tribunal has given its approval, ie – in the Intel terminology – if it has indicated its receptivity to the requested evidence. Under these conditions the tribunal retains control of the arbitration proceedings and may therefore accommodate any disparity concerns. As it is first and foremost the arbitral tribunal’s task to guarantee the procedural balance between the parties, the question whether other states also allow for cross-border court assistance to foreign arbitrations becomes less important (although not completely irrelevant as the tribunal might take this fact into account when considering the need for state court support).

The decision in Babcock Borsig is a good example of how such an approach can operate in practice. Since the arbitral tribunal had not yet been constituted when the request was filed, the judge denied the discovery order but indicated that he might issue it at a later stage.

If discovery measures are urgently needed (in particular for the preservation of evidence) before the arbitral tribunal is set up, an application under the general federal discovery rules will usually be successful. Cases such as Deiulemar Compagnia di Navegazione S.P.A. v. Pacific Eternity, S.A., 198 F.3d 473 (4th Cir. 1999) or In the Matter of the Application of Campania Chilena de Navegacion, 2004 WL 1084243 (E.D.N.Y.) show that these orders are also granted to foreign arbitrations.

It is noteworthy that, apart from § 1782, US courts may also render cross-border judicial assistance to foreign private arbitrations on the basis of state law implementing the Uniform Interstate and International Procedure Act or the Uniform Foreign Deposition Act. One (rare) example is the decision Quijada v. Unifrutti of America Inc., 12 Pa. D. & C. 4th 225 (1991). Here a court in Pennsylvania ordered a non-party to produce documents according to 42 Pa.C.S.A. § 5326 in support of a Geneva arbitration. Whether such requests can also succeed in states in the 2nd Circuit (like New York) and the 5th Circuit (like Louisiana) is uncertain, however. In these states, the case law on § 1782 might well be regarded as pre-empting the application of the respective state law provisions.

Given the unsatisfactory legal situation in the 2nd and 5th Circuit one can only hope that both Courts of Appeal will soon get a chance to reconsider their interpretation of § 1782 in the light of Intel and the general pro-arbitration policy of US arbitration law.

In the two leading cases Mitsubishi Motors and Scherk the Supreme Court stressed that especially on the international plane states courts need to support the arbitral process. And this policy is otherwise perfectly implemented. Especially the US practice to enforce foreign arbitration agreements is unrivalled: no other legal system, as it seems, empowers its courts to issue compelling orders (according to § 206 Federal Arbitration Act) or anti-suit injunctions (see, eg, Ibeto Petrochemical Industries, Ltd. v. M/T „Beffen“, 412 F.Supp.2d 285, S.D.N.Y. 2005) even when the arbitral seat is abroad. (In England, for example, anti-suit injunctions are reserved for the protection of the London arbitration business, as the House of Lords went out of its way to emphasise in the West Tankers case).

The pro-arbitration policy would be seriously undermined if the recent trend of granting § 1782 discovery to foreign arbitration were not continued. Since § 1782 offers such a flexible, well-balanced and viable rule, there is simply no reason why access to evidence located in the United States should be denied in the future.

Ben Steinbrück, Max Planck Institute for Comparative and International Private Law, Hamburg

]]>