This article is jointly published by Rouse and Lusheng Law Firm (a strategic partner of Rouse).
Evidence-gathering tools are abolished
On June 13, 2022, the U.S. Supreme Court unanimously decided that 28 U.S.C. Section 1782 (allowing a party to apply for discovery in foreign litigation) no longer applies to private foreign or international arbitration situations.
Discovery in international arbitration is a powerful tool for gathering relevant evidence to support claims in international arbitration for breaches of licensing or technology transfer agreements, but the Supreme Court’s decision means that this powerful tool is abolished. If the licensee or assignee as the respondent has insufficient disclosure, it will be difficult for the prosecution to obtain evidence on the extent of the other party’s insufficient disclosure. In some cases, a discovery application against a foreign party or a U.S. customer of the shipper of the goods can yield valid evidence to support a claim. While most arbitral tribunals will issue orders requiring the disclosure of certain documents, their content and scope are usually less extensive than discovery under section 1782. Therefore, Section 1782 is a useful tool for obtaining shipping information. Even if the plaintiff did not file a discovery petition, there would be a noticeable effect because the respondent would likely do so voluntarily to avoid the plaintiff from making a more intrusive petition under section 1782 against the defendant’s client.
It is still possible to obtain disclosure orders against third parties to support international arbitration cases in some common law countries such as Hong Kong, Singapore and the United Kingdom under the so-called Norwich Relief System (also known as the Third Party Information Disclosure Relief System), however its Applicable rules are much more stringent than Section 1782 and result in more costs than the relatively simple Section 1782 procedure. And for companies whose registered address is only in the United States, the Norwich Relief System does not apply. Civil procedure in China also provides for assistance in arbitration from the courts, but assistance in arbitration outside mainland China is limited to arbitrations conducted in Hong Kong and, in most cases, must be submitted after the arbitration has commenced Application.
U.S. Supreme Court decision
Under 28 U.S.C. § 1782, a federal district court can compel the production of evidence or testimony “for use in a foreign or international court proceeding.” This time the U.S. Supreme Court decided that private foreign or international arbitration panels would no longer constitute “foreign or international courts” within the meaning of Section 1782.
The U.S. Supreme Court’s decision is related to two arbitration cases. The first case is a dispute over the international sale of goods, which is to be resolved by arbitration at the DIS (German Arbitration Institute) in Munich, Germany. The arbitration case in Germany involves a U.S. auto parts maker and a Hong Kong company. The Hong Kong company has filed a Section 1782 application with the U.S. federal court, requesting the U.S. company and its executives to provide relevant information. In its defense, the U.S. company argued that the arbitration panel established under the DIS rules did not fall within the “foreign or international tribunal” described in Section 1782.
The second case is the United Nations Commission on International Trade Law (UNICITRAL) arbitration initiated under a BIT (Bilateral Investment Treaty). A Russian company has filed an arbitration lawsuit against Lithuania, arguing that Lithuania seized the Russian company’s investment when it nationalized a Lithuanian bank in which the Russian company had a stake. The Russian company has filed a Section 1782 application with the Federal Court, requesting the provisional administrator of the aforementioned Lithuanian bank to provide relevant information. The consulting firm, whose chief executive is the interim administrator, argued that the ad hoc UNICITRAL arbitration panel was not a “foreign or international tribunal” under Section 1782, but a private adjudication body.
In deciding the case, the U.S. Supreme Court held that with respect to Section 1782 “…only a governmental or intergovernmental adjudicating body shall be deemed to constitute a foreign or international court”. Such governmental or intergovernmental adjudicative bodies are those bodies capable of exercising governmental powers conferred by one or more countries. Neither the private commercial arbitration panel in the first case nor the ad hoc panel in the second case qualifies as a foreign or international tribunal. Therefore, private foreign or international arbitration parties may not seek discovery under Section 1782.
As with all dispute resolution processes, evidence-gathering capabilities that can support claims in arbitration are critical. The U.S. Supreme Court decision does away with a useful evidence-gathering tool. At a strategic level, since discovery assistance under section 1782 can no longer be sought, parties need to consider other means of obtaining evidence before initiating arbitration proceedings. This may require hiring more private investigators or filing applications in jurisdictions that allow such discovery.
For further information, please contact:
Love Fält, Rouse