On June 13, 2022, the United States Supreme Court issued a unanimous decision limiting the scope of discovery under 28 USC § 1782 (“section 1782”), which allows a U.S. district court to seek to obtain assistance in obtaining a document or testimony “for use”. in proceedings before a foreign or international court”. In ZF Automotive US, Inc. v. Luxshare, Ltd.596 US ___ (2022), the Court held that an arbitral tribunal presiding over a dispute between private parties or a ad hoc investor-state arbitration tribunal was not considered a “foreign or international court” within the meaning of Article 1782.
The decision resolves a split between the circuits by finding that a private arbitration tribunal is not considered a “foreign or international court” under Section 1782. The Supreme Court issued the decision after granting a certiorari in two cases which have been consolidated, one from the Sixth Circuit and the other from the Second Circuit. The two Circuits had previously taken different positions on the matter, with the Sixth Circuit holding that a private arbitral tribunal constituted a “foreign or international court” under Section 1782 and the Second Circuit holding that it was not the case.
In the Sixth Circuit case, Hong Kong-based electronics manufacturer Luxshare Ltd. alleged that the US subsidiary of German auto parts maker ZF Group committed fraud in the sale of two business units. The sales contract provided for arbitration under the Arbitration Rules of the German Arbitration Institution (“DIS”). Luxshare, intending to initiate arbitration against ZF, has filed a ex parte Enforcement of Section 1782 in the United States District Court for the Eastern District of Michigan. The Second Circuit case involved a dispute between Lithuania and a Russian investor in AB Bankas Snoras, a failed Lithuanian bank. The Fund for the Protection of Investors’ Rights in Foreign States (the “Fund”), a Russian company and assignee of the investor’s claims, has initiated arbitration against Lithuania under a bilateral investment treaty ( “BIT”) between Lithuania and Russia, alleging expropriation. The Fund continued ad hoc arbitration under the UNCITRAL Arbitration Rules and filed a request for investigation under Section 1782 with the United States District Court for the Southern District of New York.
The Supreme Court’s analysis was twofold. First, the Court found that a private arbitral tribunal does not constitute a “foreign or international tribunal” within the meaning of the Statute. While a “court” could refer to any adjudicative body, the Court held that “foreign court” was best understood as a body possessing sovereign authority conferred by a foreign nation and an “international court” as having power official conferred by two or more nations.
The Court found additional support for its conclusion in the legislative history of the statute and the text of the Federal Arbitration Act, 9 USC §1 et seq. (“FAA”). In addition to noting references in the legislative history of Section 1782 to the purpose of providing assistance to “foreign courts and quasi-judicial bodies”, the Court held that expanding Section 1782 to include proceedings before private arbitration tribunals would create a mismatch between foreign and foreign courts. internal arbitration. The mismatch would arise because interpreting Section 1782 in this way would mean that the law provides for broader discovery than does the FAA, which does not allow discovery before arbitration and only allows a panel. arbitration, and not any interested person, to seek discovery.
Second, the Court found that none of the courts in question constituted a “foreign or international court”. With respect to the DIS Tribunal, the arbitration was entered into by private parties under the dispute resolution rules of a private organization. As for the arbitration between the Fund and Lithuania, the Court considered the question more difficult. While recognizing that the choice of ad hoc arbitration was provided for in the Lithuania–Russia BIT, the Court found no intention on the part of Lithuania or Russia that such a tribunal exercise governmental authority. Neither of the two sovereigns was involved in the formation of the ad hoc tribunal, which would operate independently. The absence of any official affiliation with Lithuania and Russia and the absence of government funding were other indicators that the ad hoc arbitration tribunal was not governmental.
The Court’s decision provides much-needed clarification on the (in)applicability of Article 1782 to arbitration disputes. A remaining area of uncertainty is whether a tribunal constituted under the International Center for Settlement of Investment Disputes (“ICSID”) could qualify as a “foreign or international tribunal”. One of the constituent institutions of the World Bank Group, ICSID was established by multilateral treaty and administers the settlement of international investment disputes. The Lithuania-Russia BIT did not provide for ICSID arbitration, so this matter was not before the Court. Similar questions arise in the context of the proposal for a Multilateral Investment Court promoted by the European Union, since this Court would be a body created by governments to resolve disputes between investors and States.
Going forward, the Supreme Court ruling will prevent parties from obtaining a document or testimony through Section 1782 for use in proceedings before a private arbitration tribunal. In future litigation under Section 1782, the key test for determining whether assistance sought is for a “foreign or international tribunal” will be whether an adjudicative body is “governmental or intergovernmental” in nature.