US Supreme Court restricts access to US-style disclosure for parties to foreign arbitration

For many UK practitioners and parties the ‘new’ (despite being long-standing) kid on the block in the tactics of litigation is a lesser known provision of the federal procedural law in the USA. § 1782 of Title 28 to the United States Code (“1782”) allows parties to seek the assistance of the US courts to secure US-style discovery, i.e. documents and depositions, in relation to evidence held in the USA, for the purposes of production in the courts and tribunals of a foreign jurisdiction e.g. the UK. Parties in other jurisdictions have been increasingly turning to 1782 to seek wide ranging US style disclosure to aid litigation and arbitration but the US Supreme Court (“SCOTUS”) has now reined back the use of 1782 in arbitration proceedings.  In so doing, SCOTUS seems to endorse a view of arbitration as fundamentally a private and non-governmental activity, in which disclosure ought to be limited.

Discovery, or, as we term it, disclosure, is the process by which a person can be compelled to produce documents or other information relevant to a dispute.  As a firm which often acts on behalf of claimants in respect of fraud claims, disclosure can be a necessary tool in building and making a case: given the clandestine nature of fraud, the evidence in the possession of the victims is often limited.  It is particularly helpful if a person with relevant information is located in the United States, because of 1782, which allows discovery (the US term for disclosure) “for use in a proceeding in a foreign or international tribunal”.

There are a number of features of 1782 which make it attractive to foreign litigants.  US-style discovery is likely the broadest in the world, both in terms of the range of material that can be ordered produced and in terms of the range of people against whom it can be ordered.  An application for an order under 1782 could be made without notice to the party from whom disclosure was sought.  Generally in the United States, in contrast to England, the party who loses will not be ordered to pay the legal costs of the winning party: so if an order under 1782 were set aside, the applicant for that order would be unlikely to be ordered to pay costs.

In a unanimous ruling on 13 June 2022, however, SCOTUS decided in ZF Automotive US, Inc. v. Luxshare, Ltd., 21-401, 2022 WL 2111355, that 1782 does not extend to certain international arbitrations.

SCOTUS considered applications made in the context of two separate arbitrations: one a commercial arbitration between a US and a German company, before a German arbitration organisation which the parties had designated in their contract, and the other an ad hoc arbitration (i.e., one not under the auspices of a particular organisation) between a Russian company and Lithuania, with arbitration provided for under a bilateral investment treaty between those two states.  SCOTUS concluded that 1782 only extended to tribunals exercising “sovereign” or “governmental” authority, which does not extend to arbitral tribunals like those in question, which it considered fundamentally “private” because their procedures were not mandated by any particular government and they were chosen by the parties to the dispute (which included private entities).

The decision reflects a particular view of arbitration, which emphasises its private (i.e., non-governmental) features.  As SCOTUS found, the “animating purpose” of 1782 is to foster international comity: to assist foreign governments so that those governments will assist the US (and its nationals).  In the Court’s view “[i]t is difficult to see how enlisting [US federal] courts to help private bodies would serve that end”.  But this emphasis on the ostensibly private nature of arbitration is open to question, particularly in the case of the United Kingdom.

As in the United States, the courts in England have declared that there is a policy in favour of upholding arbitration agreements and of consequently barring the court room doors to those who have previously agreed to arbitration.  Along with this policy, however, is a recognition that “the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal” (Arbitration Act 1996 (“AA 1996”), s 1(a)) and the courts are given power to intervene where the tribunal has failed in its obligations of fairness and impartiality (AA 1996, sections 33 and 68); importantly, the parties cannot contract out of this potential court intervention (AA 1996, section 4 and schedule 1).  In other words, there is a recognition by the United Kingdom’s government (both its legislature and judiciary) that arbitral tribunals are exercising a dispute resolution function which carries with it fundamental requirements of justice and the courts are permitted to intervene in the arbitration to ensure that justice is done, whatever the parties have agreed.  Given the recognition of arbitration within the governmental justice system, therefore, comity could well be served by extending 1782 to arbitration.

Putting to one side questions of the fundamental characterisation of arbitration, SCOTUS’s decision can also be regarded as tending to bring the United States into line with international arbitration practice.  As mentioned above, US-style discovery is the broadest in the world.  Disclosure as ordered by international arbitral tribunals is typically much narrower (reflecting the limited disclosure in most Continental legal systems).  SCOTUS alluded to this in its discussion of the US Federal Arbitration Act, which governs domestic US arbitration and which affords much narrower disclosure than 1782; for SCOTUS this apparent discrepancy militated in favour of excluding international arbitration from 1782.  Commentators have long criticised the tendency of US-influenced disclosure to “judicialise” international arbitration, complicating the determinations which the tribunal must make and increasing costs: see Redfern and Hunter on International Arbitration (Student Version) 6^th ed at 1.119-1.120.  It would have been within the power of US courts to deny applications under 1782 made in the context of arbitration on the basis that they represented an attempt to circumvent the narrower arbitration procedure. But closing off access to US-style disclosure for international arbitration parties categorically, as SCOTUS has now done, may serve the interests of economy and efficiency, though this may be cold comfort to those parties dependent on broad disclosure in order to make out their case.

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