International commercial arbitration offers many advantages over litigating cross-border disputes, but it still suffers from certain inherent weaknesses. One such weakness is the difficulty of obtaining evidence located somewhere other than the seat of the arbitration, and this is particularly so where a non-party holds that evidence. In a typical scenario the opposing party's accountant, bank or a joint venture partner, located beyond the arbitral seat, may have crucial documents or witnesses. To make matters worse, US federal courts have generally been hostile to requests to order discovery in support of foreign arbitration proceedings. One of the few provisions potentially at their disposal, 28 USC Section 1782, which empowers federal courts to make such discovery orders in proceedings before a "foreign or international tribunal", has been interpreted narrowly to exclude discovery in aid of a foreign arbitration proceeding. A recent US Supreme Court decision in Intel Corp v Advanced Micro Devices Inc, however, offers new hope to those who wish to use Section 1782 in the context of an arbitration.
Using Section 1782
For more than 150 years, US law has provided for some form of federal court assistance in gathering evidence for foreign legal proceedings. One of the key provisions of current US law is found in Section 1782, which states that a "district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal ... upon the application of any interested person". Since being substantially amended in 1964, however, it has had a chequered history of being subjected to narrow interpretation and inconsistent application.
The Supreme Court's decision in Intel resolves several of these inconsistencies and also provides guidelines for when and how a federal court should exercise its broad discretion in considering a Section 1782 petition. Further, dicta in the Intel ruling suggest that, if presented with the question, the Supreme Court would hold that an arbitral tribunal falls within Section 1782's definition of a "foreign or international tribunal".
The Intel decision
The Supreme Court's decision in Intel concerned a dispute between two microprocessor manufacturers. In 2002 Advanced Micro Devices (AMD) filed a complaint with the directorate-general for competition of the European Commission (EC) alleging various violations of European competition law. The directorate-general opened an investigation into the allegations, as part of which AMD requested that it seek discovery of documents Intel had produced in an antitrust suit in the US. When the directorate-general declined to do so, AMD filed a petition under Section 1782 in the federal district court for the Northern District of California (the federal district where Intel's main office is located) seeking expansive discovery of Intel documents and depositions of Intel employees purportedly in support of the directorate-general's investigation. The district court held that it did not have jurisdiction to grant the relief requested. The Court of Appeals for the Ninth Circuit reversed and remanded this decision and the matter was then appealed to the US Supreme Court.
The Supreme Court's eight-to-one decision in June 2004 held that the district court did have jurisdiction to decide AMD's Section 1782 petition and remanded the case back to the district court. In doing so, the Court's opinion, authored by Justice Ginsburg, resolved several issues that had been the subject of conflicting decisions in lower courts. First, and of most significance here, the Court opined that the EC's directorate-general fell within the scope of Section 1782's reference to a "foreign or international tribunal". It held that Congress had intended to provide a broad grant of authority to render judicial assistance in aid of "foreign courts and quasi-judicial agencies" and that, in this context, the directorate-general qualifies as a "tribunal" when it acts as a "first-instance decision maker".
Among the Court's other holdings, it determined that a petitioner under Section 1782 qualifies as an "interested person" if the petitioner has a "significant role" in the foreign proceeding, even if not formally a party to the action. AMD was therefore found to have standing to bring a Section 1782 petition in aid of the EC's proceeding even though AMD was a "non-party" with only limited participation rights in that proceeding. The Court also rejected a "foreign-discoverability requirement". Thus, Section 1782 is available even if the materials sought would not be discoverable in the foreign jurisdiction in which the tribunal is located. Similarly, the Court held that discovery need not be allowed only where it would be ordered in an analogous domestic litigation in the US.
Having considerably expanded the federal courts' jurisdiction to entertain petitions under Section 1782, the majority then proposed several "factors that bear consideration" in ruling on such a petition.
These include:
relief is less likely where the party against whom discovery is sought is a participant in the proceeding before the foreign tribunal;
the court "may take into account the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or agency" to such assistance;
the court may deny a Section 1782 request that is an attempt to "circumvent foreign proof-gathering restrictions or other policies of a foreign country" or of the US; and
the court may deny or restrict a Section 1782 request that is unduly burdensome or obtrusive.
Interestingly, on remand, the district court refused to grant the discovery sought, finding that almost all of the factors identified by the Supreme Court weighed against the petitioner. The district court held that:
Intel was already a participant in the European proceeding and the EC's competition directorate-general could "simply ask Intel to produce any or all of the discovery AMD now seeks";
the directorate-general was "not receptive to judicial assistance in this case"; and
AMD's application was an attempt to circumvent the directorate-general's "decision not to pursue such discovery." The district court particularly relied on a strongly worded amicus brief from the EC arguing that the discovery sought was not necessary to its investigation and indeed could be harmful to some of its institutional functions.
Nevertheless, other courts that have considered Section 1782 in the wake of Intel have been less constrained. In Servicio Pan Americano de Protección v HSBC last year, for example, the US district court for the Southern District of New York ordered a non-party US insurer to produce documents allegedly unavailable in Venezuelan civil court proceeding. Similarly, in re Application of Procter & Gamble the US district court for the Eastern District of Wisconsin found that granting a Section 1782 request for depositions and documents would be more efficient than forcing a petitioner to seek individual discovery orders in five separate jurisdictions where patent infringement claims were pending. These decisions are notable for the breadth of discovery ordered and the relative ease with which the courts exercised their discretion to grant the Section 1782 request.
| Practical steps for applying Section 1782 Should any party to a foreign or international arbitration proceeding wish to try to use Section 1782, there are some basic steps to consider before filing such a petition. None of these steps is essential and nor is this list exclusive. Clearly, the federal courts retain a broad discretion and every petition will succeed or fail on the specific facts at hand. First, the party seeking discovery should consider exhausting its avenues for obtaining discovery directly from the counterparty through the normal course of discovery in the underlying arbitration proceeding. For example, third-party documents within the possession, power or control of the counterparty may be available in the arbitration. Further, keep a record of any refusal by the counterparty to provide discovery from a third party or to provide discovery beyond the jurisdiction of the arbitral tribunal. The counterparty may well go to great lengths to avoid appearing to the tribunal as if it is withholding relevant evidence. If efforts to induce voluntary compliance fail, an order from the arbitral tribunal directed at a party or a request for assistance from the arbitral tribunal to the federal court, may be useful to overcome any court reticence to interfere with the arbitral tribunal's jurisdiction. Of course, should the arbitral tribunal refuse to make such an order or request, that may then be used by the party opposing discovery to argue against a Section 1782 petition. Accordingly, it is important, before approaching the arbitral tribunal, to make a realistic assessment - taking into account the arbitrators' cultural background(s) - of the tribunal's likely reaction to the discovery request. Before filing a Section 1782 petition, to the extent there is a choice, consider which is the best venue for the motion. Further, draft the petition - and the scope of discovery sought - with the Supreme Court's discretionary factors in mind. Finally, and in any event, be sure to assemble strong evidence of why the discovery requested is important to the arbitral dispute. |
Implications for international arbitration
Section 7 of the Federal Arbitration Act (FAA) empowers arbitral tribunals to "summon in writing any person to attend before them as a witness and ... bring with him ... any book, record, document, or paper which may be deemed material as evidence in the case." This can also apply in some circumstances to pre-hearing discovery. Section 7 provides that recourse may be had to the district court "in which such arbitrators ... are sitting" to compel compliance with such an order. Thus, Section 7 of the FAA provides no assistance if the arbitrators are not sitting in a US jurisdiction. As a result, arbitration users have been keen to embrace a provision like Section 1782 because it potentially provides an avenue for obtaining US judicial assistance in aid of a foreign arbitration proceeding.
However, before the Supreme Court's Intel decision, two federal appellate courts and several district courts held that Section 1782 did not apply to requests for discovery in aid of an arbitration on the basis that an arbitral tribunal does not constitute a "foreign or international tribunal". These decisions, both dating from 1999, arose in National Broadcasting Co v Bear Sterns & Co and Republic Of Kazakhstan v Biedermann International. In Bear Sterns, the Second Circuit held that the drafters of Section 1782 intended to limit its application to "governmental entities, such as administrative or investigative courts, acting as state instrumentalities or with the authority of the state", in contrast with private arbitration proceedings. The court also found an unacceptable imbalance would be created if Section 1782 were interpreted to permit broader discovery in an international arbitration than that available under Section 7 of the FAA for a domestic arbitration.
Decisions like that in Bear Sterns have been the subject of some criticism. Columbia University Law School's professor Hans Smit, one of the drafters of Section 1782, advocated in a 1998 article in the Syracuse Journal of International Law and Commerce that decisions refusing to apply the section to international arbitration "run counter ... to the plain meaning of the term, to Section 1782's legislative history, and to the clear purpose of that Section to facilitate evidence gathering in foreign and international adjudication".
Perhaps tellingly, the Supreme Court in Intel repeatedly cites with approval professor Smit's academic writings on Section 1782. Indeed, when citing authority for what constitutes a "tribunal" under Section 1782, the Court quotes the exact language professor Smit used in a 1965 law review article stating that Section 1782 applies to arbitral tribunals. Further, while Intel did not involve a foreign or international arbitration proceeding, the Court's willingness to extend the term "foreign or international tribunal" to any "quasi-judicial" agency that "acts as a first-instance decision maker" is significant. Similarly, the same broad approach to interpretation is seen in the Court's application of the term "interested person" to a non-litigant. Thus, while not addressing all the arguments found in cases like Bear Sterns, the Supreme Court's Intel decision reveals a strong inclination to broadly interpret the language found in Section 1782 and provides strong arguments in favour of professor Smit's view should the Court have the opportunity to address the arbitration issue directly.
Some commentators have already noted that Intel raises serious questions about whether Bear Sterns and its progeny should remain good law. In a 2004 article in the American Review of International Arbitration, professor Smit voices his "hope that [the Intel decision] will be an adequate directive to the lower courts not to continue to disregard the plain statutory text and not to exclude foreign and international arbitral tribunals from Section 1782's reach".
Given these comments, it seems likely that a Section 1782 application will be brought in the international arbitration context soon. When this happens, many will be closely watching to see whether Intel has indeed opened the door for this potentially important new tool in international arbitration.
David Lindsey is a partner and James Hosking an associate with Clifford Chance LLP in New York