Business and Legal Insights

Last June, the Supreme Court brought much needed clarity for parties in commercial arbitrations seeking discovery assistance in the U.S. under Section 1782[1], by holding that such discovery assistance does not extend to commercial arbitration proceedings before private commercial arbitration tribunals in foreign countries.[2] Although part of the decision also dealt with an investment arbitration, the Court seemed to have left open a possibility that under certain circumstances parties to an investment arbitration may avail themselves to Section 1782 discovery assistance.

Because investment treaties, such as Bilateral Investment Treaty (“BIT”), are between sovereign states, it is possible, the Court reasoned, that “sovereigns might imbue an ad hoc arbitration panel with official authority,” which “may take many forms.”[3] This arguably left open the possibility that, for example, a Centre for the Settlement of Investment Disputes (“ICSID”) arbitration panel could carry such official authority for the statues purpose.

For instance, ICSID is a permanent institution, currently with 165 signatory and contracting states, that all lend their collective governmental authorities to the institution. Its Member States can designate individuals to serve on arbitration panels, and ICSID final awards are recognized and enforced by all Member States. This suggests that ICSID arbitration panels would also have authority conferred by “two or more nations.” [4] However, two recent decisions by federal district courts in New York suggest that a different trend may be emerging.

In the first case, In re Alpene, Ltd., an ICSID arbitration was based on the BIT between China and Malta.[5] Even though the court identified “significant differences” separating the ICSID panel from the ad hoc panel in ZF Automotive, these factors did not tip the scales in favor of holding that parties in front of an ICSID arbitration could avail themselves to discovery assistance under Section 1782. Ultimately, the District Court for the Eastern District of New York held that the ICSID arbitration panel did not qualify as a “foreign or international tribunal” because there was insufficient support to show that China and Malta had intended to imbue governmental authority to the panel.

In Alpene it came down to comity and reciprocity. The court found it hard to imagine how an ICSID panel, despite its governmental feel, could provide reciprocal discovery assistance for United States proceedings. The court also supported its holding with the need to interpret Section 1782 in harmony with the Federal Arbitration Act, and that the discovery assistance for international commercial arbitration should be limited rather than extended.

Few months later, another federal court faced the same question in In re Webuild,[6] where the parties had opted for ICSID arbitration under the BIT between Panama and Italy. Unlike in Alpene, the court here did not consider comity or reciprocity. Instead it fashioned a step-by-step analysis where it compared the facts of the case to facts in ZF Automotive, and found that the ad hoc ICSID tribunal was “materially indistinguishable” from the ad hoc tribunal in ZF Automotive, and therefore the discovery assistance under the statute could not be afforded to parties in front of the ICSID tribunal. Deciding factors were that the ICSID tribunal was not a preexisting panel, the BIT did not itself create the arbitration panel, it functioned independently from any government, and that the authority of the tribunal was derived from the parties’ consent and not from any government.

As both district courts noted, the Supreme Court did not provide a specific test for lower courts to follow in such cases. However, these two decisions from federal courts in New York show a direction which could shape this analysis. The step-by-step analysis in Webuild combined with Alpene’s reliance on comity and desire to limit the discovery assistance under the statute, could provide a framework of analysis for other courts to follow. Whether this approach holds will be soon tested in federal appellate courts, as the Webuild decision was appealed to the Second Circuit in January of this year.

Of course, this does not mean that other courts would not approach the issue differently and determine that investor-state arbitration panels may fall under the “foreign or international tribunal” definition. These two cases only represent very small sliver of developing case law. Especially coming from the Second Circuit, which together with Fifth and Seventh Circuits were already on the side of restricting Section 1782 access. It remains to be seen, whether other circuits, which previously were on the other side of the circuit spilt, would follow this analysis. Because Section 1782 can be a powerful tool, parties in investor-state arbitrations are expected to test the boundaries of the Supreme Court’s decision to leverage unique remedies and benefits available under Section 1782 to obtain discovery for aid in foreign arbitral proceedings. 

[1] 28 U.S.C. § 1782(a).

[2] ZF Automotive US, Inc. v. Luxshare, Ltd., 142 S.Ct. 2078 (2022).

[3] Id. at 2091.

[4] Id. at 2087.

[5] In re Alpene, Ltd., No. 21 MC 2547(MKB)(RML), 2022 WL 15497008 (E.D.N.Y. Oct. 27, 2022).

[6] In re Webuild, No. 22-mc-140 (LAK), 2022 WL 17807321 (S.D.N.Y. Dec. 19, 2022).