Insights | 15 October 2019

U.S. Discovery made available for commercial arbitrations outside of the United States - Risks and Opportunities

Until recently, U.S. courts have largely rejected discovery requests made in support of commercial arbitrations seated outside of the United States.  These requests would have enabled parties to these arbitrations to compel the production of documents and testimony from counterparties and third parties located within the United States.  However, the U.S. Court of Appeals for the Sixth Circuit has just issued a decision that may change this in the future.  In a case related to pending DIFC-LCIA arbitration between a Saudi Arabian company and an affiliate of Delaware-based FedEx, the Sixth Circuit reversed the lower court and found that discovery under 28 U.S.C. 1782(a) was available for commercial arbitrations.  Unless this decision is appealed, the Saudi Arabian claimant will be able to compel the production of documents and testimony from the parent (FeDEx).

Risks and opportunities: While there is now a split between various Circuits of the U.S. Court of Appeals, this decision opens the path for compelling the production documents of documents through U.S.-style discovery and depositions, even from a parent company.  It applies to pending and future arbitrations.  While U.S. courts are deferential to arbitral tribunals in regards to evidence-gathering in arbitrations, and would heed any restrictions on document production agreed by the parties, many of these safeguards can be circumvented by initiating discovery requests prior to the constitution of the arbitral tribunal.

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The United States Court of Appeals for the Sixth Circuit has recently held that discovery under 28 U.S.C. 1782(a) is available in aid of private international arbitrations. On 19 September 2019, in Abdul Latif Jameel Transportation Company Limited v. FedEx Corporation, the Sixth Circuit ruled that Section 1782(a), which allows discovery “for use in a proceeding in a foreign or international tribunal” upon application by “any interested person”, could encompass an international commercial arbitration seated in a foreign country.  The decision opens a path for litigants in commercial arbitrations to use broad discovery requests against counterparties and third parties with operations in the United States.

In its decision, the Sixth Circuit reversed a district court decision from earlier this year, which had rejected a request for discovery by the Saudi Arabian logistics company Abdul Latif Jameel Transportation Company Limited against the Delaware-registered courier delivery company FedEx Corporation (“FedEx”).  The request had been sought in aid of a pending DIFC-LCIA arbitration against FedEx’s affiliate FedEx International. This dispute arose out of two separate agreements for the provision of transportation-related services in and around Saudi Arabia. The first contract provided for arbitration in Dubai under DIFC-LCIA rules, while the second provided for arbitration in Saudi Arabia under local laws and rules.

In 2018, following the souring of the parties’ relationship, the appellant commenced one arbitration in Dubai and another in Saudi Arabia. Shortly thereafter, the appellant also sought to compel production of documents and the testimony of a FedEx Corporation representative by lodging a Section 1782(a) request in the U.S. District Court for the Western District of Tennessee. The district court denied the application, ruling that a commercial arbitral tribunal was not a “foreign and international tribunal” within the meaning of Section 1782(a).

Section 1782(a) provides that a party requesting discovery must establish that (i) the request must be made “by a foreign or international tribunal” or by “any interested person”; (ii) it must seek the “testimony or statement” of a person or the production of “a document or other thing”; (iii) must be “for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation”; and (iv) the “person” from whom discovery is sought must “reside” or be “found“ in the district of the U.S. district court in which the application is brought. In general, the scope of discovery is governed by Rule 26 of U.S. Federal Rules of Civil Procedure, which provides that a party may “obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense” and that “[f]or good cause, the court may order discovery of any matter relevant to the subject matter involved in the action.”

U.S. courts are split on the question of whether a private international arbitration tribunal is a “foreign or international tribunal” within the meaning of Section 1782(a), following the U.S. Supreme Court’s decision in Intel Corp. v. Advanced Micro Devices, Inc.  The Sixth Circuit’s decision marks the first time that a U.S. Court of Appeals finds that the plain meaning of Section 1782(a) covers private international arbitration tribunals. In doing so, the Sixth Circuit considered (among other things) several reputable legal dictionaries providing definitions of the word tribunal “broad enough to include private arbitrations”, and looked to U.S. courts’ historical and continuing usage of the word to describe private arbitrations.

The decision runs counter to the trend established by the jurisprudence of the Second and Fifth Circuits, in NBC v. Bear Stears & Co and Republic of Kazakhstan v. Biedermann Int’l respectively.  Both circuit courts concluded that the word “tribunal” included only “governmental or intergovernmental arbitral tribunals and conventional courts and other state-sponsored adjudicatory bodies.”[1]

The implications for commercial arbitration following the Sixth Circuit’s decision are troubling, especially for commercial litigants and third parties with operations in Tennessee, Kentucky, Ohio, and Michigan.  In this context, the potential risk of procedural unfairness and the creation of systemic imbalances looms large.  Indeed, the U.S. Supreme Court in Intel held that Section 1782 requests can be made when a proceeding is “within reasonable contemplation,” and that it need not be “pending” or “imminent.  This means that court-assisted discovery in aid of arbitration could a afford claimant a means to circumvent whatever controls an arbitral tribunal would have imposed upon the discovery process, simply by lodging the requests prior to initiating arbitral proceedings.

Until such time as the U.S. Supreme Court resolves the split in the circuits regarding to the applicability of Section 1782 to commercial arbitration, this one-sided system should be of concern for parties with operations in the relevant states of the United States, and of interest to litigants seeking to compel documents or testimony from persons located therein.

[1] In a recent decision, In Re: Application of Antonio Del Valle Ruiz and Others for an Order to Take Discovery for Use in Foreign Proceedings Pursuant to 28 U.S.C. § 1782, the Second Circuit held that “there is no per se bar to the extraterritorial application of § 1782, and the district court may exercise its discretion as to whether to allow such discovery.”  This holding means that U.S. Courts could order companies and persons located in the United States to produce documents held outside the United States.  While this decision would not be applicable to commercial arbitration, given the Second Circuit’s stance on this issue, it potentially increases the scope of Section 1782 discovery for use in investment arbitration proceedings.

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