INTERNATIONAL ARBITRATION: SUPREME COURT HOLDS DISTRICT COURTS MAY NOT ORDER DISCOVERY FOR USE IN PRIVATE INTERNATIONAL ARBITRATION.

• Author: Gibbons, Niamh

1. INTRODUCTION

   Section 1782(a) of the United States Code is a federal statute that gives district courts the power to assist evidence-gathering by "foreign or international tribunals." (1) For most of its history, federal courts interpreted the phrase "foreign or international tribunals" in [section] 1782 as applying only to governmental bodies such as courts and administrative agencies. (2) Beginning in 2004, however, parties in a range of cases asserted that private international arbitration proceedings also qualified as "foreign or international tribunals" under the statute. (3) Private international arbitration in this context means arbitral proceedings initiated by contractual agreement between private parties to trans-national commercial transactions. (4) As a result of these cases, federal circuit courts diverged on the question of whether [section] 1782 permits district courts to assist evidence-gathering by parties to private international arbitrations. (5) In June 2022, the Supreme Court resolved the split in ZF Automotive US, Inc. v. Luxshare, Ltd. (6) In a unanimous decision, the Court held that a "foreign or international tribunal" is one that exercises governmental authority conferred by a single nation or multiple nations. (7)

   The resolution of the [section] 1782 split is significant because applying the statute to private international arbitrations would have opened the door to expansive, American-style discovery in those processes. (8) Parties to international arbitrations already support their claims and defenses with extensive documentary evidence. (9) Subject to the parties' prior agreement, arbitrators generally have the power and discretion to order the parties to produce documents or testify. (10) But parties generally cannot seek discovery against the wishes of the opposing party and the arbitral tribunal, particularly discovery from third parties. (11) This reflects the view that the wishes of the parties should guide the arbitration process, and that it should remain a faster and more efficient alternative to litigation. (12) In recent years, the International Bar Association's Rules on the Taking of Evidence in International Arbitration ("IBA Rules") have become the dominant choice for evidentiary rules in international arbitration. (13) However, these rules are not universally accepted, particularly by arbitrators from civil law systems who consider them to be overly influenced by the common-law discovery approach. (14) Furthermore, parties and practitioners are increasingly unhappy with the rising cost of international arbitration. (15)

   This Note offers a critique the ZF Automotive decision from several perspectives. (16) The decision was not a foregone conclusion, given the compelling arguments that existed in favor of a broader interpretation. (17) Moreover, the Court's earlier [section] 1782 decision, Intel Corp. v. Advanced Micro Devices, Inc., already provided district courts with a four-factor analytical framework to assess [section] 1782 requests from any tribunal. (18) If the Court adopted the broader interpretation, district courts could still screen requests from private tribunals using the Intel factors, notably whether the tribunal was receptive to U.S. assistance and whether the discovery request was unduly burdensome. (19) But although the ZF Automotive holding was not inevitable, both the statute's language and legislative history support the Court's interpretation of [section] 1782. (20) The decision also avoids creating more discovery rights for parties to international arbitrations than are available to domestic parties under the Federal Arbitration Act ("FAA"). (21) Notably, the ZF Automotive decision did not weigh in on the argument that [section] 1782 discovery would frustrate the efficiency of international arbitration. (22) The Court had no need to do so since it resolved the issue based on the statute's language, legislative history, and comparison with the FAA. (23) 24 Even without addressing this policy concern explicitly, however, the decision responds to practitioners' and parties' concerns about the rising cost of international arbitration and will provide a welcome check on the trend toward overly-expansive discovery. (24)

   This Note proceeds in three parts, beginning with a summary of the growth in international arbitration in recent decades. (25) Next, the paper traces the history of [section] 1782 as a statute intended to facilitate international judicial cooperation. (26) This section reviews early circuit court decisions rejecting the idea that district courts could assist with discovery for private international arbitrations, and the Supreme Court's 2004 decision in Intel Corp. v. Advanced Micro Devices, Inc., which addressed the scope of [section] 1782 but not whether it applied to private arbitration. (27) The paper then presents the more recent post-Intel decisions on the statute, including the circuit split leading to the ZF Automotive decision. (28)

2. FACTS

   1. Growth in Private International Commercial Arbitration

      The upsurge in global business transactions in recent decades has brought with it an increase in international disputes between contracting parties. (29) Research suggests that, for both legal practitioners and corporate counsel, private arbitration is the preferred method of resolving transnational disputes. (30) Arbitration is, by definition, a form of dispute resolution based on a private agreement between contracting parties. (31) The parties grant power to one or more individuals to determine the outcome of a dispute, and the outcome is then binding on the parties. (32) Private international arbitration is an arbitral proceeding between parties to trans-national commercial transactions. (33) One often-cited, decades-old estimate puts the frequency of arbitration clauses in international contracts at ninety percent. (34) More recent scholarship notes a lower prevalence, with arbitration clauses present in only twenty-five percent of international contracts involving companies with close ties to the United States. (35) Regardless of the exact prevalence of such clauses, the growth in the volume of international business has certainly driven growth in the use of private international commercial arbitration. (36)

   2. Advantages of Arbitration for International Transactions

      Parties choose arbitration over litigation or another form of dispute resolution in their international contracts for several reasons. (37) Many companies and attorneys consider the enforceability of awards to be the primary advantage of international commercial arbitration. (38) Most states enforce international arbitration awards pursuant to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention"). (39) Under the New York Convention, states agree to recognize parties' agreements to arbitrate and to enforce arbitral awards. (40) Observers praise the New York Convention for contributing to the growth of international arbitration because it ensures that states enforce arbitral awards. (41)

      Parties also opt for private arbitration in international contracts because they can select a neutral venue, avoiding the "hometown justice" that could result from submitting the dispute to one party's national courts. (42) Flexibility is another key advantage, including the parties' ability to select the members of the arbitral tribunal, to control the timetable, and to establish the procedural rules the tribunal will apply. (43) Contracting parties also tend to see arbitration as more confidential than litigation, particularly where a dispute implicates trade secrets or non-public business practices, since arbitral submissions and proceedings are generally not public. (44)

   3. The Exchange of Evidence in International Arbitration Proceedings

      Most international arbitrations follow a similar overall progression, with some variation depending on the parties' preferences and the rules of the administering institution. (45) They take place at a location, or arbitral seat, agreed-to by the parties and often in a neutral location. (46) Although there are many steps along the way, the process generally involves the following: the claimant serves a notice of arbitration on the respondent, an arbitral tribunal is formed, the claimant submits a statement of claim and the respondent submits a statement of defense, the parties exchange evidence, they present arguments at a hearing before the arbitral tribunal, and finally, the tribunal renders a decision and award. (47)

      International arbitrations also involve extensive submissions of documentary evidence; parties support their statements of claim and defense with documentary materials, written witness statements, and expert reports. (48) Parties to an arbitration may request documents from the opposing party. (49) However, wide-ranging discovery is rare in international arbitration because mandatory disclosure of evidence is limited to whatever the parties agree in advance. (50) An arbitral tribunal may have discretion to order the parties to disclose information, but under most arbitral statutes and rules, they may not order discovery from third parties. (51)

      Although many international arbitration practitioners frown upon extensive discovery, more expansive evidence-gathering is becoming the norm. (52) The IBA Rules have become the most commonly-adopted rules of evidence in international arbitration, and even though the rules stop short of allowing full American-style discovery, practitioners view them as being more influenced by the common law than the civil law tradition. (53) This has prompted backlash, particularly by civil law practitioners advocating for more efficient evidentiary procedures. (54)

      The extent of discovery is also a major driver of the cost of an international arbitration process. (55) Although traditionally considered a more efficient alternative...