Diales Compendium Issue 3 - Flipbook - Page 10
In its decision dated 13 June 20225, the U.S.
Supreme Court determined that Section
1782 is not available in support of foreign
private international commercial arbitrations
and at least some investor-state arbitrations.
The ZF Automotive decision concerned two separate disputes,
later consolidated:
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The first dispute involved a private commercial
arbitration between Luxshare Ltd., a Hong Kong-based
company and ZF Automotive U.S., Ing, a Michigan-based
manufacturer and subsidiary of a German corporation.
In support of its fraud allegations against ZF Automotive
in a sales transaction, Luxshare sought evidence from
ZF and its officers based in the U.S. relying on Section
1782. The arbitration was seated in Berlin, governed by
German law, administered and subject to the rules of
the German Arbitration Institute: Deutsche Institution
für Schiedsgerichtsbarkeit (“DIS”). The District Court
granted the request and the U.S. Court of Appeals for the
Sixth Circuit denied ZF’s request for a stay.
The second case involved an ad hoc investor-state
arbitration, governed by the UNCITRAL Rules, brought
pursuant to the Russia-Latvian bilateral investment
treaty between a Russian entity, the Fund for Protection
of Investors’ Rights in Foreign States, and the Republic
of Lithuania. The arbitration related to the alleged
expropriation of AB bankas Snoras a Lithuanian bank
whose Russian investor assigned its rights to the Fund.
The fund sought discovery from AlixPartners LLP, a
New York based consulting firm, and its CEO who was
appointed temporarily as Snoras’ administrator. The
District Court granted the Fund’s discovery request and
the U.S. Court of Appeals for the 2nd Circuit affirmed the
decision.
The U.S. Supreme Court has now clarified that a “foreign
tribunal” is one that exercises “governmental authority”
conferred by a single nation and an “international tribunal”
is one that exercises governmental authority conferred by
two or more nations. Therefore, an arbitral body may qualify
as such if the relevant foreign nation or nations authorise
the arbitration panel to exercise governmental authority –
this is not likely in the context of international commercial
arbitration. The Supreme Court therefore concluded that
none of the arbitral panels qualified as such: (i) the first
dispute is a “creature of an agreement between private parties
who prescribe their own rules”6 so that no government is
involved in creating the arbitral panel or prescribing its
procedure, and (ii) Section 1782 did not apply to the second
dispute because “the [BIT] does not itself create the panel”
but “instead it simply references the set of rules that govern
the panel’s formation and procedure if the investor chooses
that forum.”7 It appears that access to Section 1782 in
international commercial arbitration is now closed-off. Some
may celebrate this latest legal development.
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WHAT NEXT?
The U.S. Supreme Court has made clear that Section 1782
does not apply to international commercial / construction
arbitration. This may now mean that arbitration agreements
in international construction contracts should be amended
by parties to expressly allow for broad / broader discovery.
However, many of the limitations in respect of noncompliance will remain.
Experts working in international commercial arbitrations
and who are based in the U.S. are likely to be happier
following the ZF Automotive opinion.
With regards to investment arbitration, the ZF Automotive
opinion only concerned ad hoc investor-state disputes,
governed by the UNCITRAL Rules. It therefore remains
unclear whether this ruling applies to investor-state
disputes conducted under the International Centre for
Settlement of Investment Disputes (“ICSID”) Convention
since an ICSID arbitral tribunal could meet the description
of an intergovernmental adjudicative body that exercises
governmental authority, for the following reasons:
“ICSID was created by Member States through a treaty
under public international law as a permanent institution
that serves a public purpose common to the States
participating in it.
ICSID is governed by a body composed of representatives
of the States participating in the ICSID Convention. It is
administered by a Secretary-General, who is elected by
that intergovernmental body.
ICSID is a publicly funded international institution.
ICSID is an organization under public international law
with legal personality. It enjoys the typical privileges and
immunities of an international organization under public
international law.
The participating States, through designations of persons
to the Panel of Arbitrators and through the appointment
of arbitrators in particular cases, enjoy a strong influence
on the composition of ICSID arbitral tribunals and
annulment committees.
The institution of ICSID arbitration proceedings is subject
to a screening process by the Secretary-General, an officer
elected by a body composed of State representatives.
The jurisdiction of an arbitration tribunal under the
ICSID Convention is subject to two separate expressions
of consent by the State party to the dispute. The first
expression of consent is made through the ratification
of the ICSID Convention, and the second expression
of consent is made most frequently through a treaty or
through national legislation. The focus on investment
disputes between the host State and the foreign investor
means that the origin of the dispute lies most often in