REUTERS | Gary Hershorn

US courts: global discovery clearinghouses?

The established international litigation and arbitration landscape is littered with issues long familiar to counsel. Some, not least what substantive law should govern and which forum to choose to settle differences, are issues with considerable consensus across jurisdictions, such as that parties may settle differences contractually as a matter of party autonomy. In contrast, significant differences remain when it comes to disclosure, or what is called “discovery” in the US civil litigation system.

What happens if parties to a contract find themselves in a dispute before a UK or Swiss court but need to obtain testimony or documents from a person or entity located abroad?

The default solution would be to rely on the Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters in order to file a request with a foreign jurisdiction’s court or central authority. However, the scope of such discovery  will still be constrained by that jurisdiction’s legal system. As noted in Mees v Buiter by the Second Circuit Court of Appeals in New York, “[f]ew if any foreign jurisdictions permit the scope of discovery available in our courts”. Indeed, the US legal system has displayed remarkable willingness to help foreign litigants “seek the truth” (as none other than President John F Kennedy put it in 1963).

Since 1948, US federal law, specifically 28 USC Section 1782, has provided an avenue for discovery in US courts for litigants before foreign and international tribunals. Ordinary courts have always been considered tribunals for purposes of 28 USC Section 1782, but the statute’s applicability to international arbitral tribunals, and in particular to international commercial arbitral tribunals, has been more controversial.

The 2004 US Supreme Court decision in Intel Corporation v Advanced Micro Devices cracked open the door to including international commercial arbitral tribunals. However, that decision’s dicta sowed confusion, resulting in diverging rulings by trial courts across the United States in the subsequent fifteen years.

That did not keep litigants from trying to obtain 1782 discovery. Federal courts reportedly saw a 900% increase in such petitions in the past decade, compared with the 1990s. Likely amplifying that trajectory, over the past twelve months two US appellate courts in the Fourth and Sixth Circuits came down in favour of including commercial arbitral tribunals in the scope of Section 1782.

At least one petition for review is now pending with the Supreme Court, but is a statistical longshot. It is safe to assert, however, that absent intervention by the Supreme Court, US courts are likely to see a significant increase in 1782 petitions in coming years, especially in the Fourth and Sixth Circuits whose recent rulings have precedential effect.

So how would a party to, for example, a UK proceeding or an ICC arbitration seated in Zurich avail itself of US discovery?

First, the party would need to ascertain whether there is a person or entity with sufficient facts within that target’s control to make a foray into the US system worthwhile. Notably, the target of a Section 1782 petition need not be the opposing party or related to that party through, for instance, the opposing party’s corporate structure.

Second, with the assistance of US counsel, the party would need to determine whether a federal court anywhere in the United States has personal jurisdiction over the target. This would be the case, in a commercial context, where the target has a physical presence in a district or conducts recurring business there, but even more tangential ties will typically suffice.

Third, the party’s US counsel would need to file a petition in district court requesting an order for discovery, which the district court will rule on based on a multi-factor test adopted by the US Supreme Court in Intel:

  • Whether the person from whom discovery is sought is a participant in the foreign proceeding.
  • The nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to US federal court judicial assistance.
  • Whether the 1782 request conceals an attempt to circumvent foreign proof gathering restrictions or other policies of a foreign country or the United States.
  • Whether the request is unduly intrusive or burdensome.

Conversely, what can be done to prevent being pulled into discovery in a US court? 

Forum selection or choice of law clauses will prove ineffectual, both because the discovery target typically is not a party to the underlying dispute and because Section 1782 is an ancillary proceeding available precisely where the principal proceeding occurs before a foreign or international tribunal.

For corporations of a certain size, it could prove equally challenging to avoid the jurisdiction of US courts. In October of 2019, the Second Circuit in New York, in In re Del Valle Ruiz, held that the materials sought through a 1782 petition would need to be related to the target’s activities in the jurisdiction. However, in the same breadth, the court clarified that those materials could themselves be located extraterritorially, that is, outside of the United States.

Litigants should be aware that just because a US court grants discovery, any evidence revealed is not necessarily admissible in the foreign or international forum where the principal proceeding is taking place.

That question, of course, will be governed by that forum’s own rules. And even if a US court does not find the utility argument persuasive in an Intel analysis, it could give parties leverage in negotiating their way out of a 1782 action or narrowing the scope of discovery.

Finally, it should be noted that, in A and B v C, D and E, for the very first time the English Court of Appeal in England made available discovery from a third party based on the request from arbitrators in a proceeding abroad. Thus, the English judiciary appears receptive to interpreting the Arbitration Act 1996 broadly, allowing testimony to be taken from a third party where the relevant provision, section 44(2)(a), merely referred to “taking evidence”. Case statistics in coming years will reveal whether this latest decision by the Court of Appeal will result in an increase in requests on a par with those disposed of by US judicial counterparts across the pond.

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