In 1983, Lord Denning said:
“As a moth is drawn to the light, so is a litigant drawn to the United States. If he can only get his case into their courts, he stands to win a fortune.”1
Part of the reasons for wanting to litigate in the United States may, of course, be gaining access to the wide-ranging discovery process. Twenty-seven years on from Lord Denning’s musings, however, there is a view among international businessmen (rightly or wrongly) that litigation in the United States is unattractive precisely because of this extensive, and costly, discovery process. Those with a civil law background may experience the greatest culture shock, as their system does not ask parties to provide documents beyond those they rely on. Advocates of discovery, on the other hand, stress that each side ought to put their (evidentiary) cards on the table to give the decision-maker the full picture. Internal documents that never left a claimant corporation can paint a quite different picture from those on which a claim is based.
Parties who find extensive US or common law-style disclosure or discovery an obstacle to efficient resolution of their disputes may opt for international arbitration as their chosen forum. Arbitration seeks to strike a balance when it comes to disclosure: some documents can be required from the opponent, but the disclosure obligation is narrower than in litigation in most common law jurisdictions (certainly England and the US).
One particular procedural power in the arsenal of US courts - the power to order discovery in support of foreign proceedings - has consistently generated debate. There have been warnings that the power under ‘Section 1782’, if it were applied to international arbitration proceedings, would undermine the arbitral process and interfere with its autonomy. Recently, Section 1782 has even injected some drama and detective work into bilateral investment treaty arbitrations. It now seems fairly clearly established that tribunals established under treaties are, in the eyes of the US courts, of a sufficiently international character to bring them within Section 1782. In one recent example, Chevron, the investor-claimant, sought US discovery of hundreds of hours of unreleased footage from the makers of a documentary on an environmental situation in Ecuador. The pollution in question had triggered national litigation and measures against Chevron in Ecuador, which had, in turn, led to Chevron’s investment treaty claim seeking to recover losses caused by the Ecuadorian sanctions. Within the 600 hours of footage that Chevron subpoenaed was alleged to be evidence of collusion or contact between parties that were meant to be at arm’s length, which (if proven) could taint Ecuador in the treaty claim. Chevron’s request was upheld.2
This article looks at how disclosure of documents is generally approached in international commercial and investment treaty arbitrations, before considering Section 1782 and how the US courts have been interpreting the provision. Will it lead to gumshoe tactics in treaty claims?
Disclosure in International Arbitration
There is, generally, no automatic obligation of disclosure in most international arbitrations, in contrast with litigation in the major common law jurisdictions.3 The principle underlying disclosure, as well as any other aspect of arbitral procedure, is that of party autonomy.4 The parties are free to agree on the regime for exchanging documents, and if they do not agree, then the tribunal decides.
Article 20 of the ICC Rules of Arbitration provides that:
"1. The Arbitral Tribunal shall proceed within as short a time as possible to establish the facts of the case by all appropriate means."
Some commentators5 have suggested that Article 20 of the ICC Rules means something more than the adversarial approach a common lawyer expects of the tribunal. While an ICC arbitrator might, in certain cases, go beyond merely weighing the cases as presented by both parties and adopt a more inquisitorial or investigative stance, the ICC Rules do not envisage that “establishing the facts of the case by all appropriate means” means embarking on an extensive disclosure exercise, and this is borne out by general arbitral practice.6
Similarly, under the LCIA Rules there is no default disclosure of documents. Article 22.1 of the LCIA Rules allows an arbitrator to require a party to produce documents,7 including of his or her own motion.
In investment treaty arbitrations, such as under the auspices of the International Centre for the Settlement of Investment Disputes (“ICSID”) and the Washington Convention of 1965, or ad hoc under UNCITRAL Rules, tribunals are equally aware of the need to reign in any excesses of disclosure.
Under the ICSID Convention, tribunals have the power to order the parties to produce documents at any stage of the proceedings if the tribunal deems this is ‘necessary’8. While there is no further guidance in the ICSID Convention as to what necessity means, investment treaty tribunals are not in the habit of allowing wide-ranging discovery-style requests. In an investment claim against the United States, the tribunal noted that9:
"With respect to the differences between domestic litigation and international arbitration, the Tribunal recognizes that it is generally understood that one reason parties choose arbitration is to avoid the relatively extensive document production practices of courts generally and United States courts in particular.")
Another tribunal noted, when deciding a request for documents, that while its mission was ultimately to discover the truth, that had to be balanced by the need to seek to do so efficiently.10
The International Bar Association has published Rules on the Taking of Evidence in International Arbitration Proceedings (“IBA Rules”) (revised in May 2010) which aim to bridge the gap between civil and common law, and the range of procedural approaches in national litigation. The IBA Rules provide for ‘document requests’, which need to set out (Article 3.3) "a description of a requested document sufficient to identify it, or…a description in sufficient detail (including subject matter) of a narrow and specific requested category of documents that are reasonably believed to exist.". A party must also say why it believes the documents it seeks are "relevant and material to the outcome of the case." The 2010 update to the IBA Rules now makes some specific provision for electronic documents - though it stresses the electronic searches should be made in an “efficient and economic manner”, for example by reference to specific search terms.
Under the IBA Rules, as is usually the case, the tribunal may draw adverse inferences where a party refuses to comply with a properly made request for documents, (Article 9.5). The tribunal can also impose cost penalties where a party has failed to act in good faith in connection with the ‘taking of evidence’ and the exchange of documents (Article 9.7). That provision would allow the tribunal to order that a party who has resisted requests without good grounds, delayed production, or even produced far too many, irrelevant documents, pay the costs of the other side caused by such obstructive conduct.
Though well-known, the IBA Rules are not adopted in all international arbitrations and it may simply come down to convincing your arbitrator that you should be given the documents. As rules on disclosure in most international arbitrations tend not to set down detailed guidelines,11 arbitrators may fall back on the concept of ‘reasonableness’. A reasonable request would be one aimed at documents relate to a specific issue, or a fact that has been asserted, and should relate to specific documents that are likely to exist and be within the control of the opponent.12 In the words of one tribunal, a request was granted since it was aimed at13:
“specifically identified, narrow category of documents that are of obvious potential relevance and materiality to the issues in dispute”
An arbitrator’s view of what is reasonable may still be coloured by his or her own personal background and experience. A US-trained arbitrator may not find a request for general categories of documents (which may or may not exist, but which (if they do) might relate to the subject matter of the claim), objectionable: “conjectural” documents are routinely requested in US litigation. An English lawyer may see such a request as tantamount to a fishing expedition. English law has abandoned any notion that documents that could only lead to a ‘train of enquiry’ (which would, in turn, lead to a new argument or exposing a different kind of document that might be relevant) must be given to the opponent.14 Such differences in approach do, occasionally, clash and will need to be resolved by the tribunal.15
In addition to documentary evidence, witnesses of fact may of course also be relied on. However, witness evidence is not always as important a feature in international arbitration as it is, for instance, in English Court proceedings. Some civil lawyers frown upon officers or employees of a company giving evidence on behalf of that party at all: such testimony is considered inherently biased, and impermissible in certain civil law jurisdictions. Depositions, commonly and extensively used in US litigation to interview and test potential witnesses before the main evidentiary hearing, are not common in international arbitrations outside the US. Contemporaneous documents tend to be the most important evidence in international arbitrations.
So if the arbitrator refuses to give you the right contemporaneous documents, where else can a disappointed party go? The answer might be the Courts in the US.
Discovery in the US in Aid of Foreign Proceedings – Section 1782
As noted above, the discovery obligation in US Court proceedings is considered to be amongst the widest in the common law world. The Federal Rules of Procedure in principle allow discovery of:
“Relevant information [which] need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence…”16
This is reminiscent of the old ‘train of enquiry’ test in English law.
US legislation has extended the power of the US Courts to order discovery, making it available in support of judicial proceedings that take place abroad. 28 U.S.C. § 1782 (or “Section 1782”) allows a party to proceedings outside of the US to ask a US Federal or District Court to compel anyone who is within that US Court’s jurisdiction to provide discovery (either by the production of documents or through depositions).17 The relevant Federal or District Court has discretion as to whether to grant a request for discovery, which is to be for use in the foreign proceedings, and will apply the FRP when considering whether to do so.18
The public policy behind Section 1782 has been described as giving the ‘benefit’ of US discovery to those engaged in proceedings abroad, thereby encouraging other jurisdictions to provide the same kind of assistance to the US Courts and those litigating before them (reciprocity).19 Whether one sees Section 1782 as conferring a real benefit, or as the unwanted, extraterritorial application of a peculiar US concept depends on one’s view of US-style discovery.
In 2004, the US Supreme Court considered the scope and application of Section 1782.20 This arose out of AMD’s attempts to get discovery in the US from Intel, which could then be used by AMD in connection with a competition complaint that AMD had made against Intel before the European Commission (and in any subsequent determination by the Commission of whether there had been an infringement by Intel).21 The Supreme Court held that Section 1782 was available in principle, rejecting the argument that a mere complaint made to the Commission was not sufficient to constitute “proceedings” for the purpose of Section 1782.22
Before the decision in Intel, two US Courts of Appeal had ruled that private arbitration proceedings were outside the scope of Section 1782,23 noting that:
“We are confident that a significant congressional expansion of American judicial assistance to international arbitral panels created exclusively by private parties would not have been lightly undertaken by Congress without at least a mention of this legislative intention.”
However, some lower US Courts have made Section 1782 available to private international arbitrations: that was the conclusion reached by the Georgia District Court in In re Roz Trading Ltd,24 relying on the Supreme Court in Intel. In Roz Trading, the District Court found that the Section 1782 jurisdiction extended to an arbitration before a tribunal sitting in Vienna (the International Arbitral Centre of the Austrian Federal Economic Chamber). The District Court relied on passages in Intel suggesting that an arbitral tribunal was simply a “tribunal” within the meaning of the word in Section 1782 (although the Supreme Court did not decide that particular point).
The District Court noted that the Vienna Arbitration Centre was “fundamentally international in nature” (1229) and that it therefore could “rely on the aid of courts beyond its jurisdiction – such as United States District Courts acting pursuant to [Section 1782] – to enforce its demands and to aid its inquiries, both within and without Austria”. While, it is suggested, judicial support by the national courts in aid of international arbitration tribunals is to be welcomed, the District Court appears to have assumed that discovery would always (by its nature) be an appropriate form of judicial assistance.25 The decision has attracted some criticism, especially since the party requesting documents could have sought to request these before the Vienna arbitrators first (which was not done). Though the documents may have been held by a parent company of the subsidiary that was a party to the arbitration, a failure by the parent to hand over documents that were reasonably requested to the subsidiary for use in the proceedings would have led to the arbitrator’s drawing adverse inferences against a group company - something the parent company would want to avoid.
Section 1782 and Investment Treaty Arbitrations
While the question whether Section 1782 applies to private arbitrations may not be conclusively settled, there are a number of decisions by the US Courts to the effect that tribunals set up under investment treaties are within the ambit of the section. These decisions also illustrate further how Section 1782 can, and cannot, be used.
The first decision is that in the Oxus Gold case. Oxus Gold, an international mining company based in the United Kingdom had secured an license from the Kyrgyz Republic allowing Oxus to develop a gold deposit, as a joint venture with the State. The license was then unilaterally revoked by the Kyrgyz authorities, which led Oxus Gold to commence an UNCITRAL arbitration under the United Kingdom - Kyrgyz BIT. Some time into the proceedings Oxus decided to seek documents and compel evidence from a Mr Barbanel, who was not a party to the arbitration. Mr Barbanel had little to do with New Jersey - although, while he was ordinarily resident in Moscow, he did rent a flat in New Jersey. On that basis, Oxus applied to the New Jersey District Court.
The District Court granted Oxus the order for discovery from Mr Barbanel, finding that he was sufficiently ‘present’ in New Jersey for the purpose of Section 1782, due to his rental property. As to the nature of the tribunal, the District Court held the UNCITRAL proceedings were a public international law arbitration, since the relevant BIT:
"specifically mandates that disputes between nationals of the two countries would be resolved by arbitration governed by international law … [and the UNCITRAL claim] is thus being conducted within a framework defined by two nations."26
The second case relates to a dispute with Ecuador. In May 2010, Chevron used Section 1782 to obtain a subpoena for a considerable amount of unreleased documentary footage from the District Court for the Southern District of New York.27 Chevron’s aim was to use this footage to assist with an UNCITRAL claim that it had brought against Ecuador under an investment treaty. The relevant footage had been shot by documentary filmmakers following US and Ecuadorian counsel who acted for the native claimants in a claim before the courts of Ecuador seeking US$20 billion for environmental damage and pollution to the Lago Agrio region. Chevron hoped that the footage would show collusion or inappropriate dealings between the judge, the court expert, representatives of the Ecuadorian government and the claimants and their adviser. Chevron intended to use this material both in Ecuador, and in the UNCITRAL proceedings.
The court for the Southern District of New York found that while Section 1782 did not permit discovery in relation to any commercial arbitration proceedings between purely private parties, it did apply to tribunals established under investment treaties. Applying the test for discovery under US procedural law, the application was granted. There currently rages a fullyfledged discovery battle, with motions being filed by both sides and with the documentary evidence being used by Chevron’s attorneys.28 Whatever may come of it, without the order by the New York this material would not have been available to Chevron as the ICSID tribunal would not have had the power to order discovery against a third party.
But merely applying under Section 1782 where the relevant arbitration is an ICSID or investment treaty tribunal does not guarantee success. Most recently, the District Court of Washington rejected an application on grounds that sound very sensible to conservative arbitration lawyers who are not enamoured of wide ranging discovery.29
The claimant in the arbitration is Caratube, a company owned by a Mr Hourani, a US national. Caratube is presently pursuing Kazakhstan under the US-Kazakhstan bilateral investment treaty of 2008. The claim relates to Caratube’s oil concessions in North-western Kazakhstan which were terminated, essentially due to misgivings following a family argument with political dimensions. Caratube’s case is that it and its representatives were pursued and treated unfairly by Kazakh authorities due to a connection with Mr Rakhat Aliyev, the former son-in-law of President Nursultan Nazarbayev. Mr Aliyev's sister is married to Mr Hourani's brother. Caratube claims that as political tensions between Mr Aliyev and Mr Nazarbayev rose, so did its difficulties with the concessions. Ultimately expropriation followed at the hands of the Kazakh secret service who seized Caratube’s assets following an enquiry.
Caratube asked the District Court to subpoena a number of US nationals who it suspected of acting as agents for Kazakhstan and Mr Nazarbayev. It did so without the consent of the tribunal in the ICSID arbitration, and shortly before the (limited) disclosure deadline in the arbitration. The Washington court saw this as a tactical manoeuvre:
"The evidence suggests that Caratube is using section 1782 in an attempt to circumvent the tribunal's control over the arbitration's procedures…. "
Even assuming that the ICSID tribunal fell within Section 1782 ("proceeding in a foreign or international tribunal."), the District Court stressed that it did not have to grant the order simply because it had the power to do so - a discretionary approach. Little time was spent on the character and nature of the tribunal, with the District Court instead focussing on what it saw as the crucial question: what discovery or disclosure regime had the parties adopted? Here, the parties had opted for ICSID arbitration, so that applying the ICSID Rules were part of the “parties’ bargained-for expectations concerning the arbitration process.” The court reviewed the ICSID Rules on disclosure (as set out above) and the IBA Rules. The claimant investor had “sidestepped these guidelines” by forging ahead, which was a powerful reason for rejecting the petition.
The approach taken by the Washington District Court in the Caratube case is a welcome reminder (if one were needed) that the US courts will review Section 1782 applications critically, and has given opponents facing a tactical petition a new precedent to cite if they find themselves drawn into the US courts. Nonetheless, the fact that Section 1782 applies to ICSID tribunals in principle remains, and can lead to tactical applications.