U.S. Supreme Court Decides Scope of Section 1782, Largely Excluding International Arbitration

The United States Supreme Court has recently decided a long-standing question of whether a US statute, known as section 1782, allows a US federal court to order discovery in support of foreign arbitration proceedings. In the view of MDisputes, this will lead to a more efficient, predictable, and harmonized approach to international arbitration when a party alleges that evidence related to the dispute exists in the United States.

On 13 June 2022, the US Supreme Court issued a long-awaited decision in ZF Automotive US, Inc., et al. v. Luxshare, Ltd., and AlixPartners, LLP, et al. v. Fund for Protection of Investors’ Rights in Foreign States, 596 U. S. ____ (2022)  The unanimous judgment excludes the application of section 1782 to foreign arbitrations (commercial and investment) save for the possibility of its application in certain investment arbitrations, where the tribunal could be deemed a “governmental or intergovernmental adjudicative body.”

Before this decision, parties in arbitrations outside the US who sought to obtain evidence from parties (and more often non-parties) located in the United States, typically invoked section 1782 without any order from the foreign arbitral tribunal as to whether such discovery was desirable.  The judgment puts an end to this, which seems fair since there is no corresponding benefit to parties in the US, or in US arbitrations, who might wish to seek similar discovery via the courtsof other countries. This is not only because section 1782 was specific to applications before the courts of the US, but because broad, US-style discovery generally does not exist in most other countries.

On its face, ZF Automotive may appear to take away a tool used in connection with international arbitration. The reality, however, is that the decision will likely be a positive development for arbitration practice. Above all, parties now have clarity over the scope of the statute, an idiosyncrasy of US procedure whose inconsistent application had generated considerable litigation.

At the same time, the Court’s decision has no bearing on the authority of arbitral tribunals seated anywhere in the world to order the production of evidence under the control of the PARTIES, without regard to where they or the evidence is located. Arbitral tribunals have the power to enforce their orders by drawing negative inferences against a party that fails to comply.  This will bring US arbitration practice in line with most of the world, meaning parties will have access to evidence through roughly equivalent procedural tools, overseen by the arbitral tribunal with minimal involvement of the courts.

The full decision is available here