United States: Is ICSID A Governmental Entity For Section 1782 Discovery?

First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement. As we previously discussed in our July 2022 update, in June 2022 the Supreme Court resolved a circuit split over whether 28 U.S.C. § 1782 discovery could be used in international arbitration by holding that only "governmental" or "intergovernmental" adjudicative bodies fall within the scope of 28 U.S.C. § 1782. ZF Auto. US, Inc. v. Luxshare, Ltd., 142 S. Ct. 2078, 2091 (2022). In construing the words "foreign or international tribunal," the Court focused the inquiry on whether the features of the adjudicatory body and other evidence established the intent of the relevant nations to imbue a tribunal "with governmental authority by one nation" or "with governmental authority by multiple nations." Id. at 2087.

However, ZF Automotive did not resolve the question of whether an International Centre for the Settlement of Investment Disputes (ICSID) arbitration panel was a governmental adjudicative body. Two New York cases, In re Alpene in the Eastern District and In re Webuild in the Southern District, have since addressed that question and concluded that Section 1782 does not apply to ICSID cases. In re Alpene, Ltd., No. 21-MC-2547-MKB-RML, 2023 WL 5237336 (E.D.N.Y. Aug. 15, 2023); In re Webuild S.P.A., No. 22-MC-140 (LAK), 2022 WL 17807321 (S.D.N.Y. Dec. 19, 2022); In re Alpene, Ltd., No. 21-MC-2547-MKB-RML, 2022 WL 15497008 (E.D.N.Y. Oct. 27, 2022). This update will consider the developing, yet so far scant, case law on whether 1782 discovery can be obtained in connection with an ICSID arbitration and a brief discussion of other jurisprudence post-ZF Automotive.

In Alpene, a Hong Kong corporation brought a case seeking discovery against an individual in New York in connection with an ICSID arbitration against the Republic of Malta pursuant to a Bilateral Investment Treaty (BIT) between Malta and China. In an October 2022 opinion that focused on comity and reciprocity, a magistrate judge interpreted ZF Automotive as a signal from the Supreme Court that it "desire[d] to limit the availability of discovery in U.S. courts for international commercial arbitrations" and held that an ICSID arbitration panel is not a "foreign or international tribunal" under § 1782. Alpene, 2022 WL 15497008, at *3–*4. First, because "[t]he 'animating purpose of § 1782 is comity' to foreign and international governmental bodies," and ICSID does not "exercise[] governmental authority such that granting discovery requests by parties in arbitrations before the ICSID would 'promote[ ] respect for foreign governments and encourage[ ] reciprocal assistance.'" Id. at *3 (citing ZF Automotive, 142 S. Ct. at 2080). Second, because there would be a "mismatch" between domestic arbitration under the Federal Arbitration Act and foreign arbitration under § 1782 if parties to ICSID arbitrations had broader access to "federal-court discovery assistance in the United States" than "litigants in domestic arbitrations." Id. at *3 (citing ZF Automotive, 142 S. Ct. at 2088).

In August 2023, the Alpene district judge reviewed the magistrate judge's opinion for clear error and affirmed, holding that "Applying the Supreme Court's definitions and logic in ZF Automotive, the ICSID arbitration panel is not a foreign or international tribunal within the meaning of section 1782." Alpene, 2023 WL 5237336, at *5.

The August 2023 Alpene decision relied in part on the December 2022 Webuild decision. In that case, involving a BIT between Panama and Italy, the court went step-by-step through a six-part factual analysis. Webuild, 2022 WL 17807321, at *1. The court considered: (1) why the arbitral panel was formed; (2) whether the BIT created the rules; (3) whether the panel functioned independently of either of the relevant BIT nations; (4) whether the panel received any government funding; (5) whether the proceedings and findings of the panel were public; and (6) the source of the panel's authority in the parties' consent to arbitrate despite options including "dispute resolution via a court of competent jurisdiction". Id. at *1–2. Because the parties "did not intend to imbue the ICSID Panel with governmental authority," the panel did "not constitute a 'foreign or international tribunal' within the meaning of Section 1782." Id. at *3.

The Alpene district judge focused not on questions of comity or reciprocity but on the sixth element of the Webuild test, the intentions of the parties as memorialized in the underlying treaty, because the ICSID panel "derive[d] its power from the consent of the parties" before it, and because the BIT included a "'competent court' option" in addition to the ICSID option, "China and Malta did not intend to imbue the ICSID panel with governmental authority of the type required for section 1782 to apply." Alpene, 2023 WL 5237336, at *5.

Webuild has since been appealed to the Second Circuit. Briefing was completed on August 22, 2023, including an amicus brief filed by the United States which argued that "An investor-state arbitral tribunal convened pursuant to the ICSID Convention is not a 'foreign or international tribunal' under Section 1782." In re Webuild S.P.A., No. 23-73, Dkt. 68 (2d Cir. Aug. 8, 2023). Taking a similar position in the Second Circuit as it had in its ZF Automotive amicus brief, the United States applied a multi-factor test, noting: (1) "an ad hoc arbitral tribunal convened pursuant to the ICSID Convention and a bilateral investment treaty is not a 'pre-existing governmental body'"; (2) "an ad hoc panel may be convened pursuant to the ICSID Convention to resolve an investor-state dispute pursuant to an investment treaty in which a Contracting State consents to jurisdiction by ICSID arbitral panel to resolve disputes between investors of another Contracting State and that Contracting State," but the treaty itself does not create the panel or imbue it with governmental authority; (3) "an ICSID arbitral tribunal '"functions independently" of and is not affiliated with'' either of the states that are parties to the relevant bilateral investment treaty"; (4) ICSID panels are funded by the parties to the dispute, not ICSID itself or the World Bank; (5) ICSID proceedings are confidential; and (6) "an ICSID 'panel derives its authority from the parties' consent to arbitrate," and many bilateral treaties also include courts on their lists of available dispute resolution options. Id. The United States also discussed enforcement and annulment procedures and asserted that ICSID proceedings were more akin to private commercial arbitration than public dispute resolution.

Oral argument in the Second Circuit Webuild case is tentatively scheduled for late November. It will be interesting to see how the Second Circuit chooses to approach the question—applying the six-part factual test of the Webuild court and the United States, focusing only on the sixth element of the test as the Alpene district judge did, or focusing on comity and reciprocity like the Alpene magistrate judge.

In addition to the developing ICSID jurisprudence, since ZF Automotive, three courts have considered its application to International Chamber of Commerce (ICC) arbitration. The Eastern District of Pennsylvania's decision permitting Section 1782 discovery in an ICC arbitration was overruled by ZF Automotive; nevertheless, the court "decline[d] to apply ZF Automotive retroactively in this case and f[ou]nd that, for the limited purposes of this application and consistent with our prior holding, the ICC Arbitration qualifies as a proceeding in a foreign tribunal." In re Iraq Telecom Ltd., No. MC 19-175, 2023 WL 2402873, at *5 (E.D. Pa. Mar. 8, 2023). The Northern District of California considered a constellation of related cases, including an ICC arbitration, and permitted Section 1782 discovery because "The civil and criminal proceedings in Brazil's court system clearly meet the requirements of a 'foreign or international tribunal' under § 1782(a)." In re Bureau Veritas, No. 5:22-MC-80132-EJD, 2022 WL 3563773, at *3 (N.D. Cal. Aug. 17, 2022). However, when similar facts arose in the Southern District of New York, and the party from which discovery was sought argued that "the present proceeding is a thinly-veiled effort to obtain 'financial asset discovery' for use in the ICC Arbitration, which is impermissible because '[p]rivate adjudicatory bodies' like the ICC 'do not fall within § 1782,'" the court permitted the discovery but limited its use to the Curaçao proceeding, thus preventing it from being used in the ICC arbitration. In re Credito, No. 22MC00273JGKBCM, 2023 WL 5016497, at *4 (S.D.N.Y. May 24, 2023).

Steptoe litigators have extensive experience both obtaining and opposing discovery pursuant to 28 U.S.C. § 1782 to support foreign proceedings. We can adapt to the changing law and help with these and other cross-border arbitration issues, including enforcing international arbitral awards as judgments in courts throughout the world.

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