Sometimes obscured in the conversation over whether Section 1782 of the U.S. Judiciary Law even applies to private international commercial arbitration is the question of whether such judicially-enabled discovery offends core values of international arbitration — intruding upon the arbitrators’ control over the proceedings, and tilting an initially level evidence-gathering playing field in favor of the party that benefits most from evidence located in the United States.
A successful ex parte Section 1782 application before a New Jersey U.S. District Court in November 2012 provides a useful point of entry to examine this question. (In re Mesa Power Group, LLC, 2012 WL 6060941 (D.N.J. Nov. 20, 2012). See also, in the same court regarding the same arbitration but a different non-party witness, In re Mesa Power Group, LLC, 2013 WL 1890222 (D.N.J. April 19, 2013). The latter opinion is too recent to have attracted published responsive comment from the Arbitral Tribunal). The order was made in relation to a nascent NAFTA Chapter 11 arbitration between a U.S. investor and the Government of Canada — the latter defending alleged NAFTA violations by the Province of Ontario. Whereas the pleadings, submissions, and procedural orders in the NAFTA are) publicly-available (e.g., www.italaw.com), we who enjoy these sporting events as spectators when not players or referees have rather choice seats from which to consider the 1782 case in its precise arbitral procedural context.
Claimant’s business is generating electric power from wind farms, and it maintained such facilities in Ontario. One of its competitors, a Samsung company, signed a major supply contract with Ontario, and as an element of the deal was granted transmission capacity on Ontario’s power grid. Ontario declined to buy electricity from Claimant, which then filed a Notice of Arbitration claiming inter alia breach of the duty to provide fair and equitable treatment. The damages are alleged to exceed $775 million USD.
Claimant obtained Section 1782 discovery orders from the New Jersey federal court on an ex parte basis, as Section 1782 allows. (In fairness to the federal judge involved and a balanced presentation, the decision was without prejudice to being revisited in the context of a motion to quash the subpoena). Neither Samsung nor Canada had notice of the application. And since no arbitral tribunal had been formed at the time of the application, there was initially no tribunal to notify. And it is inferrable from a recent procedural order in the arbitration that the Tribunal, after it was constituted in June 2012, did not learn of the application until some time after the Court entered its order granting relief in November.
The district court purported to apply faithfully the “discretionary factors” enumerated by the Supreme Court in the Intel case. And when it came to applying the factor of whether the arbitration process would be advanced by granting 1782 discovery, the Court’s position was that there was no evidence or argument before the Court that the discovery would not advance the arbitration. Of course, since the matter was before the Court ex parte, there was no representation in the proceedings for the view that perhaps the discovery would detract from the NAFTA arbitration proceedings more than it might enhance them.
One might suppose that the Government of Canada, had it had notice of the application, might have informed the Court:
(1) That proceeding ex parte was not justified as the documents sought from Samsung were mainly communications with Ontario that were in Ontario’s possession, and were not at risk for destruction or concealment.
(2) That production of documents exchanged between Samsung and Ontario should proceed under control of the Tribunal.
(3) That internal documents of Samsung, i.e. those not exchanged with Ontario, were sufficiently less likely to have probative value that the Tribunal’s views should be heard by the Court before granting the discovery.
(4) That the seat of the arbitration had not yet been determined, leaving two potentially important questions: Would the seat be in the U.S. such that the Tribunal might issue its own subpoena? And is a tribunal seated in the U.S. an “international tribunal” under Section 1782 notwithstanding, because constituted under authority of the NAFTA and the UNCITRAL Rules of Arbitration?
The views of this Tribunal in regard to the actual and potential use of Section 1782 might usefully be considered by U.S. courts in future cases, when they are asked to use a crystal ball to divine the attitude of an absent, silent, distant, and perhaps not-yet-constituted, arbitral tribunal:
1) Among the reasons expressed by the Tribunal in its February 26, 2013 Procedural Order in Mesa v. Canada for preferring a U.S. seat of arbitration was the power of a U.S.-seated Tribunal to subpoena evidence under FAA Section 7. While the Tribunal in this context did not directly address the relative merit of using Section 1782 to gather evidence for use in an arbitration seated outside the U.S., it is inferrable that the Tribunal considered that FAA Section 7 provides the Tribunal with more control over the gathering and use of evidence.
2) The Tribunal in opting for a seat in Miami rather than New York referred to Second Circuit case law that could be read to prohibit a New York-seated Tribunal from issuing enforceable subpoenas for witnesses beyond the subpoena power of a federal district court in New York. (Dynegy Midstream Services v. Trammochem, 451 F.3d 89 (2d Cir. 2006)). The Eleventh Circuit having as yet not imposed such a territorial limitation nor excluded the possibility that a Tribunal’s FAA subpoena power is a function of its physical not its juridical seat, Miami (amidst its other attractions) held out the greater possibility for the Tribunal to subpoena evidence from sources in Texas and California.
3) While rejecting Canada’s request for wholesale exclusion of documents gathered through the Section 1782 applications by Claimant, the Tribunal did direct that “further efforts by the Claimant to obtain evidence on Section 1782 be pursued exclusively under the supervision of the Tribunal,” and, specifically, ordered periodic reporting on the status of ongoing 1782 proceedings and that the parties obtain authorization in advance from the Tribunal for any new 1782 application.
Imagine also how a federal district judge might react, when challenged to anticipate the views of the Tribunal, if she were told that in the Caratube v Kazakhstan case (Procedural Order No. 3, May 26, 2010, found at www.italaw.com ) the Tribunal had remarked that “the Tribunal might have been minded to find that its prior consent should have been sought by Claimant before the presentation of it Section 1782 petition,” and that “the existence of such a petition to domestic courts cannot interfere with the Tribunal’s maintenance of its authority over the arbitral procedure…” Judges in future cases might well respond as did the U.S. District Court judge in Washington D.C. who denied Caratube’s Section 1782 petition a few months later (opinion also found at www.italaw.com), finding among other things that granting the petition in an ICSID arbitration, a process selected by Claimant as one of the dispute resolution options under the U.S.-Kazakhstan BIT, would undermine the parties’ bargained-for expectations about the Tribunal’s involvement in evidence-gathering. And the Court also cited Rule 3.8 of the IBA Rules of Evidence, which Rules Claimant itself had proposed that the Tribunal adopt as guidelines in the proceedings, and which Rule 3.8 specifically directs that third-party evidence Ggathering is a matter for the Tribunal to decide and to implement.
Given the evident differences in outcome and judicial attitude between the ruling on an ex parte application in Mesa v. Canada, and the better-informed position of the Court in Caratube v. Kazakhstan, it is predictable that more Claimants seeking the benefits of Section 1782 will try to do so ex parte whenever possible and also as early in the arbitration process as possible including before any proceedings are filed. The organized arbitration bar might make a constructive contribution by developing a checklist of questions which U.S. District Court judges might pose to applicants:
• What extreme circumstances justify ex parte relief?
• Has the Request for Arbitration been filed?
• Has the Tribunal been constituted?
• Have the parties agreed that the Tribunal shall refer, for guidance, to the IBA Rules of Evidence?
• Has a procedural timetable been fixed?
• Has the seat of arbitration been selected, and if not, does it remain possible that a U.S. seat will be selected?
• Is the information sought mainly not available from the parties to the arbitration, and as to such information what is its probative value?
• Have members of the Tribunal and especially the presiding arbitrator issued prior decisions or written commentaries on the relative roles of arbitral tribunals and domestic courts in the evidence-gathering process?
• Has the administering institution agreed upon by the parties, if any, adopted a position concerning Section 1782 applications?
Armed with such questions, federal judges stand to be better equipped to make the discretionary analysis called for by the Supreme Court in Intel, and to exercise such discretion with an informed sensitivity to many aspects of the arbitral process that the Claimant in pursuit of evidence would not necessarily illuminate.