This article has been written by Swathi H. Prasad pursuing the Certificate Course in International Commercial Arbitration and Mediation from LawSikho. This article has been edited by Zigishu Singh (Associate, Lawsikho) and Smriti Katiyar (Associate, Lawsikho).
The hierarchy of the courts in the federal system of the United States of America consists of three levels;
(i) the lowest courts being District Courts are Trial Courts;
(ii) the first appellate courts being Circuit Courts;
(iii) the highest court of appeal being the Supreme Court of the United States.
While there are 94 District Courts in the 50 states of the United States having original jurisdiction in most of the matters, there are 12 courts of first appeals/circuit courts.
These Circuit Courts have passed important yet conflicting decisions regarding the interpretation of Chapter 28 § 1782(a) of the United States Code. Some of the Circuit Courts have held that the discovery in aid of international arbitration applies to only state-sponsored foreign arbitrations while others have held that it can also apply to private foreign commercial arbitration.
The 6th Circuit Court in Abdul Latif Jameel Transp. Co. v. Fedex Corp. 939 F. 3 d at 714 has held that a private foreign arbitral tribunal is a foreign or international tribunal under § 1782(a). The 4th Circuit in Servotronics, Inc. v. Boeing Co. 954 F.3d at 212 has also held on the same lines.
Whereas, the 2nd Circuit Court nearly 20 years ago in Natl. Broadcasting Co. v. Bear Stearns Co. 165 F. 3 d at 188 had held that the private foreign arbitral tribunal is a foreign or international tribunal under § 1782(a). This was recently reaffirmed by the Court in (In re Guo, 965 F.3d 96, 104 (2d Cir. 2020). A similar finding was made by the 5th Circuit in Republic of Kazakhstan v. Biedermann 168 F.3d at 88. The 7th Circuit Court in the instant case of Servotronics Inc. v. Rolls-Royce PLC has also held that § 1782(a) authorizes district courts to assist only state-sponsored foreign tribunals.
Meaning of discovery procedures in private international arbitrations
Private international arbitration is an arbitration conducted by a non-State sponsored arbitral tribunal. Just like the arbitral proceedings, the discovery procedure in any international arbitration is primarily based on the terms agreed to by the parties. In cases where the parties have agreed for institutional arbitration, the Rules of the particular institution will apply to the arbitration process- appointment of arbitrators, number of arbitrators, evidence including discovery procedure etc.
In cases where the parties have agreed to settle their dispute through an ad-hoc arbitral tribunal, the parties may mutually agree on the terms of how the evidence will be given by them, including the discovery procedure. In certain other instances, the parties may agree to a particular State’s arbitration law or any arbitral institution’s rules to govern the rules of evidence. In the captioned case, the parties had agreed to an arbitration governed by the CIArb (Chartered Institute of Arbitration) Rules of arbitration. Rule 18 of the CIArb Arbitration Rules permit “possible adoption of any rules, guidelines or protocols dealing with the taking of evidence in international arbitration.”
The discovery procedures agreed to by the parties may provide for documentary discovery, expert discovery and deposition discovery. If the arbitration agreement sets out how the discovery of evidence is to be made by them, they have to be given effect first.
Laws and provisions attracting the topic
Chapter 28 of the US Code in §§ 1781 and 1782 give power to the District Courts to provide discovery assistance to foreign litigations and arbitrations. § 1781 deals with ‘letters rogatory’ that a court issues to a foreign court for assistance in litigation. For instance, the letter rogatory for assistance may be issued by Indian courts to district courts in the USA. The courts do not send these on their own but they are served through the diplomatic channels.
§ 1782 is a supplementary provision to § 1781. The Servotronics case had made use of the finding of the Supreme Court of USA in the case of Intel Corp. vs. Advanced Micro Devices, Inc. that an interested party can apply under § 1782(a) as there was no letter rogatory or a request from a foreign or international tribunal. § 1782(a) of the U.S. Code provides assistance to foreign and international tribunals and litigants before those tribunals by procuring testimonial and documentary evidence needed in the foreign arbitral proceedings through the federal district courts in the USA.
The key portion of the § 1782 is extracted as hereunder:
(a) “The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation.”
Facts of the case
During testing, a Boeing 787 Dreamliner aircraft was damaged by catching fire. The fire was caused by a piece of metal that got caught in the engine valve. The Boeing Company (“Boeing”) aggrieved by the incident, compensation as damages from Rolls-Royce PLC (“Rolls-Royce”) for manufacturing the defective engine. The matter was settled between Rolls-Royce and Boeing for 12 million USD.
Rolls-Royce brought an action against the manufacturer of the valve, Servotronics, Inc. (“Servotronics”) for indemnification for the compensation amount paid by it to Boeing. The matter was initially negotiated between the parties as per their agreement.
Servotronics contended that there was a lapse on the part of the testing personnel in Boeing who failed to follow their safety procedures in response to “warning signs of fuel flow issues that would have averted the fire”. As the negotiation between Rolls-Royce and Servotronics failed, the matter was submitted to a binding arbitration proceeding initiated under the Rules of Chartered Institute of Arbitrators at Birmingham, England. During the arbitration, Servotronics applied for a subpoena to compel Boeing to produce certain documents in their custody for use in the arbitration proceeding. The application was filed under Chapter 28 U.S.C. §1782(a) before the U.S. District Court for the Northern District of Illinois.
The District Court initially granted the prayer in the ex-parte application and issued a subpoena in favour of Servotronics demanding Boeing to produce documents for use in the arbitration proceeding happening in England. Against the same, Rolls-Royce made a motion to quash the subpoena which was later on joined in by Boeing. They contended that Chapter 28 § 1782(a) of the U.S. Code authorizes the court to assist in only a foreign state-sponsored arbitral tribunal and not to a “private foreign commercial arbitration”. The District Court subsequently agreed with the contentions of Rolls-Royce and Boeing and quashed the subpoena granted to Servotronics.
Aggrieved by the same, Servotronics appealed before the United States Court of Appeals for the 7th Circuit.
The interpretation of Chapter 28, § 1782(a) of the U.S. Code was the question of the law involved in this case.
The specific issue that was raised by Servotronics before the United States Court of Appeals for the 7th Circuit is that:
“Whether the discretion granted to district courts in 28 U.S.C. §1782(a) to render assistance in gathering evidence for use in ‘a foreign or international tribunal’ encompasses private commercial arbitral tribunals, as the Fourth and Sixth Circuits have held, or excludes such tribunals without expressing an exclusionary intent, as the Second, Fifth, and, in the case below, the Seventh Circuit, have held.”
The United States Court of Appeals for the 7th Circuit affirmed the order of the District Court with a well-reasoned judgment. The findings of the court and its reasoning are summarized hereunder:
i. The Court held that the dictionary meanings of the word ‘tribunal’ and ‘foreign/international’ are inconclusive and the same cannot be used as it is while interpreting the § 1782;
ii. The § 1782 of the US Code was enacted in 1964 on the recommendations of the Commission on International Rules on Judicial Procedure. The Commission was formed in the year 1958 under the Act of Sept. 2, 1958, Pub. L. No. 85-90, § 2, 72 Stat. 1743, 1743. By looking at the duties which the Commission was entrusted with, it can be seen that the Commission was not authorised to study the statutory charge of studying and recommending improvements in judicial assistance that needs to be given to private foreign arbitration. Whereas, it is interesting to note that the Commission was entrusted with the task to study and recommend improvements in the then existing practices of judicial assistance and cooperation between Courts in the USA and Courts in foreign States and quasi-judicial agencies.
iii. The Court relied on Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 86 (2006) for holding that any identical words or phrases used in different parts of the same statute (or related statutes) are presumed to have the same meaning. The word “tribunal” is used in §§§ 1696, 1781 and 1782. The Court observed that the Service-of-process assistance and letters rogatory governed by §§ 1696 and 1781 are matters of comity between governments, which can only suggest that the phrase “tribunal” means a “foreign or international tribunal”. A foreign or international tribunal as per the statutory scheme can only mean a state-sponsored tribunal and not a private arbitration tribunal. The phrase “tribunal” used in § 1782(a) is also to be harmoniously construed and understood to mean that it means and includes only state-sponsored tribunals.
iv. The Court further held that when the provisions of a statute are susceptible to two interpretations, one that creates a conflict with another statute and another that avoids it, the latter is to be employed as far as possible and reasonable. (The Court relied on Precision Indus., Inc. v. Qualitech SteelSBQ, LLC, 327 F. 3d 537, 544 (7th Cir. 2003). The Court applied this well-established principle to the relationship between the Federal Arbitration Act (FAA) and § 1782 of the US Code. The word “Tribunal” has limited meaning according to the FAA and the power exercised by the Court is also minimal. The Court held that a narrower understanding of the word “tribunal” avoids a serious conflict with the provisions of Federal Arbitration Act (“FAA”) and § 1782
v. Intel Corp. vs. Advanced Micro Devices, Inc. (02-572) 542 U.S. 241 (2004) was the first and to date the only occasion before the Supreme Court of the United States to address the interpretation of § 1782(a). The Supreme Court had, in this case, held that the statute may be invoked by an “interested person” and not just the tribunal. It further held that the Section can be invoked even when the foreign proceeding is not pending or imminent but only “within reasonable contemplation”. The Court further clarified that § 1782(a) does not contain an implicit foreign-discoverability requirement. Finally, the Court held that a proceeding before the Directorate General for Competition of the Commission of the European Communities is a “proceeding in a foreign or international tribunal” as it is a public agency with quasi-judicial authority. The Supreme Court in the instant case did not have the opportunity to decide whether the pertinent section applies to private international arbitrations as well.
With the increase in the volume of international trade/commercial dealings, there is an exponential increase in international disputes. Being so, the dispute resolution mechanism to settle them has also seen a paradigm shift from foreign seated litigations to foreign seated arbitrations. It is not uncommon for parties to settle such disputes through private international arbitral tribunal taking into consideration its flexibility and cost-effectiveness. For instance, in the instant case, the parties had initiated arbitration under the CIArb Rules which allows any rules of evidence to be adopted by the parties as per their convenience. In the opinion of this writer, the Courts should start reading into the provisions contained in § 1782 and it is quite immaterial whether the foreign seated arbitration was conducted by a state-sponsored body or not. It is the parties’ interest and agreement that need to be given effect to.
The decision of Servotronics Inc. Vs. Rolls Royce PLC appealed before the Supreme Court of the United States and was scheduled for arguments on October 5, 2021, for putting to rest the split between the Circuit Courts once and for all. But the matter was requested to be dismissed by the parties under Rule 46.1 of the Rules of the Supreme Court of the United States in September 2021. The appeal, if pursued, would have been a golden opportunity to settle the current split between the Circuit Courts on the interpretation of § 1782 once and for all.
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