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The long reach of US discovery: Commercial Court allows enforcement of 28 USC §1782 discovery order

In recent years, US federal procedural law has emerged as a powerful weapon in cross-border disputes. In particular, section 1782 of Title 28 of the United States Code (28 USC §1782) allows district courts in the US to order the discovery of evidence for use in foreign and international proceedings – including, according to several courts, foreign-seated arbitrations.

The recent Commercial Court decision in Dreymoor Fertilisers Overseas Pte Ltd v EuroChem Trading GmbH [2018] EWHC 2267 (Comm) is a useful example of how the English courts will exercise their supervisory authority where proceedings under section 1782 may threaten to interfere with a London-seated arbitration. In particular, it reaffirms that the courts will only restrain a foreign discovery procedure where it would lead to “unconscionable” interference with the local proceedings.

Section 1782 and its use in international arbitration

Section 1782(a) provides, in relevant part, that a US district court may order any person within its jurisdiction “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…” Case law has historically been divided on whether arbitral tribunals fall within the meaning of a “foreign or international tribunal” or whether the section is limited in its scope to public law courts and tribunals. However, since the US Supreme Court held in Intel Corp v Advanced Micro Devices Inc., 542 US 241 (2004) that section 1782 encompassed “quasi-judicial bodies“, there has been a growing trend towards including arbitral panels within an expansive interpretation of “tribunal”.

In multiple decisions, therefore, US courts have granted requests for pre-hearing discovery in respect of investment and commercial arbitrations seated abroad. Section 1782 has particularly proven its value in relation to third parties over whom the tribunal has no jurisdiction, but who are nevertheless susceptible to orders from a national court. Thus directors, (ex-)employees and advisers of the parties may all be the subject of a section 1782 order to produce documentary evidence or to present themselves for depositions or testimony. Compared to other legal systems – for example, sections 43 and 44 of the English Arbitration Act 1996, under which the tribunal’s consent is normally necessary before seeking judicial assistance – US law thus offers a more liberal procedure for obtaining discovery, which parties are increasingly using in arbitration.

The decision in Dreymoor v EuroChem

The interaction between US court proceedings under section 1782 and parallel arbitration proceedings in London was at the centre of the recent judgment in Dreymoor Fertilisers Overseas Pte Ltd v EuroChem Trading GmbH.

EuroChem, one of the largest fertiliser producers in the world, had entered into a series of distribution contracts with Dreymoor, a trading company headquartered in Singapore. EuroChem subsequently alleged that Dreymoor had procured these contracts by paying bribes to two of EuroChem’s former executives and filed two arbitrations in London seeking to set the contracts aside. In relation with another group of distribution contracts, EuroChem also sued Dreymoor before the courts of the British Virgin Islands (BVI). Finally, EuroChem commenced court proceedings in Cyprus (to which Dreymoor was not a party) seeking to recover the bribes which had allegedly been paid to one of its former senior employees.

EuroChem applied to the District Court for the Middle District of Tennessee seeking disclosure under section 1782 in support of these various proceedings. Its target was Mr Sandeep Chauhan, the former director of Dreymoor, whom it sought to depose and compel to produce various documents relevant to the alleged bribery. While the district court left open the question of whether section 1782 could be applied in support of the London-seated arbitrations, there was no doubt that the BVI and Cypriot court proceedings fell within its scope. The order was granted and later upheld on review.

Dreymoor subsequently applied before the English courts for an injunction restraining EuroChem from enforcing the section 1782 order. It argued that enforcement of the order would interfere with its preparation of the upcoming arbitrations in London and that it would be unfair for EuroChem to have two occasions to cross-examine Mr Chauhan, first on deposition and then at the arbitral hearing. Bryan J granted an interim injunction pending a full hearing.

In a judgment of 24 August 2018, however, Males J sitting in the Commercial Court discharged the injunction. Reviewing the case law, it was clear that the courts had a power to restrain “unconscionable” conduct and that, in principle, pursuing a section 1782 order could amount to an unconscionable interference with the fair disposal of proceedings in England. However, on the facts of the case, the threshold of unconscionability was not met, based on several factors:

  • Significantly, the district court had granted the order to obtain evidence for use in the BVI and Cypriot proceedings. While the English courts had an interest in protecting the integrity of their own proceedings and English-seated arbitrations, it was not their role to police the conduct of foreign litigations. Moreover, it could not be said that the London arbitrations were the “lead proceedings”.
  • Given that the US courts had repeatedly dismissed Dreymoor’s objections and held that non-disclosure had already prejudiced EuroChem, it would be a “serious breach of comity” to overrule their conclusions.
  • While the section 1782 order may have an effect on Dreymoor’s preparation for the arbitral hearings, this was “entirely a problem of Dreymoor’s own making” given its successful efforts to delay the enforcement of the order by over a year.
  • Although in previous cases the court had been concerned that pre-trial depositions would allow one party two bites at the cherry to cross-examine a witness, this was less of a concern in the instant case. Due to the existence of multiple proceedings in different jurisdictions, it was likely that all parties’ witnesses would be examined more than once.

As such, EuroChem should be permitted to enforce the section 1782 order against Mr Chauhan. It was, however, left to the tribunals to decide whether the evidence so obtained from Mr Chauhan should be admissible in the London arbitrations.

Commentary

The Commercial Court’s decision confirms that the “unconscionability” test outlined by the House of Lords in South Carolina Insurance Co v Assurantie Maatschappij ‘De Zeven Provincien’ NV [1987] 1 AC 24 is a relatively high threshold. The judgment can be contrasted with previous decisions in which courts issued anti-suit injunctions against section 1782 applications – notably, Omega Group Holding Ltd v Kozeny [2002] CLC 132 and Benfield Holdings Ltd v Richardson [2007] EWHC 171 (QB) – on the grounds that US discovery would interfere with the due process of court proceedings in England. One of the key differences in Dreymoor was that Mr Chauhan’s evidence was primarily sought for use in the BVI and Cyprus, suggesting that the courts are unlikely to restrain discovery where the requested evidence is intended for use outside England.

Moreover, on the facts of the case, the court was evidently unimpressed that Dreymoor had fought tooth and nail to avoid its former director giving evidence, and took comfort from the fact that the US courts had considered and rejected its objections on multiple occasions. It is notable that although Dreymoor alleged that US discovery would disrupt the arbitrations, it had also failed to inform the London tribunals of its move to restrain the section 1782 order. While the tribunal’s consent is not strictly necessary for the English courts to grant such an anti-suit or anti-enforcement injunction, the arbitrators’ opinions are likely to carry significant weight in light of their role as procedural gatekeepers. A party in Dreymoor’s position would therefore be well advised to normally consult the arbitral tribunal before making any application to the courts.

Although the court declined to exercise its power in this case, the judgment nevertheless confirms the possibility that, in appropriate cases, the English courts may restrain the use of US discovery procedures in support of London-seated arbitrations. Indeed, it appears that the scope of application of section 1782 continues to grow, with it being increasingly used to obtain e-documents hosted in or accessible from the US. Given the growing popularity of section 1782, therefore, this is unlikely to be the last time that the courts face this issue.