District Court denies request for judicial assistance with discovery for foreign arbitral proceeding

Abby Cohen Smutny (Partner) and Lee A. Steven (Counsel), Leah Witters (Associate), White & Case LLP

The United States District Court for the District of South Carolina has decided to not exercise its discretion to require a party to produce documents and participate in a deposition for a foreign arbitral proceeding where the parties produced no "authoritative proof" that the tribunal would be receptive of US judicial assistance.

In In re Finserve Group Ltd, No. 4:11-mc-2044-RBH, 2011 WL 5024264 (D.S.C. Oct. 20, 2011), Finserve, an investment company incorporated in the British Virgin Islands and managed by a Russian resident, entered into a loan agreement with Anri Petrosyan, a resident of South Carolina. The agreement included an arbitration clause requiring all disputes to be resolved in the London Court of International Arbitration ( www.practicallaw.com/0-205-6434) (LCIA). After Petrosyan allegedly defaulted on the loans, Finserve filed an application in court seeking documents from and a deposition of Petrosyan. The application stated that Finserve would apply to the LCIA to begin arbitration, but it was not clear whether that happened.

US courts can require production of documents or testimony to a foreign or international tribunal proceeding under 28 U.S.C § 1782. Case law interpreting the statute provides three requirements that must be met before discovery can be compelled:

  • The person from whom discovery is sought must reside in the district.

  • The request must be made by a foreign tribunal or an "interested person".

  • The evidence is to be used in a "foreign or international tribunal".

The only issue here was whether the LCIA is a foreign or international tribunal under the statute. The court noted that US courts have differed on whether private international commercial arbitral tribunals fall under the statute. The court had "very serious concerns" with finding that a private arbitration organisation was a foreign tribunal because of the lack of availability of judicial review. In this case, the LCIA rules provide that the arbitral tribunal's decision is administrative, and parties generally waive appeal to a judicial authority.

The court assumed, but did not decide, that the requirements of 28 U.S.C § 1782 were met before turning to the discretionary factors that courts must consider before granting an application. Courts must consider:

  • Whether the person from whom discovery is sought is a participant in the foreign proceeding.

  • The nature of the foreign tribunal, the character of the proceedings underway abroad and the receptivity of the foreign government or the court or agency abroad to US federal-court judicial assistance.

  • Whether the request "conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States".

  • Whether the discovery requests should be scaled back to avoid an undue burden.

The court found that the parties had not presented anything to show that the tribunal would be receptive of US court assistance and so it denied the application for discovery, based on its discretion.

This case is an example of the analysis courts use and arguments they rely on when trying to determine not only what tribunals fall within the scope of 28 U.S.C § 1782, but also whether they should exercise their discretion to grant an application.

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