Lawrence W. Newman and David Zaslowsky

It is through arbitration that a great many of the world's major commercial disputes are heard. Businesses want to avoid courts that they may perceive as being corrupt, biased or slow and they like having the opportunity to choose at least one of their arbitrators—and many like having their proceedings kept confidential. In eschewing national courts, international arbitration runs counter to the current political environment of nationalism in favor of a more international process. Recent case developments concerning how international commercial arbitration is conducted permit one to perceive greater openness by courts both in the United States and elsewhere in the world to accepting procedural measures involving arbitration that are not confined to national borders and practices.

A recent case in England, A & B v. C, D & E, [2020] EWCA Civ. 409, has, for the first time, made available discovery in England from third parties upon the request of arbitrators in a proceeding in another country. In that case, decided on March 19, 2020, the Court of Appeal overruled a lower court's denial of an application for testimony to be taken of a witness in England for use in an arbitration in New York that involved a dispute as to whether certain payments made by two of the parties to a joint venture (Parties C and D in the English appeal) were properly deductible as legitimate expenses for purposes of determining profit-sharing, or whether they were non-deductible bribes. The person with knowledge of the circumstances of the payments was an individual referred to in the appeal as Party E, who had negotiated the payments with one G, who was acting on behalf of an Asian government and who was thereafter indicted in the United States for violation of the Foreign Corrupt Practices Act.

Party E, resident in the UK, was not willing to go personally to New York to testify in the arbitration and the tribunal gave A and B permission to apply to an English court to compel his testimony in a deposition. The tribunal, according to the Court of Appeal's decision, held open the evidentiary portion of the arbitration until after the Court of Appeal ruled.

Parties C and D opposed the application primarily on the basis that, according to holdings in several lower court (High Court) cases, the applicable provision of the 1996 Arbitration Act, §44 (2)(a), does not provide for testimony to be taken of persons who are not parties to the arbitration. The High Court judge agreed and denied the application, relying primarily on the reasoning in a case decided a few years earlier by one of the judges on the appeal, Lord Justice Males, when he was a High Court judge.

The Court of Appeal decided unanimously to allow the appeal and grant the order for the deposition. Lord Justice Males, in his Court of Appeal judgement, discussed his prior decision in Cruz City 1 Mauritius Holdings v. Unitech Ltd [2014] EWHC3704, explaining that, unlike the present case, that case involved enforcement of an arbitration award and not the testimony of witnesses. Although he acknowledged that an obiter dictum observation he made in that case may have been later interpreted in other High Court cases as being applicable in non-injunction contexts, he stated that the Court of Appeal was ruling "on the basis that section 44 (2) (a) does apply to taking the evidence of a witness who is not a party to the arbitration … ." Lord Justice Males focused on the language of the provision, concluding, "Thus on the plain language of the section, if the court is to have the same powers of making orders about the taking of the witness's evidence for the purpose of an arbitration as it would have for the purpose of High Court proceedings, that must include the power to order a deposition. [par. 62]" He added that the appellate court's interpretation of the paragraph "involves no strain upon its language. Rather, as I have sought to show, this is its natural meaning. [par. 72]."

Around the same time as the Court of Appeal was reviewing the High Court decision, a near-mirror image of that proceeding—indeed, one that also dealt with the clarity of language—was before an appellate court in the United States. In Servotronics v. Boeing Co., No. 18-2454, (4th Cir. March 30, 2020), the U.S. Court of Appeals for the Fourth Circuit reviewed a decision of the federal district court in South Carolina regarding an evidentiary request from a party to a private arbitration in the United Kingdom. The district court had denied the request, which sought the taking of testimony of certain individuals residing in South Carolina for use in the UK proceeding. The request was made on the basis of the authority granted to the district court in 28 U.S.C. §1782 to provide assistance to an interested person in the form of the production of evidence for use in a proceeding in a "foreign or international tribunal."

Servotronics had supplied a valve that was installed in a jet engine supplied by Rolls Royce to Boeing that had caught fire while being tested in a Boeing plant in South Carolina. Rolls Royce settled with Boeing and then sought indemnification from Servotronics in an arbitration seated in Birmingham, England that was to be conducted under the rules of the Chartered Institute of Arbitrators. Servotronics applied ex parte in the district court for an order permitting it to take the testimony of three Boeing present and former employees who resided in South Carolina.

The district court denied the application, relying on two cases decided in 1999 by the Second (National Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999)) and Fifth (Republic of Kazakhstan v. Biedermann ,Int'l, 168 F.3d 880 (5th Cir 1999)) Circuits in both of which those courts held that private arbitral bodies are not "tribunals" under §1782 because they found the term "tribunal" to be ambiguous and because production of evidence under §1782 would conflict with what is permitted in domestic arbitration pursuant to §7 of the Federal Arbitration Act. Boeing and Rolls Royce, permitted to intervene in opposition to Servotronics' application, relied on those cases and argued that "tribunal" should be interpreted to mean "government conferred authority," as opposed to arbitration, which they said is a private proceeding based on "the parties' agreement" and therefore not a tribunal covered by §1782.

In its decision, the Fourth Circuit referred to the governmental authority given to arbitral proceedings by the Federal Arbitration Act in the United States and to arbitrations in England under the Arbitration Act of 1996. The court also noted that Prof. Hans Smit, of the Congressionally established Commission on International Rules of Judicial Procedure, stated in a law review article quoted by the Supreme Court in its seminal decision in Intel v. Advanced Micro Devices, 542 U.S. (2004), that the term "tribunal" was meant to refer to arbitration tribunals.

The Fourth Circuit also dealt with the concern expressed by the parties opposing the application that permitting, among other things, "interested persons" to obtain evidence through the district courts would create the anomalous situation in which federal courts could provide greater assistance to foreign arbitral proceedings than to domestic arbitrations. In response, the appellate court observed that any expansion by §1782 of the geographical scope was the result of Congress' purposeful decision "as a matter of public policy, adding, 'If such a geographical extension were inappropriate, then Congress would not have enacted §1782 at all. But it did—and for good reason —and the parties are bound by it.'"

The fundamental issues underlying both the Fourth Circuit decision and the decision of the English Court of Appeal were essentially the same—whether or not critical language was ambiguous so as to permit interpretative recourse to be had to other sources of meaning. Both courts came out on the side of taking the terms in question on the basis of their plain meaning. The important result from the English case has been the establishment of an analog to §1782, which is acknowledged to have as one its purposes the encouragement of other nations to take similar steps to permit persons to obtain evidence for use in cases outside their borders, just as the Court of Appeal has done in the A & B case.

Unfortunately, although the scope of §1782 was clarified in many respects by the Supreme Court in its 2004 decision in Intel, that decision did not directly deal with the issue of the statute's applicability to international commercial arbitration and its language continues to be looked to for support for contentions as to the meaning of "tribunal." District court cases over the past two decades have produced disparate interpretations of §1782 with respect to its application to foreign arbitration proceedings, generally following or rejecting the reasoning of the aforementioned Second Circuit (NBC) and Fifth Circuit (Biedermann) cases, while seeking clues in the Intel opinion.

As the circuit court level, the Servotronics decision came down a few months after a decision, on Sept. 19, 2019, by the Sixth Circuit Court of Appeals in Abdul Latif Jameel Transportation Co. v. Fedex, 939 F.3d at 726 (6th Cir. 2019), which also found the term "tribunal" to be unambiguous and to include in its meaning international commercial arbitration. The Second and Fifth Circuit decisions, NBC and Biedermann, were about 20 years ago and five years before the Supreme Court's seminal decision in Intel. The Fifth Circuit expressly affirmed that Biedermann remains good law post-Intel. See El Paso v. La Comision Ejecutiva Hidroelectrica Del Rio Lempa, 341 Fed. Appx. 31, 33-34 (5th Cir. 2009). The Second Circuit has not yet addressed the issue post-Intel.

District courts now have four circuit court decisions to look at. And, as of this writing, there are cases before the Third, Seventh (Servotronics v. Rolls-Royce PLC, No. 19-1847) and Ninth Circuits (HRC-Hainan Holding Co. v. Hu, No. 20-15371) in which the courts are being asked to decide whether private, international arbitral tribunals come within §1782.

The court split in the United States can be traced to the dictum in the Supreme Court's decision in Intel. The issue will likely wind up there again. Indeed, that day might be sooner than later, as the appellants in Servotronics have already informed the Fourth Circuit that they intend to file a petition for a writ of certiorari with the Supreme Court before a June 28 deadline.

Lawrence W. Newman is of counsel and David Zaslowsky is a partner in the New York office of Baker McKenzie. They can be reached at [email protected] and [email protected], respectively.