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The Growing Divide: Section 1782 and Arbitration in Light of Webuild S.p.A. v. WSP USA Inc.
The Growing Divide: Section 1782 and Arbitration in Light of Webuild S.p.A. v. WSP USA Inc.
Introduction:
The recent ruling by the Second Circuit in Webuild S.p.A. v. WSP USA Inc. has further widened the chasm between Section 1782 and arbitration. The decision declared that an International Centre for Settlement of Investment Disputes (ICSID) tribunal does not qualify as a “foreign or international tribunal” under Section 1782, thereby restricting litigants in foreign arbitration proceedings from accessing U.S. discovery. This ruling, in light of the Supreme Court's decision in ZF Automotive US, Inc. v. Luxshare, Ltd., underscores the complexities and limitations surrounding Section 1782 in the context of international arbitration.
Background:
Webuild S.p.A., an investor in the Panama Canal expansion project, initiated an ICSID arbitration against the Republic of Panama in 2020, citing breaches under the Italy-Panama BIT. In May 2022, Webuild sought Section 1782 discovery from WSP USA Inc., which had acquired relevant information during the project. The district court initially granted this request, but the Supreme Court’s ZF Automotive decision, issued shortly thereafter, introduced a significant challenge. ZF Automotive clarified that Section 1782 applies to tribunals with governmental authority. It ruled that certain arbitral tribunals, including those under UNCITRAL, did not meet this criterion. Following this, WSP moved to vacate the district court’s order, leading to the Second Circuit’s eventual denial of Section 1782 discovery in the Webuild case.
The Second Circuit’s Decision:
On appeal, Webuild argued that ICSID tribunals are inherently “international tribunals” due to their establishment under the ICSID Convention, which regulates various aspects of their operation. However, the Second Circuit rejected this argument, noting that ICSID tribunals, like the UNCITRAL panels discussed in ZF Automotive, lack governmental authority. The court emphasized key factors: ICSID tribunals are funded by the disputing parties, not by any government; arbitrators are chosen by the parties, not appointed by a state entity; and the tribunal’s authority stems from the parties’ consent, not governmental or intergovernmental authorization. Consequently, the Second Circuit affirmed the district court’s decision to deny Section 1782 discovery.
Implications of the Decision:
The Second Circuit’s ruling in Webuild S.p.A. reinforces the stringent criteria established in ZF Automotive for determining a tribunal’s eligibility under Section 1782. It highlights several critical considerations:
- Funding: The tribunal’s funding source is pivotal. Tribunals financed by the parties, rather than a government or intergovernmental entity, are unlikely to qualify.
- Appointment of Arbitrators: The method of arbitrator appointment plays a significant role. Arbitrators appointed by the parties, as opposed to a state or governmental body, diminish the tribunal’s governmental character.
- Governmental Authority: The intent to imbue a tribunal with governmental authority must be evident. Merely having structured procedures, like post-award annulment mechanisms, is insufficient.
Despite this, the decision leaves an opening for litigants. If discovery is lawfully obtained under Section 1782 for a qualifying proceeding, it can potentially be used in other contexts, including arbitrations, unless restricted by court order. This nuanced approach means that while direct Section 1782 discovery for arbitration remains challenging, strategic litigants may still navigate these waters under specific circumstances.
Conclusion:
The Second Circuit’s decision in Webuild S.p.A. v. WSP USA Inc. delineates the boundaries of Section 1782’s applicability in arbitration contexts. By reinforcing the Supreme Court’s ZF Automotive precedent, it clarifies the high threshold for tribunals to be deemed as imbued with governmental authority. Litigants must now carefully evaluate their strategies for seeking discovery in international arbitration, understanding the significant hurdles that remain while also recognizing potential avenues for utilizing lawfully obtained evidence.
- The Second Circuit’s ruling in Webuild S.p.A. reinforces the stringent criteria established in ZF Automotive for determining a tribunal’s eligibility under Section 1782.
- Tribunals financed by the parties, rather than a government or intergovernmental entity, are unlikely to qualify.
- The Second Circuit’s decision in Webuild S.p.A. v. WSP USA Inc. delineates the boundaries of Section 1782’s applicability in arbitration contexts.
