A recent Second Circuit holding could lead to changes in the way parties approach international arbitration.
Completed construction on the Panama Canal.[1]
On July 19, 2024, the Second Circuit upheld a district court's decision, ruling that an Italian infrastructure company could not use 28 U.S.C. § 1782 to subpoena an American engineering firm for discovery in a private international arbitration.[2]The Second Circuit in Webuild v. S.P.A. v. WSP USA Inc.[3] is the first appellate court to address the applicability of Section 1782 to international arbitration tribunals following the Supreme Court’s decision in ZF Automotive US, Inc. v. Luxshare, Ltd.[4]
The case arose from the involvement of Webuild S.P.A. (Webuild) in a consortium, Grupos Unidos por el Canal S.A., which was engaged in a project to expand the Panama Canal.[5] Webuild initiated arbitration at the International Centre for the Settlement of Investment Disputes (ICSID) against the Republic of Panama.[6] Webuild alleged that Panama violated its obligations under a bilateral investment treaty between Italy and Panama by mishandling the expansion project of the Panama Canal.[7] The allegations specifically claimed that the Panama Canal Authority failed to provide the necessary and accurate information during the bidding process and imposed unfair financial demands on Webuild, forcing the company to cover additional costs for the project without reimbursement.[8]
Webuild sought to use Section 1782 to obtain discovery from WSP USA Inc., a U.S.-based engineering company, for use in the ICSID arbitration.[9] Section 1782 allows U.S. courts to order individuals or entities within their jurisdiction to provide evidence for use in legal proceedings before a “foreign or international tribunal.”[10] The district court initially granted Webuild's request, but this decision was vacated following the Supreme Court’s ruling in ZF Automotive.[11] The Supreme Court’s decision in ZF Automotive established that Section 1782 is limited to governmental or intergovernmental tribunals.[12]
On appeal, Webuild argued that ICSID arbitration tribunals should be considered “international tribunals” because of their connection to a multilateral treaty and the involvement of sovereign states.[13] However, the Second Circuit ultimately rejected this reasoning.[14] The court held that despite the involvement of sovereign states and the fact that a multilateral treaty governs ICSID arbitration, ICSID tribunals remain private arbitration bodies rather than governmental or intergovernmental entities.[15] The court emphasized that ICSID tribunals, while established by treaty, do not possess the level of governmental authority or oversight required for them to qualify as “foreign or international tribunals” under Section 1782.[16] In essence, the court drew a distinction between arbitrations involving states and truly governmental or intergovernmental bodies, reinforcing that ICSID panels, despite their unique nature, do not fall within the scope of Section 1782’s discovery provisions.[17]
While the Supreme Court in ZF Automotive left open the question of whether arbitration tribunals could qualify as a “foreign or international tribunal” under §1782, the Second Circuit swiftly dismissed the possibility.[18] The Second Circuit's reluctance to recognize ICSID tribunals as having the requisite governmental authority under Section 1782 suggests that courts may increasingly resist arguments that seek to expand the scope of Section 1782 to include private arbitration bodies, potentially limiting the avenues available for obtaining discovery in international investment disputes within the U.S. legal framework.[19] This result could influence how parties approach international arbitration, particularly regarding their strategies for gathering evidence.[20]
[1] Photograph of completed renovations of the Panama Canal, in Panama: The Record-Breaking ‘New’ Canal Turns Six Years Old, We Build Value (June 15, 2022), https://www.webuildvalue.com/en/reportage/new-panama-canal-records.html.
[2] Webuild S.P.A. v. WSP USA Inc., 108 F.4th 138, 140 (2d Cir. 2024).
[3] 108 F.4th 138 (2d Cir. 2024).
[4] 596 U.S. 619 (2022); see Jeffrey A. Rosenthal, Carmine D. Boccuzzi, Ari D. MacKinnon, Mark E. MacDonald & Boaz S. Morag, Second Circuit Holds Section 1782 Discovery Is Not Available in an ICSID Arbitration, Cleary Gottlieb (July 24, 2024), https://www.clearygottlieb.com/news-and-insights/publication-listing/second-circuit-holds-section-1782-discovery-is-not-available-in-an-icsid-arbitration.
[5] Webuild S.P.A., 108 F. 4th at 140.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] 28 U.S.C. § 1782 (2024).
[11] Webuild S.P.A., 108 F. 4th at 141.
[12] ZF Automotive US, Inc. v. Luxshare, Ltd., 596 U.S. 619, 621 (2022).
[13] Webuild S.P.A., 108 F. 4th at 143.
[14] Id. at 141, 143–44.
[15] Id. at 142.
[16] Id. at 143.
[17] Id. at 143–44.
[18] Id. at 140.
[19] Rosenthal, Boccuzzi, MacKinnon, MacDonald & Morag, supra note 4.
[20] Id.
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