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18 September 2018
Section 28 applications to US federal district courts made under Section 1782 of Title 28 of the US Code (Assistance to foreign and international tribunals and to litigants before such tribunals) can allow a litigant to obtain evidence from the United States for use in non-US proceedings.
However, if the use of the Section 1782 procedure would be 'unconscionable', injunctions can be granted by the English High Court restraining the enforcement of Section 1782 orders. The recent decision in Dreymoor Fertilisers Overseas PTE Ltd v Eurochem Trading GmbH ( EWHC 2267 (Comm)) provides a useful overview of the applicable case law on this point and confirms that the question of whether the use of a Section 1782 procedure would be unconscionable depends on all of the circumstances of the case (ie, there is no blanket ban).
Section 1782 applications can therefore be a useful weapon in an English litigator's armoury as a means of obtaining evidence under the control of a US-based entity through US-style discovery, including by the use of depositions and documentary evidence.
Disputes between the parties
The claimant, Dreymoor Fertilisers Overseas PTE Ltd, is an international trading company. The defendants are two sister companies which sell fertiliser products worldwide. Between 2008 and 2013 the claimant and one of the defendants entered into contracts for the sale of fertiliser products in India.
The defendants subsequently brought proceedings in the British Virgin Islands in connection with some of the contracts and two arbitrations in London (one in the London Court of International Arbitration (LCIA) and one in the International Chamber of Commerce (ICC)) in connection with other contracts, claiming that the contracts concerned had been vitiated by bribes paid by the claimant to former senior employees of one of the defendant companies. The defendants also brought two sets of proceedings in Cyprus for third-party disclosure (Norwich Pharmacal relief), principally against the Bank of Cyprus and subsequently seeking a disclosure order and a permanent worldwide freezing order over what were alleged to be bribes paid to a former senior employee.
Section 1782 application
On 18 May 2017 the defendants made a Section 1782 application in the United States against a US resident and former director of the claimant (Mr Chauhan) for the provision of testimony and documents in the BVI proceedings, the second Cyprus action and the LCIA arbitration.
Chauhan opposed the application, but an order was granted on 3 November 2017 by the US court (the 1782 order), albeit on a narrower basis than originally applied for. Chauhan subsequently filed a motion for the order to be stayed and reconsidered, but on 3 July 2018, following an initial stay, the US court refused the motion, lifted the stay and reinstated the order. Chauhan then brought a petition for a district court review of the decision. The reviewing judge concluded that Chauhan's objections were without merit and affirmed the order in a detailed ruling on 15 August 2018.
In July 2018 the claimant's solicitors wrote to the defendants' solicitors asking for undertaking by the defendants not to:
The defendants declined to give the undertakings and the claimant applied for and was granted an injunction temporarily retraining the defendants from enforcing the 1782 order pending a full hearing.
The claimant argued that the enforcement of the 1782 order would interfere with the effective preparation and presentation of its case in the arbitrations.
The judge referred to South Carolina Insurance Co, Omega Group Holdings Ltd v Kozeny ( CLC 132) and Benfield Holdings Ltd v Richardson ( EWHC 171 (QB)) as authority for the proposition that, whether the use by a party of the Section 1782 procedure is capable under English law of constituting unconscionable conduct interfering with the fair disposal of English court or arbitral proceedings, will depend on all of the circumstances of the case. If deemed capable of constituting unconscionable conduct, an injunction restraining the use of a Section 1782 order can be granted.
In South Carolina, an injunction granted at first instance and upheld on appeal was set aside by the House of Lords. Notwithstanding that the US procedures were significantly different from English procedure, the House of Lords held that the English courts would in general not seek to control the manner in which a party obtained evidence, provided that the means by which it did so were lawful in the country where they were. However, the decision in South Carolina was confined to documentary disclosure.
Omega confirmed that the there was no blanket ban on a party to English litigation seeking to use the Section 1782 procedure, but that it was open to the English courts to restrain the procedure's use where it was unconscionable. The judge in Omega subsequently held that it would be unconscionable in that case and granted an injunction accordingly. The judge took particular issue with the fact that had the injunction not been granted, witnesses would have been "subjected to unwarranted double cross-examination", in English proceedings and pursuant to the Section 1782 order. The judge also held that there was a real risk that a witness, once deposed in the United States, might be discouraged from attending trial in England in order to be cross examined for a second time.
In Benfield, the judge also granted an injunction restraining the taking of depositions in New York shortly before the witnesses concerned were due to give evidence in English proceedings. (The judge noted that although Benfield was not a Section 1782 case, but one where the US depositions were sought ostensibly for the purpose of US proceedings, "it was apparent that [the judge in Benfield] considered that the real object of the deposition was to obtain an advantage in the English action".)
Application to the facts
The judge held that whether the enforcement of the 1782 order would constitute unconscionable conduct required an overall evaluation of the circumstances. In this case, the judge concluded that looking at the circumstances of the case as a whole, enforcement of the order would not constitute unconscionable conduct. The judge had regard to a number of different factors in reaching this conclusion and in distinguishing the circumstances in this case from those in Omega and Benfield.
In particular, the judge noted that the US court order was expressly made for evidence to be obtained for use in countries other than England (ie, in the BVI and Cyprus proceedings). While the English court had a legitimate interest in granting an injunction to protect the fairness and integrity of its own proceedings and the London arbitration proceedings over which it had a supervisory jurisdiction, it had no legitimate interest in policing a party's attempts to obtain evidence in foreign proceedings.
Further, the judge emphasised that there had been a detailed ruling by the US court that the evidence in question was necessary for use in the BVI and Cyprus proceedings and that the defendants had been prejudiced in those proceedings by the absence of the material in question and would suffer further prejudice if the material was not made available to them. The judge considered that it would be a serious breach of comity for the English court to find that the US court's conclusions were wrong, but noted that he was in any event not persuaded that its conclusions were incorrect.
The judge accepted that, in the absence of an injunction, the timing of the enforcement of the 1782 order would impact the claimant's preparations for the arbitration in London. However, he considered this to be a problem of the claimant's own making. The defendants' application for a Section 1782 order had been made two days after the appointment of the arbitrator in the LCIA arbitration and before the ICC arbitration had started. However, the claimants "sustained resistance" in the United States had delayed the determination of the application for the 1782 order for over one year.
The judge also underlined that the scope of the 1782 order encompassed documents not necessarily being disclosed in the arbitrations. Moreover, he noted that if the defendants wanted to use in the BVI and Cyprus proceedings documents disclosed in the arbitrations, they would need to apply for permission, which he did not doubt that the claimant would resist. This would not be the case for evidence obtained pursuant to the 1782 order.
While in Omega and Benfield a factor which had weighed heavily was the potential unfairness of giving a party the opportunity to cross examine a witness twice, the judge noted that in this case, although it was a factor in favour of granting the injunction, the situation was different. The claimant accepted that the witness (Chauhan) would have to be deposed pursuant to the 1782 order at some stage, the only question being whether this should happen in advance of the arbitration hearing. Moreover, there would be multiple cross-examinations in any event because of the BVI proceedings. However, the arbitrators would retain control of their procedure and whether and to what extent evidence provided pursuant to the 1782 order could be used in the arbitrations.
The judge also noted that the claimant had not told the arbitrators about its application for an injunction, with the result that it could not pray in aid any view from the arbitrators as to whether enforcement of the 1782 order would constitute an unjustifiable interference in the arbitral process.
Although the House of Lord's decision in South Carolina established that the use of the Section 1782 procedure to obtain evidence for use in English proceedings was not inherently objectionable (overruling the Court of Appeal on this point), there have been a number of cases in which the English courts have been willing to grant injunctions restraining the enforcement of Section 1782 orders on the basis that they would be unconscionable in the particular case.
This case provides a welcome reminder that whether the use by a party of the Section 1782 procedure is capable under English law of constituting unconscionable conduct interfering with the fair disposal of English court or arbitral proceedings will depend on all of the circumstances of the case. It therefore remains open for litigants in English proceedings to seek Section 1782 orders to obtain and make use of evidence in English (or other non-US) proceedings.
In addition, it is now clear that it can be permissible to seek and use evidence obtained by deposition pursuant to a Section 1782 order in English proceedings, as well as documentary evidence.
Finally, it was accepted in the US proceedings that there was room for argument about whether an arbitration was a "foreign or international tribunal" for which evidence could be obtained through use of the Section 1782 procedure. The US court did not determine the issue of whether the London arbitration tribunal was a qualifying tribunal on the basis that the requested discovery would be for use in the BVI and Cyprus proceedings. However, the defendants will be able to use the evidence obtained pursuant to the 1782 order in the arbitrations, subject to any order by the arbitral tribunal limiting its use.
For further information on this topic please contact Alan Williams or Jonathan Cary at RPC by telephone (+44 20 3060 6000) or email (email@example.com or firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
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