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U.S. Supreme Court Restricts Discovery Assistance to International Arbitral Tribunals
Written by Matthias Lehmann, University of Vienna (Austria)
On 13 June 2022, the U.S. Supreme Court ruled that U.S. courts may not help arbitral tribunals sitting abroad in the taking of evidence. This is because in the opinion of the Court, such an arbitral tribunal is not a „foreign or international tribunal“ in the sense of 28 U.S.C. § 1782, which allows federal district courts to order the production of evidence for use in proceedings before such tribunals.
The decision concerned an institutional and an ad-hoc arbitration. The first, ZF v. Luxshare, was a commercial arbitration between two companies under the rules of the German Arbitration Institution (DIS). The second, AlixPartners v. Fund for Protection of Investors’ Rights in Foreign States, was an investment arbitration involving a disgruntled Russian investor and a failed Lithuanian bank; it was conducted under the UNCITRAL Arbitration Rules.
The opinion, written by Amy Coney Barrett, rejects assistance by U.S. courts in both cases, whether in the pre-arbitration phase or in the main arbitration proceedings. It was unanimously adopted by the Court.
The Supreme Court first relies on a dubious literal interpretation of § 1782. While it does not dispute that arbitral tribunals may be “tribunals”, this would change by the addition of the adjectives “foreign or international”, as this would require that one or several nations have imbued the tribunal with governmental authority. Alas, the drafters of the New York Convention on recognition and enforcement of “foreign” arbitral awards were wrong, and so apparently were the signatories – among them the U.S. As for the term “international”, numerous treatises on “international commercial arbitration” will now supposedly have to be rewritten or newly titled.
The opinion further argues that the “animating purpose” of § 1782 would be “comity” with other nations, and that it would be “difficult to see how enlisting district courts to help private bodies would help that end”. Yet other nations also have an interest in efficient arbitration proceedings, as evidenced by the New York Convention. This is even particularly clear for investment arbitration because of the involvement of a state party, but it is also true in commercial arbitration. What is decisive from the point of view of many countries is that arbitration as a dispute resolution method is equivalent to litigation, and should not be treated less favourably.
The Supreme Court further argues that if § 1782 were to be extended to commercial arbitral “panels”, it would cover everything, including even a university’s student disciplinary tribunal. Yet the absurdity of this argumentum ad absurdum lies not in the inclusion of arbitration in § 1782 but in the extension made by the Court, which was only asked about the former and not about the latter. If need be, it would have been easy to distinguish commercial and investment arbitral tribunals established under national or international rules and covered by international agreements such as the New York Convention from student disciplinary “tribunals” (rather: panels).
Finally, the Court notes that allowing district courts to proffer evidence to a foreign arbitral tribunal would create a mismatch with the Federal Arbitration Act (FAA), which does not foresee such assistance for domestic arbitral tribunals. Yet the solution of this mismatch should have better been left to the legislator, who could either extend the FAA to discovery or exclude foreign and international arbitral tribunals from the scope of § 1782. At any rate, the worse situation of domestic arbitral tribunals does not seem a sufficient justification to also deprive arbitral tribunals abroad, who may have particular difficulties in gathering evidence in the U.S., of assistance by U.S. courts.
All in all, this is disappointing news from Capitol Hill for international arbitration. Whether on arbitration or abortion, the current Supreme Court seems to be willing to upend legal precedent and to question customary legal terminology. At least for arbitration, the consequences will not be life-threatening, because the practice will be able to adapt. But one can already see the next questions coming to the Supreme Court. How about this one: Are ICSID tribunals imbued with governmental authority?
ECJ on the interpretation of the European Succession Regulation in relation to cross-border declarations of waiver, Judgment of 2 June 2022, C-617/20 – T.N. et al. ./. E.G.
On 2 June 2022, the ECJ delivered its judgment in the case of T.N. et al. ./. E.G., C-617/20, on the interpretation of the ESR in relation to cross-border declarations of waiver of succession (on the facts of the case and AG Maciej Szpunar’s Opinion in this case see our previous post).
The Court followed the AG’s Opinion and concluded (para. 51) that
“Articles 13 and 28 of Regulation No 650/2012 must be interpreted as meaning that a declaration concerning the waiver of succession made by an heir before a court of the Member State of his or her habitual residence is regarded as valid as to form in the case where the formal requirements applicable before that court have been complied with, without it being necessary, for the purposes of that validity, for that declaration to meet the formal requirements of the law applicable to the succession”.
This conclusion was based on a EU-law specific approach rather than by discussing, let alone resorting to, fundamental concepts of private international law (compare Question 1 by the referring national court, the Higher Regional Court of Bremen, Germany, on a potential application of the concept of substitution; compare the AG’s considerations on characterisation of the issue as “substance” or “form”, see Opinion, paras. 34 et seq.). Rather, the Court reformulates the question functionally (para. 32):
“The present reference for a preliminary ruling concerns the conditions which must be satisfied in order for a declaration concerning the waiver of succession, within the meaning of Articles 13 and 28 of Regulation No 650/2012, made before the court of the State of the habitual residence of the party waiving succession, to be regarded as valid. In that regard, the referring court asks, in particular, whether and, if so, when and how such a declaration must be notified to the court having jurisdiction to rule on the succession”.
Textual as well as systematic arguments (Article 13 as part of Chapter II, Article 28 as part of Chapter III of the ESR), paras. 36 et seq., supported by Recital 32 (simplification of procedures), para. 41, as well as the general effet utile of the ESR in light of Recital 7, para. 42, lead the Court to the result that
“as the Advocate General stated in point 64 of his Opinion, compliance with the objective of Regulation No 650/2012, which is to enable heirs to make declarations concerning the waiver of succession in the Member State of their habitual residence, implies that those heirs are not required to take further formal actions before the courts of other Member States other than those provided for by the law of the Member State in which such a declaration is made, in order for such declarations to be regarded as valid”.
Whether this result occurs, technically speaking, as a substitution – and thus by a kind of “recognition”, or as a matter of characterisation of the issue as “form”, is not directly spelled out, but based on the general approval of the AG’s approach, the latter is certainly more likely than the former.
Additionally, in furthering the effet utile, the Court adds on the issue of communication of and time limits for a waiver declared according to the conditions of the law of the habitual residence (paras. 49 et seq.) that compliance with “formal requirements” before the court of the habitual residence must suffice as long as the court seised with the succession “has become aware of the existence of that declaration”. And the threshold for this awareness seems to be very low, but “in the absence of a uniform system in EU law providing for the communication of declarations” of the kind in question here, must be brought about by the declaring person (para. 48). As a further element of effet utile, this person is not bound by any formal requirements under the lex successionis, para. 48: “if those steps [by the declaring person] are not taken within the time limit prescribed by the law applicable to the succession, the validity of such a declaration cannot be called into question” (emphasis added). The only factual time limit therefore is that the court becomes aware before it takes its decision. Appeal, therefore, cannot be grounded directly on the fact that the court was not made aware in time, even though the declaration had existed before the court’s decision. Appeal may be available on other grounds and then the declaration may be introduced as a novum, if the lex fori processualis allows it.
Speaking of the lex fori processualis: As there is now an autonomous time limit, the question became irrelevant whether making the court aware of the declaration of waiver depends on any language requirements. In the concrete case, the persons declaring the waiver before a Dutch court, obviously in Dutch language, informed the German court first by submitting Dutch documents and only later with translations, but at any rate before the court’s decision. Principally speaking, however, if the court’s language is e.g. German, any kind of communication must be conducted in that language (see section 184 German Gerichtsverfassungsgesetz). In addition, according to the Court’s decision, only “formal requirements of the law applicable to the succession” are irrelevant. The need for translations, however, is a matter of the lex fori processualis. It will be an interesting question of “language law” within the EU whether the effet utile of the ESR (and comparable regulations in other instruments) might overcome principal language requirements according to the lex fori processualis. And on a general level it may be allowed to state the obvious: questions of characterisation (and others of general PIL methodology) will never disappear.
Tort Litigation against Transnational Companies in England
This post is an abridged adaptation of my recent article, Private International Law and Substantive Liability Issues in Tort Litigation against Multinational Companies in the English Courts: Recent UK Supreme Court Decisions and Post-Brexit Implications in the Journal of Private International Law. The article can be accessed at no cost by anyone, anywhere on the journal’s website. The wider post-Brexit implications for private international law in England are considered at length in my recent OUP monograph, Brexit and the Future of Private International Law in English Courts.
According to a foundational precept of company law, companies have separate legal personality and limited liability. Lord Templeman referred to the principle in Salomon v Salomon & co Ltd [1896] UKHL 1, as the ‘unyielding rock’ on which company law is constructed. (See Lord Templeman, ‘Forty Years On’ (1990) 11 Company Lawyer 10) The distinct legal personality and limited liability of each entity within a corporate group is also recognized. In Adams v Cape Industries plc [1990] Ch 433 the court rejected the single economic unit argument made in the DHN Ltd v Tower Hamlets LBC [1976] 1 WLR 852 decision, and also the approach that the court will pierce the corporate veil if it is necessary to achieve justice. In taking the same approach as the one taken in Salomon v Salomon & co Ltd [1896] UKHL 1, the court powerfully reasserted the application of limited liability and the separate legal entity doctrine in regard to corporate groups, leaving hundreds of current and future victims uncompensated, whilst assisting those who seek to minimize their losses and liabilities through manipulation of the corporate form, particularly in relation to groups of companies. A parent company is normally not liable for the legal infractions and unpaid debts of its subsidiaries. However, the direct imposition of duty of care on parent companies for torts committed by foreign subsidiaries has emerged as an exception to the bedrock company law principles of separate legal personality and limited liability. In Chandler v Cape plc [2012] EWCA Civ 525, [69], Arden LJ ‘……emphatically reject[ed] any suggestion that this court [was] in any way concerned with what is usually referred to as piercing the corporate veil.’
Arguments drawn from private international law’s largely untapped global governance function inform the analysis in the article and the methodological pluralism manifested in the jurisdictional and choice of law solutions proposed. It is through the postulation of territoriality as a governing principle that private international law has been complicit in thwarting the ascendance of transnational corporate social responsibility. (See H Muir-Watt, ‘Private International Law Beyond the Schism’ (2011) 2 Transnational Legal Theory 347, 386) Private international law has kept corporate liability within the limits of local law through forum non conveniens and the lex loci delicti commissi. It is only recently that a challenge of territoriality has emerged in connection with corporate social responsibility.
Extraterritoriality is employed in this context as a method of framing a private international law problem rather than as an expression of outer limits. Therefore, there is nothing pejorative about regulating companies at the place of their seat, and there is no reason why the state where a corporate group is based should not (and indeed should not be obliged to) sanction that group’s international industrial misconduct on the same terms as similar domestic misconduct, in tort claims for harm suffered by third parties or stakeholders. (Muir-Watt (ibid) 386)
The idea of methodological pluralism, driven by the demands of global governance, can result in jurisdictional and choice of law rules that adapt to the needs of disadvantaged litigants from developing countries, and hold multinational companies to account. The tort-based parental duty of care approach has been utilized by English courts for holding a parent company accountable for the actions of its subsidiary. The limited liability and separate legal entity principles, as applied to corporate groups, are circumvented by the imposition of direct tortious liability on the parent company.
The UK Supreme Court’s landmark decisions in Vedanta v Lungowe [2019] UKSC 20 and Okpabi v Shell [2021] UKSC 3 have granted jurisdiction and allowed such claims to proceed on the merits in English courts. The decisions facilitate victims of corporate human rights and environmental abuse by providing clarity on significant issues. Parent companies may assume a duty of care for the actions of their subsidiaries by issuing group-wide policies. Formal control is not necessarily the determining factor for liability, and any entity that is involved with the management of a particular function risks being held responsible for any damage flowing from the performance of that function. When evaluating whether a claimant can access substantial justice in another forum, English courts may consider the claimants lack of financial and litigation strength. The UK Supreme Court decisions are in alignment with the ethos of the UN Guiding Principles on Business and Human Rights (“Ruggie Principles”), particularly the pillar focusing on greater access by victims to an effective remedy. (The United Nations Guiding Principles on Business and Human Rights, UN Doc. A/HRC/17/31 (2011))
Post-Brexit, the broader availability of the doctrine of forum non conveniens may help the English courts to ward off jurisdictional challenges against parent companies for damage caused by their subsidiaries at the outset. However, in exceptional cases, the claimant’s lack of financial and litigation strength in the natural forum may be considered under the interests of justice limb of The Spiliada test, which motivate an English court not to stay proceedings. (Spiliada Maritime Corpn v Cansulex Ltd (The Spiliada) [1987] AC 460) It has been argued that if the Australian “clearly inappropriate forum” test for forum non conveniens is adopted, (Voth v Manildra Flour Mills Pty Ltd (1991) 65 A.L.J.R. 83 (HC); Regie National des Usines Renault SA v Zhang [2002] HCA 10 (HC)) it is unlikely that a foreign claimant seeking compensation from a parent company in an English court would see the case dismissed on forum non conveniens grounds. As a result, it is more likely that a disadvantaged foreign litigant will succeed in overcoming the jurisdictional hurdle when suing the parent company. From a comparative law standpoint, the adoption of the Australian common law variant of forum non conveniens will effectively synthesize The Spiliada’s wide-ranging evaluative enquiry with the certainty and efficiency inherent in the mandatory rules of direct jurisdiction of the Brussels-Lugano regime.
In relation to choice of law for cross-border torts, the UK has wisely decided to adopt the Rome II Regulation as retained EU law. (See The Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc.) (EU Exit) Regulations 2019) Article 4(1) of the Rome II Regulation will continue to lead to the application of the law of the country where the damage occurred. Post-Brexit, it remains to be seen whether the English courts would be more willing to displace the applicable law under Article 4(1) by applying Article 4(3) of Rome II more flexibly. The territorial limitations of the lex loci damni might be overcome by applying the principle of closest connection to select a more favorable law. The result-selectivism inherent in the idea of a favorable law is reminiscent of the regulatory approach of governmental interest analysis. (See SC Symeonides, Codifying Choice of Law Around the World (OUP 2014) 287) Article 7 of the Rome II Regulation provides the claimant in an environmental damage claim a choice of applicable law either pursuant to Article 4(1) or the law of the country in which the event giving rise to the damage occurred. Alternatively, any regulatory provisions in English law may be classified as overriding mandatory provisions of the law of the forum under Article 16 of the Rome II Regulation. The Rome II Regulation, under the guise of retained EU law, constitutes a unique category of law that is neither EU law nor English law per se. The interpretation of retained EU law will give rise to its own set of challenges. Ultimately, fidelity to EU law will have to be balanced with the ability of UK appellate courts to depart from retained EU law and develop their own jurisprudence.
Any future amendments to EU private international law will not affect the course of international civil litigation before English courts. (Cf A Dickinson, ‘Walking Solo – A New Path for the Conflict of Laws in England’ Conflictoflaws.net, suggests engagement with the EU’s reviews of the Rome I and II Regulations will provide a useful trigger for the UK to re-assess its own choice of law rules with a view to making appropriate changes) However, recent developments in the UK and Europe are a testament to the realization that the avenue for access to justice for aggrieved litigants may lead to parent companies that are now subject to greater accountability and due diligence.
News
Croatian Academy of Science and ArtRoundtable: Private international law and global trends, Zagreb, 22 January
The Croatian Academy of Science and Art organises the roundtable titled “Private international law and global trends“, which will be held on Monday, 22 January 2024, at 11 h, in the premises of the Faculty of Law in Zagreb in Cirilometodska street, 4 (due to ongoing renovation of the Academy’s building which suffered damage in the earthquake of 2020, as visible in the photo when expanded). Attendance is open to all, but your intention to join should be communicated to Ms. Muhek at zmuhek@hazu.hr.
Virtual Workshop (in German) on February 6: Heinz-Peter Mansel on Supply Chains and Conflict of Laws – Selected Issues
On Tuesday, February 6, 2024, the Hamburg Max Planck Institute will host its 41st monthly virtual workshop Current Research in Private International Law at 11:00-12:30 (CET). Heinz-Peter Mansel (Universität zu Köln) will speak, in German, about
Supply Chains and Conflict of Laws – Selected Issues
The presentation will be followed by an open discussion. All are welcome. More information and sign-up here.
If you want to be invited to these events in the future, please write to veranstaltungen@mpipriv.de.
Two PhD Positions at the Max Planck Institute for Social Anthropology
The Max Planck Institute for Social Anthropology in Halle (Saale), Germany, is advertising two PhD positions in Private Law within the context of a research project on “Cultural Diversity in
Private Law” lead by Dr Mareike Schmidt.
More information can be found here.