Second Circuit Limits U.S.-Based Discovery for ICSID Arbitrations

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On July 19, 2024, the U.S. Court of Appeals for the Second Circuit in New York ruled that an arbitral tribunal formed under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID) is not a “foreign or international tribunal” under 28 U.S.C. § 1782, a federal law that allows discovery from persons residing or found in the United States in aid of foreign proceedings.[1] This decision limits access to U.S. discovery tools to obtain information for use in ICSID arbitrations.

An Italian investment company, Webuild S.P.A., initiated an ICSID arbitration against the Republic of Panama under the Panama-Italy Bilateral Investment Treaty arising out of a contract for the expansion of the Panama Canal.

Webuild initially obtained an ex parte order from the U.S. District Court for the Southern District of New York, allowing discovery from a third party, WSP USA Inc., for use in the ICSID arbitration. In light of the U.S. Supreme Court’s subsequent decision in ZF Automotive US, Inc. v. Luxshare, Ltd., which held that section 1782 was not available for use in private arbitration proceedings, Panama and WSP moved to vacate the discovery order. The district court granted the motion, vacating its earlier order and quashing the subpoena issued to WSP. Webuild appealed.

The Second Circuit affirmed the district court’s decision. Relying on the Supreme Court’s reasoning in ZF Automotive, the Second Circuit explained that section 1782 only authorizes discovery for use in proceedings before foreign or international tribunals that exercise governmental authority.

According to the Second Circuit, ICSID tribunals do not exercise governmental authority. The court found it relevant that ICSID tribunals are formed for specific arbitral proceedings as opposed to being permanent adjudicatory bodies. It also found that ICSID arbitrators are chosen and funded by the parties, not by governments, and are not affiliated with any particular government. The court reasoned that ICSID tribunals are similar to arbitral tribunals formed under the rules of the U.N. Commission on International Trade Law (UNCITRAL) in investor-state disputes, which the Supreme Court found not to qualify under section 1782 in ZF Automotive.

The Second Circuit rejected Webuild’s arguments for distinguishing ICSID tribunals from private arbitral tribunals. For instance, Webuild pointed out that ICSID itself is a permanent institution created by an international treaty between states (the ICSID Convention), that the Convention regulates various aspects of the arbitral proceedings, and that the Convention’s post-award procedures treat ICSID awards as final judgments of state courts. The Second Circuit was not persuaded.

In sum, this decision limits the ability of parties in ICSID arbitrations to access U.S.-based evidence through federal courts, potentially impacting discovery strategies for obtaining evidence in ICSID arbitrations. Parties should consult U.S. counsel to assess alternative means of obtaining relevant evidence in the United States.