Thomson Reuters Attorney Analysis
the government of the country where their investment was made — between a Russian investment fund and the Republic of Lithuania , pursuant to a treaty between Russia and Lithuania .
The Russian investor opted for ad hoc arbitration under the UNCITRAL Rules of Arbitration . Despite recognizing that one of the parties was a sovereign , and that the option to arbitrate arose from an international treaty , the Court nevertheless held that neither fact is dispositive “ because Russia and Lithuania are free to structure investor-state dispute resolution as they see fit .” The Court noted that the ad hoc arbitration panel “ is not a pre-existing body , but one formed for the purpose of adjudicating investor-state disputes .”
Going forward , the scope of discovery in private international arbitration will be left to the parties ’ contractual agreement , the extent to which discovery is permitted by arbitral panels overseeing disputes , and the local courts that may have authority to provide ancillary relief to the parties .
It also rejected the notion that the presence of an international treaty imbues the UNCITRAL panel with governmental authority , finding that “ nothing in the treaty reflects Russia and Lithuania ’ s intent that an ad hoc panel exercise governmental authority ,” and that the panel functions independently of , and is not affiliated with , Lithuania or Russia .
The Court also noted that “ the treaty does not itself create the panel ; instead , it simply references the set of rules that govern the panel ’ s formation and procedure if an investor chooses that forum .” And , the Court found that the panel ’ s authority is derived only from the parties ’ consent to arbitrate — just as in private arbitration — and “ not because Russia and Lithuania clothed the panel with governmental authority .” As a result , the panel was found to be “ materially indistinguishable ” from the Z . F . Automotive panel .
Importantly , the Russian investor chose UNCITRAL arbitration among other dispute resolution options available to it under the treaty , and the Court was careful to point out that “[ n ] one of this forecloses the possibility that sovereigns might imbue an ad hoc arbitration panel with official authority .”
Future litigation , therefore , is likely to involve questions as to whether an ad hoc panel is imbued with governmental authority and could arise in the context of arbitration proceedings before adjudicative bodies like the International Centre for Settlement of Investment Disputes — a World Bank Group organization that adjudicates many investor-state matters .
For example , litigants are sure to point out that , unlike UNCITRAL , the ICSID was not only created by a treaty with more than 150 member states , but that the countries making up the ICSID Administrative Council , on which each member state has one representative , meet every year to adopt administrative and financial regulations , and approve rules for ICSID-administered cases .
The chair of the Administrative Council also designates individuals to serve as arbitrators and conciliators and decides applications for their disqualification . Courts may find that these factors mean that the ICSID ( and other similar adjudicative bodies ) are sufficiently imbued with governmental authority so as to bring the proceedings within the ambit of section 1782 .
Regardless , for the lion ’ s share of international commercial arbitration , the Court ’ s decision overturns years of precedent in the 4th and 6th Circuits , and renders section 1782 far less useful , as most proceedings will now fall outside the definition of a “ foreign or international tribunal .” Going forward , the scope of discovery in private international arbitration will be left to the parties ’ contractual agreement , the extent to which discovery is permitted by arbitral panels overseeing disputes , and the local courts that may have authority to provide ancillary relief to the parties .
Accordingly , parties will need to pay particular attention to their dispute resolution provisions , applicable arbitral rules , and the arbitral forum ( including the courts that could provide relief in aid of arbitration ) and should consider incorporating greater specificity as to the scope of discovery in the arbitration .
Additionally , parties doing business with foreign states or stateowned entities should consider not only the content of the arbitration agreement itself and available choices under applicable treaties , but also the powers of the arbitral tribunal they choose .
2 | June 28 , 2022 © 2022 Thomson Reuters