UK: English Court Refuses To Grant An Injunction Against The Enforcement Of A S1782 US Evidence Order

In a decision dated 24 August 2018, the English Commercial Court (the "Court") dismissed Dreymoor Fertilisers Overseas PTE Ltd's ("Dreymoor") application to continue an injunction preventing the enforcement of an order of a U.S. court granting discovery under section 1782 of the United States Code (the "Order"). The Order required one of Dreymoor's employees to be deposed and produce evidence for use in various international proceedings by Eurochem Trading GMBH ("ECTG") against Dreymoor. Dreymoor argued that enforcing the Order would constitute unconscionable conduct as it would interfere with its preparation for arbitration proceedings against ECTG.

The Court accepted that the enforcement of orders such as the Order could potentially be unfair, as they would effectively provide an opportunity to cross-examine the same witness twice. However, whether to injunct the enforcement of such an order required a careful case-by-case analysis. Based on various case-specific factors, the Court decided that it would not be unconscionable to allow ECTG to enforce the Order and dismissed Dreymoor's application to continue the injunction.

Background

The background of the disputes between the parties and the dismissal of challenges to the partial award on jurisdiction in the LCIA arbitrations and the jurisdiction of an ICC tribunal are discussed in our earlier blog post here. This application related to an attempt by ECTG and its sister company, JSC MCC Eurochem ("Eurochem") to obtain evidence relating to improper payments for use in their current litigations and arbitrations against Dreymoor.

On 18 May 2017, ECTG and Eurochem filed an application before the United States District Court for the Middle District of Tennessee (the "District Court") under section 1782 of the United States Code, which authorises the district court of the district in which a person resides to order that person to provide testimony and/or documents "for use in a proceeding in a foreign or international tribunal". The District Court granted the application and ordered a senior employee of Dreymoor, Mr Chauhan, to provide documentary evidence and a deposition.

Dreymoor applied for an injunction before the English court, as London was the seat of arbitration in some of the proceedings against it, to restrain ECTG and Eurochem from enforcing the Order. Dreymoor claimed that it would be unconscionable to allow the enforcement of the Order, as doing so would affect its presentation of the case in the arbitrations. Dreymoor stated that it needed Mr Chauhan to focus on assisting in Dreymoor's preparation of its case, rather than on producing documents in response to the Order. It also claimed that, if Mr Chauhan was required to submit to a deposition, he might become unwilling to give a witness statement in the arbitrations. In addition, enforcement of the order would lead to Mr Chauhan being cross-examined twice – as part of the deposition and in the arbitrations – which would be oppressive and one-sided. The injunction was granted by Bryan J on 27 July 2018 pending a full hearing on a return date in August 2018.

The power of the court to make the injunction requested

Dreymoor's injunction application was made under section 44 of the Arbitration Act 1996. The Court held that, in the present case, the Court's powers were, in fact, derived from section 37 of the Senior Courts Act 1981, as section 44 allowed the Court to give only interim injunctions. Although Dreymoor had asked for a temporary injunction, "until the completion of disclosure" in the case of the documents and "until the conclusion of the evidentiary hearing" in the case of the deposition, the application was, in fact, for a final injunction. Among other considerations, the effect of the injunction would essentially be that the evidence provided by Mr Chanhau at a later stage would have no impact on the arbitrations. There would also not be a further hearing to determine the injunction finally. As such, the Court clarified that it was exercising its discretion under section 37 instead.

Unconscionability as the threshold test

Males J held that use of the procedure under section 1782 of the United States Code could constitute unconscionable conduct under English law. Referring, however, to South Carolina Insurance Co v Assurantie Maatschappij "De Zeven Provincien" N.V. [1987] 1 AC 24, he observed that "the English court would not in general 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 used."

In a similar vein, Males J referred to Omega Group Holdings ltd v Kozeny [2002] CLC 132, where the court held that (i) parties may obtain evidence by means of their choosing if lawful in the country where used; (ii) no injunctive relief will be granted without satisfying the test of unconscionability; and (iii) the possibility of obtaining evidence in a foreign country in a different way to that available in England does not automatically constitute unconscionable conduct. That said, Males J However, the Court emphasised that it remained open to an applicant to demonstrate on the facts of the case that a particular application to use a section 1782 order is unconscionable.

Unconscionability in the present case

Males J held that the injunction should not be continued. Although English courts have a legitimate interest in granting injunctions to protect the fairness and integrity of their own proceedings or London arbitration proceedings, they have no legitimate interest in "policing" a party's attempt to obtain evidence for use in foreign proceedings. It would also be a serious breach of comity in granting an injunction to prevent the Order's enforcement.

The Court accepted that the timing of the enforcement of the section 1782 order would have an impact on Dreymoor's arbitration hearing preparation, but considered that a party to an arbitration "has no right to prepare its case unaffected by outside distractions or the requirements of other proceedings in which it is involved". This was also "a problem of Dreymoor's own making", as it had both appealed the Order and applied for an injunction at a very late stage. The Court rejected Dreymoor's argument that the documents obtained in the arbitral process would provide the same evidence as if the Order was enforced. The categories of documents to be provided under the Order were wider than those to be provided in the arbitration. Furthermore, ECTG would not be entitled to use the documents produced in the arbitrations in its foreign proceedings, as the arbitrations are confidential.

While there was a risk that Mr Chauhan would refuse to give evidence in the arbitrations if he was deposed in the United States and found the experience uncomfortable, this was a small risk as he had expressed willingness to provide evidence in the arbitrations. While Mr Chauhan might be cross-examined twice, since the parties were involved in proceedings in multiple other jurisdictions, it was likely that witnesses from both sides would have to face double cross examination in any event. Furthermore, any unfairness caused to Dreymoor could be mitigated by the arbitrators, who could decide to what extent any evidence obtained pursuant to the Order would be employed in the arbitrations. As such, despite the risk of unfairness, the Court did not find the enforcement of the section 1782 order unconscionable and dismissed Dreymoor's application for a continued injunction.

Comment

The Court's decision also reaffirms past applicable case law, emphasising that enforcement of section 1782 orders (or other foreign orders) will only be prevented if their application would amount to unconscionable conduct. Whether the unconscionability threshold is reached requires an overall evaluation in the specific circumstances of a case. The decision is also consistent with the English courts' past approach to preserve comity and ensure the mutual recognition of foreign judicial acts.

The decision also illustrates the potential value of using foreign discovery mechanisms such as section 1782 to obtain evidence for use in English arbitrations and litigations. While US courts remain splint on the use of section 1782 in aid of private international arbitration, as discussed in our earlier blog post here, this case illustrates the high threshold the English courts will adopt in determining whether to block the enforcement of any such order a party is able to obtain.

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