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Discovery in Aid of Foreign Proceeding Must Involve an Adjudicative Proceeding

August 19, 2015

By Matteo Bonuzzi

The United States District Court for the Southern District of New York recently considered the limits of discovery pursuant to 28 U.S.C. § 1782 in aid of a foreign proceeding on obtaining security.

In the recent case Jiangsu Steamship Co. v. Success Superior Ltd., Jiangsu, the owner of the vessel M/V JIAN HUA filed a petition with the federal court for the Southern District of New York seeking discovery in aid of a foreign proceeding pursuant to 28 U.S.C. § 1782 from various New York banks and financial institutions.

28 U.S.C. § 1782 allows a court to compel discovery from a party located within the court’s judicial district, if:

a. such discovery is for use in a foreign proceeding in front of a foreign tribunal;
b. discovery is requested by a rogatory issued by a foreign or international tribunal; or
c. if an interested party presents a motion to the Court to obtain such discovery.

In the Second Circuit (the U.S. federal appellate circuit including New York), a Court maintains discretion in deciding whether granting a motion under 28 U.S.C. § 1782.

In this recent case, the petition was filed within the context of a charter party dispute with the charterer Success Superior Limited (“SSL”), and the entity that guaranteed the charterer’s performance, Mingli International Group S. de R.L. de C.V. (“Mingli”). The charter party provided for arbitration of disputes in London under English law, but the arbitration proceedings had not been started yet.

The evidence Jiangsu was seeking to obtain through the petition in New York related to SSL’s and Mingli’s assets held by financial institutions. It was undisputed that Jangsu was not seeking discovery in order to support the merits of its claim in the future London arbitration under the charter party. Jangsu justified resorting to 28 U.S.C. § 1782 by arguing that the evidence thus obtained would have been useful in bringing unspecified “foreign attachment proceedings” (in unspecified foreign countries) in order to secure or satisfy any award it might receive from the arbitrators in London.

As Jiangsu was not seeking discovery in anticipation of the London arbitration on the charterparty, but rather seeking either pre-judgment or post-judgment security in an undefined future action, the District Court denied Jiangsu’s motion.

In making this decision, the District Court relied on the Second Circuit case Euromepa, S.A. v. R. Esmerian, Inc., 154 F.3d 24 (2 Cir. 1998), and explained that 28 U.S.C. § 1782 is only available when the foreign proceeding in aid of which discovery is sought is adjudicative in nature. Here, Jiangsu sought information about SSL’s and Mingli’s assets in New York banks so it could obtain security to address the potential positive outcome of the arbitration in London. As the District Court explained, “neither pre-judgment attachment nor post-judgment enforcement proceedings are “adjudicative” in nature” as they involve an enforcement proceeding that will not resolve the underlying claims.