AMERICAN COURT IMPACTS ARBITRAGES IN BRAZIL

Courts in the United States can no longer order the production of evidence for international arbitrations.

A decision by the United States Supreme Court will impact arbitrations in Brazil by making it more difficult to obtain evidence located on American soil. In a ruling formalized on the 13th, the judges determined that the rule requiring American courts to order the production of evidence for use in a foreign or international tribunal does not apply to arbitration proceedings.

Ultimately, lawyers say, the decision could make it impossible to carry out what is called "discovery": access to documents, bank accounts, and testimonies of individuals or companies located in the United States. This measure was used to support arbitrations conducted outside of that country—in Brazil, for example.

“It changes the game considerably. It’s a powerful tool, only permitted under American law, that ceases to exist for international arbitration,” says lawyer Paulo Macedo, who works with arbitration disputes in Brazil and abroad. He states that, with this instrument, it was possible to obtain a large quantity of documents. “And, in some cases, what we call the 'smoking gun,' that evidence that clearly demonstrates, for example, a breach of contract,” he says.

On the other hand, he considers that, with the decision of the American Supreme Court, the risk of, for example, Brazilian companies that have a relationship with the United States – such as a subsidiary – facing a discovery process decreases. “It’s an invasive institution in the eyes of Brazilian law,” he says. “An American executive is aware that an email he writes could end up in court. Here, it’s not quite like that,” Macedo adds.

Until then, there had been disagreement among American courts regarding the application of this route to international arbitration.

The U.S. Supreme Court was called upon to settle the matter stemming from two lawsuits. One of them involves a billion-dollar corporate dispute, alleging fraud, which was taken to arbitration in Germany. At the request of one of the parties, the Michigan State court granted an order for it to seek information from an American company and two executives (ZF Automotive US, Inc. v. Luxshare, LTD).

The Court examined whether the discovery procedure, provided for in Section 1782 of the United States Code, which is a compilation of federal laws on various areas of law, would be applicable to arbitration. According to this provision, the district court in which a person resides or is located may order that person to give testimony or make a statement, or produce a document or other item for use in proceedings in a foreign or international court. This includes criminal investigations conducted prior to formal charges.

According to the rule, "the order may be issued by means of a letter rogatory issued, or a request made, by a foreign or international court or by a request from any interested party."

However, according to the US Supreme Court's decision, this route can only be used for legal disputes taking place in other countries, not for requests made to support conflicts brought to arbitration.

Justice Amy Coney Barrett, who joined the Court in 2020 after being nominated by former US President Donald Trump, wrote in the ruling: “Only a governmental or intergovernmental body constitutes a ‘foreign or international tribunal’ within the meaning of paragraph 1782. Such bodies are those exercising governmental authority conferred by one or more nations. Neither the private commercial arbitration panel in the first case nor the ad hoc arbitration panel in the second case qualify.”

A free adaptation of an article published by Valor Econômico.