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In re Application of Islamic Republic of Pakistan

United States District Court, District of Columbia

April 10, 2019

In re Application of THE ISLAMIC REPUBLIC OF PAKISTAN for an Order Permitting Discovery Pursuant to 28 U.S.C. § 1782, Petitioner,
v.
ARNOLD & PORTER KAYE SCHOLER LLP, Respondent.

          MEMORANDUM OPINION

          ROSEMARY M. COLLYER UNITED STATES DISTRICT JUDGE.

         The Islamic Republic of Pakistan submits an Application to this Court for an order permitting it to take discovery of the law firm of Arnold & Porter Kaye Scholer LLP. Pakistan contends that Arnold & Porter possesses backup tapes of electronic records that evidence corrupt activities by the firm's client, Karkey Karadeniz Elektrik Uretim A.S., in relation to the award of a large government contract from Pakistan in 2008. Those alleged corrupt activities are the subject of both an official Pakistani corruption investigation and an international arbitration. Arnold & Porter objects to discovery on multiple grounds, most crucial being that it does not now have, and has never had, possession, custody, or control of the backup tapes. For the reasons discussed below, the Court will grant in part and deny in part the Application.

         I. BACKGROUND

         There are no disputes about the facts below unless identified.

         Pakistan experienced a major energy crisis between 2006 and 2007. In response, it initiated a policy of power generation through the Rental Power Projects Program. Karkey builds and operates “Powerships”-ships with mounted power generation equipment that can be sailed around the world and connected to the electric grid of countries in need of power. Like other power providers, Karkey bid for and was awarded a contract (as specific to Karkey, the Contract) with Lakhra Power Generation Company Ltd., a company owned by the Pakistani government, to set up ship-mounted power generation units near Karachi, Pakistan.

         When a member of Parliament complained to the Supreme Court of Pakistan about the Rental Power Projects Program, that Court opened a case into government corruption and convened a three-judge panel to hear it. In a January 2010 report, the Asian Development Bank reported that there were “many inconsistencies” in the Rental Power Projects contracts. See Ex Parte Appl. for an Order Permitting Discovery Pursuant to 28 U.S.C. § 1782 (Appl.) [Dkt. 1], Ex. B, Asian Development Bank, Islamic Republic of Pakistan: Rental Power Review (2010) [Dkt. 1-2] ¶¶ 7, 11. On March 30, 2012, the Supreme Court of Pakistan issued a judgment that held that all contracts under the Rental Power Projects Program violated Pakistani Procurement Rules because government functionaries and project contractors had been “prima facie involved in corruption”; the Supreme Court of Pakistan declared that all such contracts were void ab initio. Appl., Ex. A, Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID No. ARB/13/1 (Aug. 22, 2017) (ICSID Award) [Dkt. 1-1]. Without making any specific or general finding of corruption beyond “prima facie, ” and without any general or specific findings as to Karkey, the Supreme Court ordered Pakistan's National Accountability Bureau (occasionally, NAB) to investigate possible corruption by Pakistani officials and all contractors, including Karkey. Id. ¶ 126.

         As a result, Karkey's bank accounts in Pakistan were frozen, as were its vessels, until the NAB inquiry was complete. See Appl., Ex. E, Letter from NAB to the Maritime Security Agency (April 2, 2012) [Dkt. 1-5]. Thereafter, the National Accountability Bureau conducted “a detailed examination of all accounts and documents” related to Karkey's power supply contract and agreed, by “Deed” dated September 7, 2012, to settle Karkey's account for $17 million USD and expressly to clear Karkey of all liability under the Pakistani National Accountability Ordinance. ICSID Award ¶ 136.

         The Deed stated that “KARKEY has no liability, and there remains no basis or evidence for proceeding(s) by NAB or any of the other Parties or GoP [Government of Pakistan] entities against KARKEY and/or its project/investment and that NAB has completed and closed its enquiry in respect of KARKEY.” Id. The Deed was signed by the Director General of NAB and provided for payment by Karkey of $17.2 million USD to settle all matters arising from the contract, the Supreme Court's judgment, and the NAB inquiry. Id. ¶ 136. In addition, in October 2012, the National Accountability Bureau issued a “No Objection Certificate” confirming that it was satisfied that Karkey had no liability under Pakistan's anti-corruption law, and that the National Accountability Bureau had “completed and closed its inquiry [in respect of Karkey]” so that Karkey could retrieve its ships and equipment. Id. ¶ 138. The Supreme Court of Pakistan then unilaterally abrogated the Deed and No. Objection Certificate and ordered the National Accountability Bureau to recover $120 million USD from Karkey before Karkey's vessels could be released. Id. ¶¶ 140-42. Again, however, the Supreme Court of Pakistan made no findings and stated no conclusion as to whether Karkey had engaged in corruption.

         In January 2013, the Supreme Court of Pakistan directed the National Accountability Bureau to pursue criminal charges against individuals involved in the Rental Power Projects and even to arrest them. Id. ¶ 145. In response, the Chairman of the National Accountability Bureau wrote to the President of Pakistan expressing concern with these directives: by “becoming involved in guiding investigations, ” the Supreme Court was encroaching on NAB's independence and “placing extreme pressure on NAB personnel who appear before” the Supreme Court. Id. ¶ 147. The NAB Chairman also warned that pressure from the Supreme Court created a “danger of unfair investigation being resorted to.” Id. The Supreme Court responded by issuing a contempt order accusing the NAB Chairman of “causing interference with and obstruction in the process of the Court and . . . the administration of justice.” Id. ¶ 148. As a result, since 2013 the National Accountability Bureau has pursued and continues to pursue charges against those involved in the Rental Power Projects. Karkey states that one of its vessels was detained for more than two years and its other three vessels remain in Pakistan's possession.

         A. Arbitration Proceedings

         Also in January 2013, Karkey initiated arbitral proceedings against Pakistan before an International Centre for Settlement of Investment Disputes (ICSID) Tribunal, pursuant to the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States. See Id. ¶ 5; see also ICSID Convention, Mar. 18, 1965, 17 U.S.T. 1270.[1] Pakistan consented to the submission of investment disputes by Turkish investors to ICSID through a Bilateral Investment Treaty (BIT). See ICSID Award ¶ 1.

         A tribunal of three international arbitrators was selected to conduct the arbitration and pre-arbitration proceedings. In the arbitration, Karkey claimed that Pakistan violated the Contract when the Supreme Court of Pakistan made the “arbitrary” decision that the Contract was void ab initio. Opp'n at 9. Pakistan argued that Karkey was not entitled to relief because it had fraudulently or corruptly procured the Contract and, thus, the Arbitral Tribunal lacked jurisdiction to hear Karkey's case under the Bilateral Investment Treaty.

         In preparation for the actual arbitration hearing, the parties engaged in discovery for years under procedures established by the Arbitral Tribunal, for which the International Bar Association (IBA) Rules on the Taking of Evidence in International Arbitration (2010) provided guidance. Under the IBA Rules, a party seeking discovery must identify “a narrow and specific requested category of Documents that are reasonably believed to exist” and satisfy the arbitrators that that the requested documents are “relevant to the case and material to its outcome.” IBA Rules Arts. 3.3(a), 3.7. The IBA Rules permit a party to object to the production of evidence if it would entail an “unreasonable burden to produce the requested evidence, ” or based on “considerations of procedural economy, proportionality, fairness or equality of the Parties that the Arbitral Tribune determines to be compelling.” Id. Arts. 9.2(c), 9.2(g).

         The ICSID Convention also contains ICSID Arbitration Rules. See ICSID Convention, Arts. 6(1)(c), 44; ICSID Arbitration Rules. Rule 34(2) of the ICSID Arbitration Rules provides that “[t]he Tribunal may, if it deems it necessary at any stage of the proceeding: (a) call upon the parties to produce documents, witnesses and experts . . . .” Article 43 of the Convention also provides that “the Tribunal may, if it deems it necessary at any stage of the proceedings, (a) call upon the parties to produce documents or evidence . . . .” ICSID Convention Art. 43.

         During the course of pre-hearing discovery, both sides produced documents to the other. Early in that process, Karkey informed Pakistan that some (but not all) of Karkey's electronic files from prior to April 2010 had been archived to 70 backup tapes (the Backup Tapes) and that those documents would not be accessible without undue burden and expense and may not be recoverable at all due to outdated technology.

         Pakistan complained volubly about not receiving relevant documents from the Backup Tapes and submitted three separate requests to the Arbitrators, seeking orders to Karkey to restore and search the tapes. Since the Backup Tapes are at the heart of the instant request for assistance, the Court details those requests to the Arbitral Tribunal.

         1. Pakistan's First Request[2]

         Pakistan filed its first application for a Tribunal order in April 2015, explicitly recognizing the Tribunal's discretion to “exclude from production any document which it would be unreasonably burdensome to produce” and that “recovering documents from backup tapes is not a straightforward task.” Resp't's Opp'n to Appl. For an Order Permitting Discovery Pursuant to 28 U.S.C. § 1782 (Opp'n) [Dkt. 13], Ex. A, Karkey's Counter-Memorial on Annulment (Counter-Mem.) [Dkt. 13-1] ¶ 58. Karkey replied that “[b]ecause of the number of Backup Tapes and their format, restoring the data on them in a manner that would allow Karkey to search for responsive documents would be extremely costly and time-consuming, and might not even be possible.” Id. ¶ 59. Instead, Karkey certified to the Tribunal that it had collected, searched, reviewed, and produced all accessible and responsive pre-April 2010 documents, including email. Id. ¶ 61. The Tribunal made no decision on the Backup Tapes before the next request from Pakistan.

         On July 24, 2015, Pakistan again asked the Tribunal to order Karkey to restore the Backup Tapes. Id. ¶ 62. Karkey objected, repeating that it had already collected, reviewed and produced responsive electronic and hard copy files from prior to April 2010, to the extent that they had been maintained by individual custodians or found in databases or in files. Id. Karkey also noted that Pakistan had failed to identify a narrow and specific category of requested documents, as required by the IBA Rules. Id.

         The Tribunal denied Pakistan's request on August 31, 2015. It concluded that, in light of Karkey's previous production and the absence of any evidence of spoliation, “restoring 70 pre-April 2010 backup tapes is excessively burdensome.” Id. ¶ 63; ICSID Award ¶ 529. It also required Karkey to submit a declaration confirming that the search for pre-April 2010 documents had been exhaustive, which Karkey then submitted. See Counter-Mem. ¶ 64.

         2. Pakistan's Second Request Based on New Evidence

         Five months later, on December 11, 2015, Pakistan submitted its second request for an order requiring Karkey to restore the Backup Tapes. Id. ¶ 65. Pakistan based its second request on information it had received from “a Lebanese individual” who had shown Pakistan's counsel redacted copies of two alleged “Consultancy Agreements” that suggested the existence of a “scheme” to secure Karkey's rental service contract through illicit payments. Id. The Lebanese individual refused to give copies of the Consultancy Agreements to Pakistan's counsel and demanded millions of dollars in exchange before turning over the redacted copies. Id. ¶ 67; see also ICSID Award ¶ 528. Karkey denied the existence of the alleged “scheme” and argued that the third application was “based wholly on hearsay, innuendo, and speculation.” Counter-Mem. ¶ 66.

         After considering the arguments from both parties, the Tribunal once again denied Pakistan's request. ICSID Award ¶ 530.

         3. Pakistan's Third Request

         The arbitral hearing began in London on February 29, 2016. On March 1, the second day, Pakistan again proffered evidence of corruption and asked the Tribunal to order Karkey to restore and search the Backup Tapes. Id. ¶ 531. The Tribunal “dealt with the application on Day 2 of the Evidentiary Hearing” and decided to admit some, but not all, of the evidence proffered by Pakistan; ...


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