Originally published in the Ontario Bar Association ADR section newsletter, Vol. 18, No. 2, March 2010.
The Supreme Court of Canada has handed down an important decision clarifying what, if any, time limits may apply to the enforcement of a foreign arbitral award in Canada. The Court has held that, for these purposes, the imposition of a time limit is a procedural rule permitted by Article III of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"). Consequently, the question whether the enforcement of an arbitration award is subject to any time limit depends on the wording of any limitations legislation in the Province where the award is sought to be enforced.
Yugraneft Corporation, a Russian company in the business of developing and operating oilfields in Russia, purchased materials from Rexx Management Corporation, an Alberta company. Following a contractual dispute and an international commercial arbitration before the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation on Sept. 6, 2002 the tribunal awarded just under US$1million to Yugraneft. On Jan. 27, 2006 Yugraneft applied to Alberta's Court of Queen's Bench for recognition and enforcement of the award. The application was dismissed and an appeal to Alberta's Court of Appeal was unsuccessful. Leave to appeal to the Supreme Court was granted which, following oral argument in December 2009, issued its ruling dismissing the appeal on May 20, 2010.
The principal issue was whether the enforcement proceeding was subject to any limitation period and, if so, whether it should be the two-year period applicable to a "remedial order" (s. 3 of Alberta's Limitations Act, R.S.A. 2000, c. L-12) or the ten-year period applicable to a "judgment or order for the payment of money" (s. 11). Yugraneft argued that s. 11 should apply since a foreign arbitral award possesses all the hallmarks of a judgment and because there was ambiguity as to whether s. 3 was intended to apply. Rexx argued that s. 3 should apply since the Alberta legislature intended the two-year limitation period to apply to all causes of action, unless one of the exceptions enumerated in the Act expressly applied.
On the threshold issue as to whether the imposition of a local limitation period for the enforcement of a foreign award was contrary to the New York Convention, the Court held that this was a procedural – and therefore permissible – rule:
- As a Treaty, the New York Convention should be interpreted in good faith in light of its object and purpose. When it was drafted, it was well known that common law states generally treated limitation periods as procedural in nature. The permissive language in Article III (as opposed to an express prohibition) suggests that the drafters intended to permit limitation periods to be established by and in Contracting States;
- 53 Contracting States in fact have subjected the enforcement of foreign arbitral awards to some form of time limit; and
- The application of time limits "is not a controversial matter" given that leading scholars take it for granted that Article III permits local limitation periods.
In concluding that s. 3 of the Limitations Act applied to a foreign award, the Court held that an arbitral award is not a judgment or a court order and that in "general, arbitration is not part of the state's judicial system, although the state sometimes assigns powers or functions directly to arbitrators." The Court further pointed out that other statutes, like Alberta's Reciprocal Enforcement of Judgments Act, R.S.A. 2000, c. R-6 ("RESA")1 and British Columbia's Limitation Act, R.S.B.C. 1996, c. 266, expressly referred to judgments and awards when prescribing limitation periods, whereas the Limitations Act did not. The Court further held that the two-year limitation period in s. 3 of the Limitations Act was subject to the discoverability rule which "makes ample allowance for the practical difficulties faced by foreign arbitral creditors, who may require some time to discover that the arbitral debtor has assets in Alberta."
The Court then established the following rules as to determining when a limitation period, such as the one set out in s. 3 of the Limitations Act, begins to run in respect of enforcing a foreign award:
- The limitation period will not be triggered until the possibility that the award might be set aside by the local courts in the country where the award was rendered has been foreclosed;
- Even then, the time limit will not be engaged until the creditor knew or ought to have known that the bringing of an enforcement proceeding was warranted;
- An enforcement proceeding will be warranted only once the creditor has learned, exercising reasonable diligence, that the debtor possesses assets in the relevant jurisdiction; and
- When the underlying contract identifies the jurisdiction in which the debtor is registered (or has an office), it is presumed that the creditor knows or ought to know that a proceeding is warranted.
The Supreme Court has – at least for the time being – resisted the opportunity to pronounce that arbitral awards are at least functionally equivalent to judgments. This is perhaps somewhat surprising given that the Court has in the past decade consistently held that arbitral proceedings are "autonomous" and are to be afforded judicial deference (see, for example, Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17; Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34; and Rogers Wireless Inc. v. Muroff, 2007 SCC 35). On the other hand, the Court has clarified what until now had been an arguably ambiguous issue and promulgated clear rules. Certainty has thus been established and, for users of commercial arbitration, this is a good thing.
1. The RESA has a six-year limitation period for the enforcement of judgments and arbitral awards rendered in reciprocating jurisdictions, which Russia is not; hence, Yugraneft's application was brought under the Model Law, as enacted in Alberta pursuant to the ICAA.
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