Canada: Supreme Court of Canada Decision a Wake-Up Call for Tardy Victors in International Arbitration Proceedings

Arbitration as an option for dispute resolution in international commercial transactions presents a unique set of issues that are often not given the attention and due care they deserve. The primary attraction of international arbitration is that an award rendered pursuant to a valid arbitration clause has virtual finality and international currency in terms of enforcement. It will therefore not be subject to appeal as are court judgments. The intention is that the parties will be able to enforce an arbitration award with minimal court intervention.

This is precisely what Yugraneft Corporation tried to do in Alberta, where the arbitral debtor Rexx Management Corporation was located. Unfortunately, it was too late and its application in 2006 in the Alberta courts for the recognition and the enforcement of the foreign arbitral award that it had secured against Rexx in Russia in 2002 was time-barred.

Enforcement of International Arbitral Awards in Canada

Canada and the provinces have clear sets of rules for the enforcement of international arbitral awards. In 1986, Canada, with the consent of the provinces, ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (the "New York Convention")¹ and adopted the UNCITRAL Model Law on International Commercial Arbitration (the "Model Law"). In terms of enforcement, international arbitral awards, subject to very limited specified exceptions, are enforceable in every Canadian jurisdiction. Canada and the provinces have clear sets of rules for the recognition and enforcement of arbitral awards, although the form of implementing legislation varies. Many provinces such as Alberta and Ontario implemented the New York Convention and the Model Law within the same statute (i.e., the Alberta International Commercial Arbitration Act and the Ontario International Commercial Arbitration Act). However, Alberta appended both the New York Convention and the Model Law to its respective International Commercial Arbitration Act, whereas Ontario has only appended the Model Law, on the basis that it, together with the introductory provisions of the Act, served to implement the New York Convention in Ontario. Other provinces, such as British Columbia, enacted international commercial arbitration legislation to implement the Model Law and separate foreign arbitral awards acts to implement the New York Convention.

Both the New York Convention and the Model Law limit essentially the same grounds on which enforcement of an international arbitral award may be refused. These grounds include: (i) the incapacity of a party, (ii) a lack of notice or inability to present case, (iii) the award decides matters not within the scope of the arbitration agreement, (iv) the tribunal was not properly constituted, (v) the award has been set aside or suspended in the originating jurisdiction, or (vi) the award is contrary to public policy.

The Facts

The facts in Yugraneft Corp. v. Rexx Management Corp. were fairly straightforward. Yugraneft, a Russian corporation that operates oilfields in Russia, had purchased materials from Rexx, an Alberta corporation. After a contractual dispute, Yugraneft was successful in its arbitration claim against Rexx before the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation and was awarded approximately US $1M in damages by the arbitral tribunal in September 2002. More than three years later, in January 2006, Yugraneft applied to the Alberta Court of Queen's Bench for recognition and enforcement of the arbitral award. The court (subsequently upheld by the Court of Appeal) dismissed the application on the basis that it was time-barred under the applicable two-year limitation period of the Alberta Limitations Act.

The SCC Decision

The SCC upheld the Alberta Court of Appeal decision notwithstanding, in addition to arguments from Rexx, interventions and a variety of arguments from the ADR Chambers Inc., the Canadian Arbitration Congress, and the London Court of International Arbitration that the Alberta Limitations Act did not apply.

The court rejected the argument that the enforcement and recognition of foreign arbitral awards are not subject to limitation periods, notwithstanding that neither the New York Convention nor the Model Law expressly impose a limitation period on recognition and enforcement. As the list of grounds on which the recognition and enforcement of an award may be refused (enumerated above) do not refer to local limitation periods, the court relied on Article III of the New York Convention, which stipulates that recognition and enforcement shall be "in accordance with the rules of procedure of the territory where the award is relied upon." Rothstein J., writing for a unanimous court, noted that notwithstanding the exhaustive list of grounds under Article V to the New York Convention upon which recognition and enforcement may be resisted, the courts in the enforcing State may refuse to recognize and enforce an award on the basis that the proceedings are time-barred. The court held that for the purposes of the New York Convention, "any limitation period that, under domestic law, is applicable to the recognition and enforcement of a foreign arbitral award is a 'rule of procedure'" under Article III of the New York Convention.

Impact on International Arbitration

This decision is significant in that the court resisted enforcing and recognizing an international arbitration award on the basis of a provincial limitation period as opposed to any of the enumerated grounds for refusal under the New York Convention or the Model Law.

It will be interesting to see how the jurisprudence develops in other Canadian jurisdictions as there are differences in how each province has implemented the New York Convention and the Model Law, and curious results in terms of enforcement may follow. For example, Ontario's International Commercial Arbitration Act is intended to implement both but only appends the Model Law, and does not have a provision equivalent to Article III of the New York Convention, as does Alberta's International Commercial Arbitration Act, which was relied on by the Supreme Court.

Successful arbitration parties with awards in hand, wishing to enforce an award in a given province, should take careful note of the provincial legislation that applies to international commercial arbitration awards and any provincial limitation period legislation that may be applicable when the award is presented to the court for recognition and enforcement.

Footnotes

1. Under the New York Convention, the procedure for obtaining the enforcement of an arbitral award is straightforward. The arbitral award does not have to be confirmed by the courts in the jurisdiction of the seat of arbitration. Under Article IV of the New York Convention, the party seeking enforcement is only required to supply the court in the enforcing jurisdiction with a duly authenticated original award and either the original or certified copies of the arbitration agreement.

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