Canada: "Yugraneft Corp. v. Rexx Management Corp.": Victors in International Arbitration Proceedings Must Look Out for Local Limitation Periods

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. Perhaps 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. This award is final and will not be subject to appeal, as is the case with 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, Yugraneft waited too long and the local limitation period for enforcing its arbitral award had expired. Consequently, 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 and was dismissed.

The Facts

Yugraneft, a Russian corporation that operates oilfields in Russia, 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 interventions and submissions from the ADR Chambers Inc., the Canadian Arbitration Congress, and the London Court of International Arbitration (in addition to the argument from Rexx) 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. Even though the list of grounds set out in the Convention and the Model Law, on which the recognition and enforcement of an award may be refused, do not refer to local limitation periods, the court relied on Article III of the New York Convention. This convention 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 on 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.

McCarthy Tétrault Notes

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 attached both the New York Convention and the Model Law to its respective International Commercial Arbitration Act, whereas Ontario has only attached 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 acts 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 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 (v) the award is contrary to public policy.

Significance of the Decision

This decision is significant because 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, which implements both the Convention and the Model Law, but only appends the Model Law, 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 of any provincial limitation period legislation that may be applicable when the award is presented to the court for recognition and enforcement.

Footnote

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.