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Web Exclusive: Will SCC hear high profile international arbitration case?

|Written By James Redmond and Barry Leon

The pending Supreme Court of Canada leave to appeal application in Yugraneft v. Rexx Management is an important international arbitration case.

The case, in our view, is not only of national importance — it is of international importance. It goes to the heart of the attractiveness of international commercial arbitration: the ability to enforce an international arbitration award relatively easily in most countries in the world.

Canadians should be aware of just how significant this case is to international business globally, and should hope that our Supreme Court takes on the case, and on the appeal articulates that limitation periods cannot be imposed on applications to recognize and enforce international arbitral awards. Not in Canada, and not elsewhere.

Some 143 countries, including Canada in 1986, are signatories to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, more commonly known as the New York Convention. This year marks the 50th anniversary of the convention.

The New York Convention is widely regarded as one of the most successful international conventions ever.

Not only has it been accepted by so many countries, it has had a huge positive effect on international trade and commerce, and international development projects — with international arbitration, businesses everywhere have a reliable method of dispute resolution when they contract with businesses elsewhere (not infrequently where the court systems lack the honesty, independence, reliability, and competence that exists in courts that we know in Canada).

A Canadian business can invest in, or sell goods or services to a company in a country with the least honest, most corrupt, and least competent court system in the world, and know that it can have disputes with the opposite party determined by international arbitrators in a reliable country of their choosing.

More than anything, what makes international arbitration effective is the requirement of the New York Convention that each signatory country recognize and enforce an international arbitration award made elsewhere, except in very narrow circumstances that are set out.

The same requirement is carried forward and repeated in most modern international arbitration statutes through the mechanism of the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985.

Canada was the first country to adopt the model law, and now it is in force (with minor modifications) in all provinces and territories. In Ontario, for example, the model law is appended to, and forms the bulk of the International Commercial Arbitration Act.

The model law requires that the courts of the jurisdiction shall recognize and enforce international arbitral awards irrespective of the country in which they were made, except in the very narrow circumstances set out (which parallel the New York Convention exceptions).

Yet, on Aug. 5, 2008, the Alberta Court of Appeal carved a huge hole in Canada's commitment by ruling in Yugraneft v. Rexx Management that Alberta will not recognize or enforce a foreign arbitral award if proceedings for recognition and enforcement are not commenced in Alberta within two years.

The Court applied Alberta's basic two-year limitation period (which exists also in Ontario, and in other provinces either at two years or some other fixed number of years).

If the Alberta decision stands, not only will it severely restrict enforcement of foreign awards in Alberta but likely will affect decisions across Canada, unless other appellate courts rule in a different way when the issue comes before them.

Limitation periods exist to ensure that prospective defendants are made aware of claims against them on a timely basis, so they can preserve evidence, so memories do not fade unduly, and so they can carry on without unhappy surprises coming out of the woodwork many years after the event. These policy rationales generally are inapplicable when the defendant has been the subject of a proceeding elsewhere in which the defendant was made aware of the proceeding and had an opportunity to defend it.

It is easy to see that a party seeking to enforce an international arbitral award may not learn where in the world the debtor has assets — perhaps hidden assets — until some years after the award. Perhaps there have been unsuccessful attempts to enforce elsewhere first.

But whether as a policy matter a party who is the beneficiary of an arbitral award should be able to have the award enforced in another country after some period of time is not the heart of the issue.

The New York Convention requires its signatories to recognize and enforce, and none of the specified exceptions are a time delay in the making of the application.

Some may argue that time restrictions are permitted by the New York Convention. Yes, art. III says enforcement shall be in accordance with local rules of procedure and that the country in which enforcement is sought shall not impose “substantially more onerous conditions or higher fees or charges” on the recognition or enforcement of international awards than it imposes on recognition or enforcement of domestic arbitral awards.

But in law, limitation periods are not procedural; they are substantive law.

So imposing a limitation period seems to run contrary to Canada's commitment in the convention, which is part of the law of Canada.

Further, the model law, which has been adopted in the international commercial arbitration statutes in Canada, including Alberta, provides no room for such arguments. The model law, and hence the international commercial arbitration statutes in Canada, clearly require recognition and enforcement, except in the very narrow circumstances specified.

The Alberta courts searched for a limitation period, failing to take account of the fact that the drafters of the New York Convention, the model law, and Alberta's International Commercial Arbitration Act chose not to impose a time limitation on applications for recognition and enforcement of international arbitral awards.

There are also reasonable grounds to question the reasoning of the Court of Appeal on its merits. First, it is questionable whether s. 3 of the Alberta Limitations Act providing a two-year limitation for seeking a “remedial order” should be taken to apply to proceedings for recognition and enforcement of an international commercial arbitration award.

Second, it is difficult to understand the basis on which the court considered that it should apply rules relating to the enforcement of judgments of foreign courts to the recognition and enforcement of international arbitration awards when Alberta has its own specific legislation, the International Commercial Arbitration Act, incorporating as schedules to the act both the model law and the New York Convention.

Notwithstanding that the model law and the New York Convention contain no time limitation for applications to recognize and enforce international arbitration awards, the judge at first instance concluded that in the absence of such a provision, he should look outside this legislation for an appropriate limitation period. He selected the two-year limitation for the enforcement of judgments of foreign courts.

The Court of Appeal followed the same course, but failed to explain why those rules should apply when a primary object of international commercial arbitration legislation is to avoid having international disputes decided by national courts and to provide uniform means for enforcing international arbitration awards worldwide.

As to the application of the two-year limitation in the Limitations Act for seeking “remedial orders,” it seems questionable that the drafters of the act had international commercial arbitration awards in their contemplation when they defined this term.

When the successful party in an international arbitration requests recognition and enforcement of the award, it is not asking the court to determine whether it is entitled to a remedy. That has already been decided by an arbitral tribunal in accordance with the rules governing such arbitrations. The party is asking for enforcement of that remedy pursuant to the provisions of specific legislation enacted as part of a worldwide regime for international arbitration — a regime that provides that recognition and enforcement can only be refused on very narrow grounds — grounds that do not include any time limit.

Interestingly, at the same time as it was enacting international arbitration legislation, the Alberta legislature enacted domestic arbitration legislation. The Alberta legislature, like many other provincial legislatures, did include a limitation period in the domestic arbitration legislation. So it cannot be that these legislatures simply forgot about limitation periods for their international arbitration acts.

A decision by the Supreme Court of Canada will be important to bring certainty and uniformity to the Canadian approach to the time in which recognition and enforcement of international arbitral awards must be sought.

As well, a decision by the Supreme Court of Canada will be significant globally.

Canada is not the only country in which limitation periods are being applied to recognition and enforcement applications. There are at least 50 countries that purport to apply some form of limitation period. Two years is the shortest period — but the length, while of practical importance, is not the issue here — the issue is whether any limitation period is allowed under the provincial international arbitration statutes (or any other Canadian statutes) or under the New York Convention.

It will be in keeping with the Supreme Court of Canada's leadership role on international legal issues for it to take up this critically important issue.

It would be a major lost opportunity for Canada — and for global business activity — if the Supreme Court of Canada fails to grant leave in Yugraneft v. Rexx Management.

James Redmond (james.redmond@shaw.ca) is an independent international and domestic arbitrator, mediator and litigation counsel, Edmonton. Barry Leon (bleon@torys.com) practises international and domestic litigation and arbitration in the Toronto office of Torys LLP (www.torys.com).


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