Homologation of foreign arbitral awards: the applicable limitation period – Arbitration and dispute resolution

Last June, the Quebec Court of Appeal (“QCCA“) rendered an important decision regarding the limitation period applicable to the confirmation of foreign arbitral awards. This decision highlights the crucial difference between challenging the existence of a right and enforcing an arbitral award that recognizes this right. Moreover, this decision demonstrates the growing importance of arbitration in the Quebec legal system.

Factual background

In 2000, the Societe Generale de Banque in Lebanon (“the bank“) loaned €1,000,000 to Rachad Itani (“Itani“), so that he could buy various properties in Lebanon.¹ The Bank held title to these properties in trust.² In their loan agreement, the parties included an arbitration clause.³

In 2002, the Bank sued Itani in a French court to recover the €1,000,000 Itani owed.⁴ In response, Itani counter-sued the Bank for mishandling the titles to the properties it held in trust.⁵ The French court declared itself incompetent because of the arbitration clause of the loan contract.⁶ In 2005, the parties arbitrated their dispute in Lebanon before the Beirut Chamber of Commerce.^seven In 2006, the arbitrator ordered Itani to pay the Bank €1,319,733.27.⁸ However, the arbitrator found he lacked jurisdiction to rule on Itani’s counterclaim.⁹

In 2016, the Bank filed a motion with the Superior Court of Quebec to homologate the arbitration award.^ten Itani argued that the Bank’s request was statute-barred.¹¹ The trial judge ruled that the motion was not statute-barred since the ten-year limitation period applied.¹² Itani appealed this decision to the QCCA.

Applicable limitation period

The QCCA ruled that the ten-year limitation period applies to requests for enforcement of foreign arbitral awards. This decision differs markedly from that of the Supreme Court of Canada in
Yugraneft¹³which ruled that a three-year limitation period applies for the enforcement of arbitral awards.

First, the Court explains why Yugraneft does not necessarily determine the applicable limitation period. The QCCA cites art. 652 of the Code of Civil Procedure, which states that “[a]“an arbitration award rendered outside Quebec, whether or not it is confirmed by a competent authority, may be recognized and declared to have the same force and effect as a court judgment”.
New York Convention¹⁴ when interpreting the rules for the approval of foreign arbitral awards. The
New York Convention provides that courts must take into account the rules of procedure within their jurisdiction when deciding whether or not to homologate foreign arbitral awards.¹⁵ Accordingly, the Supreme Court’s decision in Yugraneft would be inapplicable if the Quebec rules on limitation differed from those of Alberta.¹⁶ In order to determine whether such a difference exists, the QCCA examines the rules of limitation in the Civil Code of Quebec(“CCQ“).¹⁷

The QCCA concludes that the CCQ requires a limitation period of ten years for the homologation of foreign arbitral awards.¹⁸ Art. 2992 states that the limitation period is ten years, unless otherwise provided by law.¹⁹ Art. 2995 provides that the limitation period for contractual rights is three years.²⁰ The QCCA considers that the three-year limitation period is inapplicable since the Bank is not asking the Court to rule on its contractual rights under the loan agreement.²¹ These rights have already been granted by the arbitrator. Rather, the Bank is asking the Court to enforce a right that has already been recognized in the arbitration. Thus, the three-year limitation period for contractual rights is inapplicable, and the general limitation period of ten years applies when confirming foreign arbitral awards.²²

Finally, the Court notes that the ten-year limitation period also applies because of Art. 2924. Art. 2924 explains that “a right resulting from a judgment is prescribed by ten years if it is not exercised”.²³ Admittedly, explains the Court, an arbitral award is not a judgment. Nevertheless, the CCQ can treat arbitral awards as judgments in certain circumstances.²⁴ If, in the matter of prescription, the CCQ uses the word “judgment” in a way that clearly includes arbitral awards, then it can be presumed that “a right resulting from a judgment” under art. 2924 includes a right resulting from an arbitration award.²⁵ The word judgment must have the same meaning in all articles on prescription, as required by art. 41.1 of Interpretation Act.²⁶ Thus, the QCCA analyzes art. 2896 and demonstrates that this section uses the word “judgment” in a manner clearly intended to include arbitration.²⁷ Accordingly, the Court concluded that the word “judgment” in s. 2924 also intends to include arbitral awards. Therefore, the ten-year limitation period applies under Art. 2924.

Conclusion

This case is significant for two main reasons. First, the judgment explains that in matters of limitation, there is an important difference between disputing the existence of a right and enforcing an arbitral award which recognizes this right. In the first case, a three-year prescription applies; in the latter, the limitation period is ten years. Second, this case highlights the important status of arbitration in Quebec. Indeed, this decision treats arbitral awards with almost the same importance as court judgments.

Footnotes

1. Itani v. Societe Generale de Banque au Liban SAL2022 QCCA 920, at para 3.

2. Same.

3. Same in paragraph 4.

4. Same in paragraph 5.

5. Same.

6. Same in para 6.

seven. Same in para 7.

8. Same in paragraph 9.

9. Same.

ten. Same in para 11.

11. Same in para 12.

12. Societe Generale de Banque au Liban SAL c. Itani2019 QCCS 5266, at para 49.

13. Yugraneft Corp. vs. Rexx Management Corp.2010 SCC 19.

14. LRC 1985 c 16 (2^n/a supp), art. I, III, V, XI.

15. Same; above note 1 at paragraph 29.

16. Supra note 13 at paragraph 1; above note 1 at paragraph 29.

17. Supra note 1 at paragraph 29.

18. Same in paragraph 33.

19. Art. 2992 CCQ.

20. Same, art. 2995.

21. Supra note 1 at para 32.

22. Same in paragraph 33.

23. Art. 2925 CCQ.

24. Same in paragraph 34.

25. Same at 34, 35.

26. Same at paras. 36 and 37; CQLR, c. I-16.

27. Supra note 1 at paragraphs 34-36.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.