Case of the Day: Yugraneft Corp. v. Rexx Management Corp.
Posted on January 20, 2011
The Blogatory case of the day, Yougraneft Corp. v. Rexx Mgmt. Corp.,  1 S.C.R. 649 (Canada), is also our first foreign case. Before turning to the case itself, just a note about our international coverage: our coverage of international cases will typically lag behind our coverage of U.S. cases and will certainly be less comprehensive. We’ve reported on U.S. cases in the federal courts within days of their decision. Yougraneft was decided in May 2010. International readers can help speed up our coverage of cases in their jurisdictions with an email alerting me to new decisions. You can email me using the contact page (see above).
On to the case!
Yougraneft was a Russian corporation in the oil drilling business. It purchased materials from Rexx, an Alberta corporation. A dispute arose, and Yougraneft demanded arbitration before the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation. In 2002, the tribunal awarded nearly a million dollars in damages to Yougraneft. In 2006, Yougraneft sought recognition and enforcement of the award in the Alberta Court of Queen’s Bench. The court dismissed Yougraneft’s application on the grounds that it was barred by the statute of limitations under Alberta law. The case ultimately made its way to the Supreme Court of Canada, which affirmed.
Article III of the New York Convention provides:
Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. …
By way of background, at common law statutes of limitations are generally conceived as procedural, while in the civil law statutes of limitations are generally conceived as substantive. On the other hand, after Tolofson v. Jensen,  3 S.C.R. 1022, Canadian law treats statutes of limitation as substantive rather than procedural.
The case has several interesting holdings. First, the Court held that Article III permits, but does not require, states to refuse recognition and enforcement of awards on the basis of statutes of limitations in their local law. It gave three reasons for the holding. First under the Vienna Convention, the New York Convention must be interpreted “in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.” The New York Convention was expressly intended to apply in different legal systems, and when it was drafted, the drafters understood that different legal systems treated statutes of limitations differently. Thus the Convention should be interpreted to permit each contracting state to apply its own characterization of statutes of limitations. Second, under the Vienna Convention, state practice is relevant to the interpretation of the New York Convention. Many states, including some civil law jurisdictions, indicated, in response to a UN survey, that they do or would subject recognition and enforcement of foreign arbitral awards to a time limit. Third, according to the Court, there was a scholarly consensus that Article III permits application of local statutes of limitation.
Second, given the Court’s holding that Article III allows states to apply their own characterization of statutes of limitation, and given that Canadian law now regards statutes of limitation as substantive, one might expect the Court to conclude that a Canadian court cannot refuse recognition or enforcement of an award on such grounds. Indeed, the Canadian Arbitration Congress, which had intervened in the case, made just this argument. But the Court rejected it, looking not to how Canadian law characterizes statutes of limitation, but rather, to whether the Alberta legislature had intended the statute of limitations to apply to recognition and enforcement of arbitral awards. If so, then the statute is to be construed as a rule of procedure for Article III purposes. The Court seems to be saying that the statute of limitations can be characterized differently for different purposes and distiguishing Tolofson on the grounds that there, statutes of limitation are characterized as substantive for the purpose of ensuring that the limitation period of the lex loci rather than the limitation period of the forum should apply. I think this view can be criticized, but I will leave the criticism of the Supreme Court of Canada on matters of Canadian law to my Canadian colleagues!
Third, another intervenor, ADR Chambers, Inc., argued that Alberta could not permissibly impose a shorter limitations period on recognition and enforcement of international arbitral awards than did other provinces in Canada with regard to domestic arbitral awards, and since both Québec and British Columbia have a ten-year statute of limitations for enforcement of domestic awards, Alberta’s law violates the provision of Article III that prohibits a state from imposing “substantially more onerous conditions … on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.” The Court rejected this argument on federalism grounds, noting that Article XI of the Convention recognizes that some contracting states are federal or otherwise non-unitary. Moreover, the Court noted the distinction in Article III between the “Contracting State” and the “territory where the award is relied upon”, a neat textual distinction that makes it clear that the relevant jurisdiction is Alberta, not Canada.
Last, the Court rejected the argument of the LCIA, yet another intervenor, that Alberta’s statute of limitations did not sufficiently show the legislature’s intent to apply a limitations period to recognition and enforcement of international arbitral awards, especially in light of the fact that the UNCITRAL Model Law, which Alberta had adopted, contained no limitations period. The Court rejectedt his argument on the grounds that the limitations act was enacted after the Model Law in Alberta and was intended to be comprehensive.
The Court goes on to consider various other issues, including the issue of which of the several provisions of the Alberta statute of limitations should apply, and whether the discovery rule tolled the running of the statute of limitations.
Just by way of comparison to U.S. law, Section 207 of the FAA provides for a three-year statute of limitations for applications for an order confirming an award falling under the New York Convention, and Section 9 provides for a one-year statute of limitations in domestic arbitration cases.