Québec – award treated as “judgment” subject to ten (10) year prescription (limitation) period – #259

In Société générale de Banque au Liban SAL v. Itani, 2019 QCCS 5266, Madam Justice Dominique Poulin held that the longer, ten (10) year prescription (limitation) period applied to recognize and enforce an arbitration award made outside of Québec.  Notwithstanding comments to the contrary in Yugraneft Corp. v. Rexx Management Corp., 2010 SCC 19 (CanLII), [2010] 1 SCR 649 based on two (2) of its leading cases originating from Québec, Poulin J. reasoned that, to be coherent, the provisions in the Civil Code of Québec, CQLR c CCQ-1991 should be read to treat an arbitration award as a “judgment”, thereby qualifying it for longer prescription (limitation) period.

Société générale de Banque au Liban SAL (the “Bank”) and Mr. Rachad Itani (“Mr. Itani”) signed a May 15, 2000 trust-guaranty contract (“Fiducie-Sûreté”) (“Contract”) to guarantee reimbursement of an earlier April 28, 2000 loan of €1,000,000.00 (“Loan”) made to Mr. Itani by the Bank.  The Contract provided for the constitution of a trust holding specific shares and subject to the Bank’s management.  The Contract included an arbitration clause.

On May 27, 2002, the Bank initiated proceedings in the courts in Paris for repayment of monies under the Loan. Mr. Itani responded by filing a cross-demand in the same court against the Bank in its role as manager of his investments under the Contract.  The Paris court on May 27, 2003 held that it lacked jurisdiction over the cross-demand because of the Contract’s arbitration agreement and referred the parties to arbitration.   Mr. Itani’s appeal of that decision was granted in part by the Paris Court of Appeal which held that the Paris courts lacked jurisdiction to hear the ‘entire dispute’ (“l’entier litige”).

Despite proposals by the Bank in June 2004, subject to conditions, to submit the ‘entire dispute’ to arbitration, Mr. Itani did not accept. 

The Bank communicated a notice of arbitration on January 29, 2005 invoking the Contract’s arbitration clause.  The arbitrator’s nomination was confirmed June 1, 2005.  Mr. Itani responded that the scope of the arbitration had been determined by the Paris Court of Appeal on April 28, 2004 and covered the entire dispute.

The arbitration pursued and the arbitrator issued an August 10, 2006 award in Lebanon (“Award”) ordering Mr. Itani to pay € 1,319,733.27 with 4% interest calculated from January 29, 2005.   Mr. Itani applied to the Beirut Court of Appeal to annul the Award but his application was dismissed March 9, 2011.

The Bank applied on April 14, 2016 to the Québec Superior Court under article 652 Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”) to have the Award recognized and enforced.  Mr. Itani objected, arguing, among other things, that the application to recognize and enforce the Award was subject to a three (3) year prescription (‘limitation’) period which had expired.

At paras 23-49, Poulin J. addressed the issue of prescription.  Articles 620 C.C.P. et seq. deal with arbitration in general and articles 652 C.C.P. et seq. address arbitration awards “made outside Québec”. 

Poulin J. noted that article 652 C.C.P. stipulates no prescription period.

Article 652 C.C.P. An arbitration award made outside Québec, whether or not confirmed by a competent authority, may be recognized and declared to have the same force and effect as a judgment of the court if the subject matter of the dispute is one which could be submitted to arbitration in Québec and if recognition and enforcement of the award are not contrary to public order. The same applies for a provisional or safeguard measure.

The application for recognition and enforcement must be accompanied by the arbitration award or measure concerned and the arbitration agreement and by a translation certified in Québec of those documents if they are drawn up in a language other than French or English.

Consideration may be given, in interpreting the rules in this matter, to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted by the United Nations Conference on International Commercial Arbitration at New York on 10 June 1958.

The omission in article 652 C.C.P. of any period in which to apply is highlighted by the express mention in article 648 C.C.P. of such a period for other types of arbitral awards.  Under article 648 C.C.P., an application for annulment of an award not made outside of Québec must be presented within three (3) months after receipt of the award or the decision on a request for a correction, a supplemental award or an interpretation.  Article 648 C.C.P. provides that “[t]his is a strict limit”.

The concluding lines of article 652 C.C.P. direct attention to New York Convention. Poulin J. recognized that the Supreme Court had looked at the role of provincial limitation periods in Yugraneft Corp. v. Rexx Management Corp., 2010 SCC 19 (CanLII), [2010] 1 SCR 649 in light of the New York Convention.

[18]  In my view, art. III permits (although it does not require) Contracting States (or, in the case of a federal State, a sub-national territory with jurisdiction over the matter) to subject the recognition and enforcement of foreign arbitral awards to a time limit. However, it should not be viewed as automatically recognizing and imposing either the traditional common law or civil law approaches to limitation periods. Rather, the phrase “in accordance with the rules of procedure of the territory where the award is relied upon” should be understood as indicating application of domestic law on such matters. Thus, notwithstanding art. V, which sets out an otherwise exhaustive list of grounds on which recognition and enforcement may be resisted, the courts of a Contracting State may refuse to recognize and enforce a foreign arbitral award on the basis that such proceedings are time-barred. I reach this conclusion for three reasons.

Over the following paras 19-34 of its reasons, the Supreme Court set out support for its determination that the New York Convention allows provinces, as enforcing jurisdictions within a contracting federal state such as Canada, to impose local time limits on the recognition and enforcement of foreign arbitral awards.

Having identified the province’s authority to set such time limits, Poulin J. turned to examine the rules of extinctive prescription contained in the Civil Code of Québec, CQLR c CCQ-1991 (“C.C.Q.”).  The time limits in Québec civil law are referred to as extinctive prescription and not limitation periods. Article 2921 C.C.Q. defines extinctive prescription as a means of extinguishing a right owing to its non-use or of pleading a peremptory exception to an action.

Poulin J. sought to determine whether article 2925 C.C.Q.’s three (3) year or articles 2922 or 2924 C.C.Q.’s ten (10) year prescription period applied.

The Court of Appeal in Barreau du Québec v. Greenbaum, 2002 CanLII 41232 (QC CA) had determined that an application to homologate (the Québec equivalent of recognition and enforcement) of a disciplinary body’s decision was subject to ten (10) year prescription.  The Court of Appeal considered such applications to be the exercise or execution of a right already recognized by a judgment, similar to article 2924 C.C.Q., and not to enforce a personal right as under article 2925 C.C.Q.  The Court of Appeal considered that the right had already been determined by a judicial authority even though the disciplinary body was not formal court.

Mr. Itani argued that article 2924 C.C.Q. specifically mentioned a “judgment” and an arbitral award did not qualify as such.  He referred to the observations made in Yugraneft Corp. v. Rexx Management Corp. that, relying on earlier case law stemming from Québec, arbitral awards are not judgments.

[44] Yugraneft’s position must be rejected. An arbitral award is not a judgment or a court order, and Yugraneft’s application falls outside the scope of s. 11. In Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, [2007] 2 S.C.R. 801, Deschamps J., writing for the majority, noted that “[a]rbitration is part of no state’s judicial system” and “owes its existence to the will of the parties alone” (para. 51). See also Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17, [2003] 1 S.C.R. 178, in which LeBel J., for the Court, wrote, “[i]n general, arbitration is not part of the state’s judicial system, although the state sometimes assigns powers or functions directly to arbitrators” (para. 41).

Poulin J. disagreed, holding that the reasoning in Barreau du Québec v. Greenbaum should apply by analogy.  She noted two (2) prior decisions which had ostensibly invoked article 2924 C.C.Q. to apply a ten (10) year prescription period: Transport Michel Vaillancourt inc. v. Cormier, 2006 QCCS 803 and Bard v. Appel, 2015 QCCS 4752.  The latter was affirmed in Bard v. Appel, 2017 QCCA 1150 but subject to the Court mentioning that it took for granted, without express determination, that article 2924 C.C.Q. applied.

In first instance, Bard v, Appel distinguished Yugraneft Corp. v. Rexx Management Corp., limiting its application to the Alberta legislation on which it rested and followed the reasoning in Barreau du Québec v. Greenbaum instead as a more direct guide.

Poulin J. determined that, in extinctive prescription, the C.C.Q. treats arbitration as a judicial instance: 

(i) article 2892 C.C.Q. provides that the filing of a judicial application before the expiry of the prescriptive period constitutes a civil interruption and that a notice expressing a party’s intention to submit a dispute to arbitration is considered to be a judicial application;

(ii) article 2895 C.C.Q. provides that where a party’s demand is dismissed without a decision having been made on the merits of the matter, the demanding party has an additional three (3) months in which to assert its rights and that the same applies to arbitration;

(iii) article 2896 C.C.Q. an interruption prescription continues until the judgment has become final and no distinction is made between a court process or arbitral process.

Poulin J. referred next to article 41.1 of Québec’s Interpretation Act, CQLR c I-16 which requires that the provisions of a statute are construed by one another, ascribing to each provision the meaning which results from the whole statute and which gives effect to the provision.  The provisions on prescription are consolidated together in Book Eight of the C.C.Q. and a ‘coherent’ reading of those provisions, in light of article 2896 C.C.Q. lead Poulin J. to extend the meaning of “judgment” to include an arbitral award.

Poulin J. considered that (i) it would be reasonable to understand that an arbitration award could be executed in the same delays as could a court judgment given the extent to which a notice to arbitrate can interrupt prescription just like an action before the court; and (ii) it is fair to think that the legislature would  have wanted to have the parties benefit from the same rules.

She concluded that article 2924 C.C.Q. applied and not article 2925 C.C.Q. to set a ten (10) year prescription.

The Award issued August 10, 2006.  The application to the Superior Court was filed April 14, 2016 and was not prescribed.

urbitral note – (i) Distinctions exist between a “limitation” period and a “prescription” period.  For example, see Hamel v. Canada, 1999 CanLII 9337 (FCA), [1999] 3 FC 335:

[15] It is interesting to note several important similarities and some differences between the common law and Quebec civil law approaches to prescription or limitation of a legal remedy.

[16] In both legal systems, the bases for the rule concerning extinctive prescription include objectives such as public policy and the need to give people peace of mind with respect to their conduct after a certain period of time has elapsed. They also include the need to protect people from the deterioration and destruction of evidence by the passage of time and from injustice which may result from the fact that their conduct in a certain situation at a certain time could be assessed much more critically, several years later, because of different standards due to changes in cultural values, scientific knowledge, societal interests or public policy. In short, the protection which extinctive prescription affords a debtor is justified on the basis of functional utility and societal interests.

[17] It is also generally accepted in both systems that prescription, with the exception of what constitutes delay of forfeiture in Quebec civil law, does not extinguish a creditor’s substantive rights but rather his or her remedy. G. Mew states this rule and its justification at common law as follows:

For the most part, limitation provisions found in Canadian statutes extinguish remedies rather than substantive legal rights. Thus, one commonly finds that an action must be commenced “within and not after” the prescribed period, or that no action shall be brought to recover money in certain circumstances except within the prescribed time limit.

As a result, although a party is barred from enforcing its remedies once that time period has expired, its legal right will survive. The rationale for this approach is explained as follows:

Extinguishing rights is not an objective of a limitations system. Rather, its objective is to force the timely litigation of disputes if there is to be litigation.

[18] Quebec authors have made similar statements:

[translation] Extinctive prescription, because we must differentiate between this type of prescription and forfeiture, does not extinguish the rights of the person whose action is prescribed. It merely prevents that person from enforcing the remedy prescribed by his or her inaction. Forfeiture of the remedy goes much further: it does not simply prevent the possibility of enforcing grounds of law, but also extinguishes the right itself.

[19] Of course, in practice, in the vast majority of cases but not always, extinctive prescription will have the effect of making the creditor’s right meaningless because he or she will then have no way of enforcing it.

(ii) B.C. has its own ten (10) year prescription in its Limitation Act, SBC 2012, c 13, subsuming an arbitration award, to which the Arbitration Act, RSBC 1996, c 55, the Foreign Arbitral Awards Act, RSBC 1996, c 154 or the International Commercial Arbitration Act, RSBC 1996, c 233 applies, to “local judgment”.  Unlike the C.C.Q. provisions considered by Poulin J., the B.C. legislation expressly speaks to the inclusion of arbitration awards as judgments for the purposes of limitation periods.

(iii) Transport Michel Vaillancourt inc. v. Cormier involved an April 29, 1997 award for which homologation was sought in an application made on June 29, 1997 but lay dormant before the courts until a decision (date undisclosed) of the Superior Court affirmed by the Court of Appeal on May 25, 2005.  Prescription was interrupted under article 2892 C.C.Q. by the judicial filing in April 1997 and the court’s eventual/late adjudication of that application, years later, does not raise the same issue as that before Poulin J.