Don't be late – the risk of arbitral awards becoming unenforceable due to limitation periods

Don't be late – the risk of arbitral awards becoming unenforceable due to limitation periods
Author:
Anna Stier
Senior Legal Counsel - The Netherlands

Arbitral awards benefit from being widely enforceable. This is the case particularly in jurisdictions that are members of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 (New York Convention). Recognition and enforcement of a foreign arbitral award under the New York Convention is rejected only on narrow grounds (Article V). There is, however, an additional ground for an award to become unenforceable in a specific jurisdiction that is often overlooked: limitation periods.

At Omni Bridgeway, we often see award creditors underestimate, or even ignore, the risk of limitation periods. While creditors hope that the award debtor will voluntarily comply with the award, wait for setting-aside proceedings to be concluded, or simply shy away from the complexity and costs of multi-jurisdictional international enforcement actions, the unwilling debtor is often assisted by local limitation period rules. These rules can render the award unenforceable in jurisdictions where attachable assets could have been, or eventually are, located.

Lack of uniform rules 
The length of time that an award creditor can delay enforcement before it becomes “too late” differs from jurisdiction to jurisdiction. There is no uniform regulation on the issue. Article III of the New York Convention allows for national “rules of procedure” to govern the enforcement of foreign arbitral awards. In the famous Yugraneft case (Yugraneft Corp. v. Rexx Management Corp., 2010 SCC 19, [2010] 1 S.C.R. 649), the Canadian Supreme Court held that national or regional rules on limitation periods apply to the enforcement of a foreign arbitral award as “rules of procedure”. This, the court held, is irrespective of whether a specific jurisdiction considers the issue of limitation periods as procedural.  

National rules on limitation periods   
The differences between limitation period provisions that are expressly applicable, or commonly applied, to the enforcement of arbitral awards are considerable. In Canada, the 10 provinces all have their statutes with time limitations (some prescribing 2-year limitation periods and others 10 years). In the US, a limitation period of 3 years from the date of the award applies by virtue of Article 207, chapter 2 of the Federal Arbitration Act (9 U.S. Code § 207 FAA). In Russia and China, limitation periods are equally short, 3 and 2 years respectively from the time an award (or judgment) becomes “binding” (Russia) or “effective” (Article 239 Chinese Civil Procedure Law).

In many common law jurisdictions, such as England & Wales (section 7, Limitation Act 1980), Singapore (section 6(1)(c), Limitation Act (Cap 163)) or Hong Kong (section 4(1)(c), Limitation Ordinance (Cap 347)), awards can no longer be enforced after 6 years from the “time that the cause of action accrued”.

In many civil law jurisdictions, limitation periods for the enforcement of awards are not expressly regulated. In Sweden, this leads to no limitation period applying to the enforcement of awards; whereas in France, without any leading statute or even jurisprudence, the general limitation period for all civil actions of only 5 years could apply (section 2224 Code Civil). Similarly, in Germany, the general and generous limitation period of 30 years for final claims (such as domestic court decisions and domestic arbitral awards) (section 197.3 Civil Code) may be applied for lack of a more specific rule.

The time when limitation periods start to run  
In addition to differences in the length of a limitation period, there is also considerable diversity in when the period is triggered and starts to run. The most straightforward “trigger” event may be the date of the award, as stipulated in the US (9 U.S. Code § 207 FAA). With regard to the term “time that the cause of action accrued”, the English High Court in Agromet Motoimport Ltd v Maulden Engineering Co (Beds) Ltd [1985] 1 WLR 762, held that the limitation period started to run at “the defendants’ failure to honour the award when called upon to do so”. Even if the award debtor may fail to honour the award on day one after it is rendered, the Hong Kong Court of First Instance granted the defendant a “reasonable time” after the publication of the Award and the “demand [for payment] being made” (CL v SCG [2019] HKCFI 398). What is reasonable, however, would be decided on a case-by-case basis.

In Yugraneft, the Canadian Supreme Court arguably handed the creditor an important additional delay in the form of the so-called “discoverability rule”. According to the rule, limitation periods start running only after the award creditor discovers (or could have discovered) that enforcement is necessary in the jurisdiction, that is, after he discovers (likely) assets of the award debtor in the jurisdiction.

Work-around  
Where the rules are clear but in practice appear too short, creditors and courts may be able to create a work-around. This is the position in the US. In two cases, decided 10 years apart, two US Courts of Appeal held that a foreign award that had been recognised and granted an exequatur elsewhere could be enforced in the US as foreign judgment (Seetransport Wiking Trader Schiffahrtsgesellschaft MBH & Co v. Navimpex Centrala Navala, 29 F.3d 79 (2d Cir. 1994) and Import Export S.A. v. Republic of the Congo, 757 F.3d 321 (2014)). This meant that the cases benefited from much longer time limitations for (foreign) judgments (for example, 15 and 20 years in these cases, respectively).

Whether the US Supreme Court will endorse this work-around remains to be seen. It is also important to note that a similar approach will fail in most civil law jurisdictions for the prohibition of “exequatur on the exequatur”.

No tolling effect of setting-aside  
In many arbitration cases, the award debtor will seek to set-aside the award at the seat of the arbitration. An award creditor may want to be sure that the award will survive setting-aside before starting to enforce it. However, under most local arbitration rules, the award is final and binding upon it being rendered, and setting-aside does not stop enforcement, nor will it toll (that is, temporarily suspend) the limitation period in that or other jurisdictions. It is therefore one of the most common and detrimental mistakes of creditors to wait for setting-aside to be concluded before thinking about enforcement of an award. After an award has survived the often several years long setting-aside proceedings, it may well be already unenforceable in some jurisdictions due to relatively short limitation periods such as in the US, China or Russia.

Enforcement strategy  
An early enforcement strategy, latest at the time the award is rendered, is therefore crucial. The starting point must always be the discovery of (likely and attachable) assets of the debtor, and the establishment of which national rules of limitation periods may apply and how to possibly toll those rules. The alternative, (blind) enforcement in any or all of the currently 166 member states of the New York Convention is clearly an unattainable, costly and overall undesirable endeavour. Also, the home jurisdiction of the award debtor may seem to be a logical choice, but it is not necessarily the right choice, depending on the rules and reliability of the local judiciary and the asset position of the debtor.

This is not to suggest the creditor cannot hope (and wait) for the debtor to comply voluntarily or to negotiate a settlement. However, a strategy for enforcement should be made, even while attempts for voluntary payment are made. If it can be avoided, the award creditor should not wait for setting-aside proceedings to be concluded.

How we can help  
Having devoted more than 30 years to asset tracing and enforcement of debts against unwilling debtors, Omni Bridgeway is uniquely qualified to advise clients on how to safeguard collectability. Omni Bridgeway works with clients to develop a comprehensive enforcement strategy by providing financial resources on a non-recourse basis (“no win, no fee”), asset tracing services, strategic guidance, and access to a global network of experts to see disputes through to their best commercial outcomes.

Learn more  
To learn more about Omni Bridgeway’s dispute finance and enforcement capabilities, visit us at www.omnibridgeway.com. While there, explore our recent podcasts, blog posts, and videos via our Company Insights. Or contact us to learn more about the ways we can help you enforce your title or award.

For further reading on the issue of time limitation, please also see Sumru Akter’s 'Chapter 6: Flipping the Hourglass: Time Limits for the Recognition and Enforcement of Foreign Arbitral Awards', in Katia Fach Gomez and Ana M. Lopez-Rodriguez (eds), 60 Years of the New York Convention: Key Issues and Future Challenges (© Kluwer Law International; Kluwer Law International 2019) pages 85 -98.