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By Charles Côté-De Lagrave, attorney at Spiegel Sohmer Inc., and Joshua Lasry, student at Spiegel Sohmer Inc.

This June, the Quebec Court of Appeal (“QCCA”) rendered an important decision about the prescription period applicable to homologating foreign arbitral awards. This decision highlights the critical difference between litigating the existence of a right and enforcing an arbitral award that recognizes that right. Moreover, this decision demonstrates the growing importance of arbitration in Quebec’s legal system.

Factual Background

In 2000, the Société générale de Banque au Liban (“the Bank”) loaned €1,000,000 to Rachad Itani (“Itani”), so that he could purchase various properties in Lebanon.[1] The Bank held the titles to these properties in trust.[2] In their loan contract, the parties included an arbitration clause.[3]

In 2002, the Bank sued Itani in French Court to recover the €1,000,000 Itani owed.[4] In response, Itani countersued the Bank for mismanaging the titles to the properties it held in trust.[5] The French court declined jurisdiction because of the loan contract’s arbitration clause.[6] In 2005, the parties arbitrated their dispute in Lebanon before the Chamber of Commerce of Beirut.[7] In 2006, the arbitrator ordered Itani to pay the Bank €1,319,733.27.[8] However, the arbitrator held that he lacked jurisdiction to adjudicate Itani’s countersuit.[9]

In 2016, the Bank made a motion before the Superior Court of Quebec to homologate the arbitral award.[10] Itani argued that the Bank’s motion was prescribed.[11] The trial judge ruled that the motion was not prescribed because the ten-year prescription period applied.[12] Itani appealed this decision to the QCCA.

Applicable Prescription Period

The QCCA held that the ten-year prescription period applies to motions for enforcing foreign arbitral awards. This holding differs markedly from the Supreme Court of Canada’s holding in Yugraneft[13], which held that a three-year prescription period applies for enforcing arbitral awards.

First, the Court explains why Yugraneft does not necessarily determine the applicable prescription period. The QCCA cites art. 652 of the Code of Civil Procedure, which states that “[a]n arbitration award made outside Quebec, 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”. This article further states that Quebec courts should consider the New York Convention[14] when interpreting the rules on homologating foreign arbitral awards. The New York Convention provides that courts should consider the procedural rules of their jurisdiction when deciding whether to homologate foreign arbitral awards.[15] Accordingly, the Supreme Court’s holding in Yugraneft would be inapplicable if Quebec’s rules on prescription differ from Alberta’s.[16] To determine whether such a difference exists, the QCCA examines the prescription rules in the Civil Code of Quebec (“CCQ”).[17]

The QCCA concludes that the CCQ requires a ten-year prescription period for homologating foreign arbitral awards.[18] Art. 2992 states that the prescription period is ten years unless the law states otherwise.[19] Art. 2995 provides that the prescription period for contractual rights is three years.[20] The QCCA reasons that the three-year prescription period is inapplicable because the Bank is not asking the Court to adjudicate its contractual rights under the loan agreement.[21] Those rights were already adjudicated by the arbitrator. Rather, the Bank is asking the Court to enforce a right that was already recognized in arbitration. Thus, the three-year prescription period for contractual rights is inapplicable, and the general ten-year prescription period applies when homologating foreign arbitral awards.[22]

Finally, the Court notes that the ten-year prescription period also applies due to art. 2924. Art. 2924 explains that “a right resulting from a judgement is prescribed by ten years if it is not exercised.”[23] To be sure, explains the Court, an arbitral award is not a judgement. Nevertheless, the CCQ may treat arbitral awards like judgements in certain circumstances.[24] If, in matters of prescription, the CCQ uses the word “judgement” in a way that clearly includes arbitral awards, then one may surmise that “a right resulting from judgement” under art. 2924 includes a right resulting from an arbitral award.[25] The word judgement should have identical meaning across the articles on prescription, as required by art. 41.1 of the Interpretation Act.[26] Thus, the QCCA analyses art. 2896 and demonstrates that this article uses the word “judgement” in a manner clearly meant to include arbitration.[27] Hence, the Court concludes that the word “judgement” in art. 2924 also intends to include arbitral awards. Therefore, the ten-year prescription period applies due to art. 2924.

Conclusion

This case is significant for two principal reasons. First, the judgement explains that in matters of prescription, there is an important difference between litigating the existence of a right and enforcing an arbitral award that recognizes that right. In the former case, a three-year prescription applies; in the latter, the prescription period is ten years. Second, this case highlights arbitration’s important status in Quebec. Indeed, this decision treats arbitral awards with nearly the same significance as judgements from courts.

[1] Itani c. Société générale de Banque au Liban SAL, 2022 QCCA 920, at para 3.

[2] Ibid.

[3] Ibid at para 4.

[4] Ibid at para 5.

[5] Ibid.

[6] Ibid at para 6.

[7] Ibid at para 7.

[8] Ibid at para 9.

[9] Ibid.

[10] Ibid au para 11.

[11] Ibid au para 12.

[12] Société générale de Banque au Liban SAL c. Itani, 2019 QCCS 5266, au para 49.

[13] Yugraneft Corp. c. Rexx Management Corp., 2010 SCC 19.

[14] RSC 1985 c 16 (2^nd supp), arts. I, III, V, XI.

[15] Ibid; supra note 1 at para 29.

[16] Supra note 13 at para 1; supra note 1 at para 29.

[17] Supra note 1 at para 29.

[18] Ibid at para 33.

[19] Art. 2992 CCQ.

[20] Ibid, art. 2995.

[21] Supra note 1 at para 32.

[22] Ibid at para 33.

[23] Art. 2925 CCQ.

[24] Ibid at para 34.

[25] Ibid at 34, 35.

[26] Ibid at para 36–37; RLRQ, c. I-16.

[27] Supra note 1 at paras 34-36.