Enforcement of arbitral awards: creditors, don’t wait too long!

Most of the time, arbitral awards are enforced spontaneously by the losing party. When the party refuses, it is then necessary to initiate an enforcement procedure before national jurisdictions.

In France, the enforcement procedure is rather simple: the winning party will notify the award and request enforcement before the Tribunal de grande instance sitting as a Single Judge. This enforcement order is essential since the arbitrator, unlike the national judge, does not have imperium.

In practice, there are intermediary situations which do not fit into this binary scheme of spontaneous enforcement/forced enforcement. The award is neither spontaneously executed nor forced to be executed. It remains “dormant” for several years before eventually being “resurrected.”

It is not purely hypothetical: in 2010, a party requested the enforcement of an arbitral award issued in Russia before an Albertan tribunal, in Canada, more than two years after it had been rendered (Judgment of the Supreme Court of Canada in the Yugraneft c/ Rexx Management, 240 CSC 19, [2010] 1 RCS 649 case.)

This situation is not rare since the issuance of an arbitral award can lead to new negotiations between parties as to the resulting debt obligation, its enforcement modalities and payment. These negotiations can last for several months, or even years, and eventually nothing gets done. It is in these circumstances that the creditor will decide to initiate an enforcement procedure before the national judge…

But isn’t it too late to request the enforcement of the award? Can the award be prescribed?

Prescription is based on the idea that rights have a limited lifetime (Répertoire droit civil, prescription, n°21), which is a fundamental principle in French Law and generally inherent to any legal system.

Could arbitral awards and the attached debt obligation be concerned by prescription?

An inventory of the different national legislations reveals a great discordance on that question, inevitably creating a risk of legal uncertainty.

Let’s imagine that an award is rendered in Geneva, against a Moroccan debtor, regarding a contract subject to French Law, and that the English creditor wishes to seize goods in Algeria… what is the time limit for initiating such a recognition and enforcement procedure before the Algerian judge, and under which law will the said judge deal with the question?

  1. Inventory:

There is no international text answering the problem of the prescription of an arbitral award:

  • The New York Convention did not fix any time limit for introducing a recognition and enforcement procedure of an arbitral award. Article III states that the recognition and enforcement of arbitral awards should be made in accordance with the rules of procedure of the territory where the award is relied upon.
  • UNCITRAL Model Law of 1985 does not provide for a prescription period for recognition and enforcement procedures.

Since the prescription period is not fixed by any international legal instrument, one ought to look into national laws.

National laws appear to be very divided on the question of prescription of arbitral awards.

  • Some States do not provide for any time limit in which to introduce a recognition or enforcement procedure.

For instance, in Germany and in Algeria, there is no deadline to enforce arbitral awards (in that sense, see the Report on the survey relating to the legislative implementation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)) .

In France, the Code of civil procedure does not provide for any specific time limit for the prescription of the award, and case law has not yet ruled on that question. Admittedly, article L. 114-4 of the French civil enforcement procedures Code states that “the enforcement of enforcement titles mentioned at 1° to 3° of article L. 111-3 can only be pursued during a 10-year period, except if the recovery actions concerned are subjected to a longer prescription period.” In consequence, the awards declared enforceable by a judgment from which no appeal with a stay of execution shall lie are prescribed after a period of ten years. However, the question of the prescription of an award which has not received exequatur remain unsolved. Some scholars consider that article 1514 of the French Code of civil procedure, which make the existence of the award a condition of its exequatur, necessarily implies that it should not be prescribed at the time its recognition is requested (Julie Klein, Exécution des sentences arbitrales et délais de prescription, Cahiers de l’arbitrage, 2017, n°2, p. 183). Hence, we still do not know -at this time- if French Law intends to subject the introduction of a recognition or enforcement procedure to a time limit period.

  • Some other States provide for a specific time period in which to initiate a recognition or enforcement procedure.

In US law, a domestic arbitral award should be executed within one year, as provided by article 9 of the Federal Arbitration Act:

If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title”.

In international arbitration, arbitral awards subject to the New York Convention of 1958 are subject to a prescription period of three years, as provided by Section 207 of the Federal Arbitration Act:

Within three years after an arbitral award falling under the Convention is made, any party to the arbitration may apply to any court having jurisdiction under this chapter for an order confirming the award as against any other party to the arbitration. The court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.

In Belgian law, article 1722 of the Judicial Code provides that the decision pronounced by an arbitral award is prescribed after a period of ten completed years, from the date at which the award was communicated.

Among the States providing for a specific time period in which to initiate a recognition and enforcement procedure, the period can vary from three months to thirty years, the most common periods being three, six and ten years (in that sense, see the Report on the survey relating to the legislative implementation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)) .

  • Finally, certain States reason analogically with judicial decisions.

For instance, in the UK, Sections 13, paragraphs 1 and 4 of the Arbitration Act of 1996 specify that The Limitation Acts of 1980 and the Foreign Limitation Periods Act 1984 apply to arbitral proceedings as they apply to legal proceedings. In consequence, the prescription period for arbitral awards could be six years, as for judgments; the prescription, however, only begins to run from the date at which the debtor refuses to pay the debts obligations resulting from the arbitral award.

Likewise, in Canada, the Albertan jurisdictions have transposed the procedural law applicable to judicial judgments to arbitral awards, which provides that judicial actions should be initiated within a period of two years. Hence, in the case mentioned above, the judges considered that the enforcement request initiated by the Russian company towards the Canadian company was prescribed, since initiated more than two years after the issuance of the award in Russia ((Judgment of the Supreme Court of Canada in the Yugraneft c/ Rexx Management, 240 CSC 19, [2010] 1 RCS 649 case.)

  1. Uncertainty remains
Is a prescription period for arbitral awards necessary?

Some scholars consider that arbitral awards should not be subjected to a prescription period (Ch. Aschauer, « La prescription des sentences arbitrales »,  ASA 2005, Volume 23, p. 595).

However, legal certainty could encourage arguing for the existence of a prescription period.

Indeed, the non-enforcement of the award for several years creates a blurry and uncertain situation. Moreover, one ought to consider that the creditor which does not bring forward his rights is negligent. Imposing a time bar for the enforcement of arbitral awards could encourage creditors to be diligent.

But what is the right time limit? Concretely, the shorter the delay, the more the debtor’s interests are protected, and the longer the delay, the more the creditor’s interest are favored.

A too short delay could result in the sanction of a creditor which would have tried in the first place to find an agreement with the debtor for the enforcement of the award. Is two years too short?

What is the law applicable to the question of the prescription of an arbitral award?

The question of prescription and its subjection to the lex fori or to the substantive law of the contract reveals again the difference between common law and civil law: while generally common law lawyers consider that prescription is a procedural matter and should hence be attached to the lex fori, civil law lawyers consider that it is a substantive element which should be determined by the law of the contract.

For instance, in international private law, case law has taken a stand for the application of substantive law.

The same difficulty is found when one has to determine the law applicable to the prescription of an arbitral award: is it the law applicable the one applicable to the seat of arbitration, the place of the enforcement of the award or of the substantive law?

This uncertainty leads to an actual risk for the security and efficiency of arbitral awards.

Could the French judge who is brought to rule on the question neutralize the conflictual method and reason in terms of international material rules? Indeed, in France, jurisdictions are reticent to use the conflictual method. One could imagine an international material rule in this domain, although it is still difficult to get some inspiration from universal tendencies, since the disparities between the different legislations are still great.

***

Ultimately, at a time when recognition and enforcement of an international arbitral award is facilitated thanks to the New York Convention of 1958, there is no legal certainty as to the question of prescription of the arbitral award.

National laws appear to be very divided on the question. Depending on the State in which the enforcement is requested, the applicable law to that question and the applicable law itself will be very disparate from one country to another; it is impossible to draw general principles on that question, even through a comparative approach.

Two pieces of advice:

  • At the time of the issuance of the arbitral award, if the creditor does not wish to instantly request for the enforcement of the award, he/she should identify the States in which the debtors’ goods are seizable and reflect upon the position adopted by the jurisdictions in these States on the question of prescription.
  • In any case, it is highly recommended for the creditor to seek the enforcement of the award quite rapidly and not extend negotiations too long, but rather restrict them to a short period because…failing that, the creditor could lose everything.
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