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PAGE 12 FOCUS April 20, 2009 • lAw Times Yugraneft v. Rexx captures attention worldwide E BY DARYL-LYNN CARLSON For Law Times arlier last month, the Su- preme Court of Canada granted leave to appeal in a case that could change the way Canada recognizes and enforces international arbitral awards. Yugraneft Corp. v. Rexx Manage- ment Corp. has piqued the interest of lawyers and arbitrators both in this country and around the globe. Moreover, the case could be a major setback for Canada, which has become a leader in arbitral proceedings internationally. The crux of the issue is how Canada's international trade treaties obligations interact with local procedural laws and wheth- er foreign arbitral awards consti- tute simply a contract debt. "The real problem is that the case is based upon well-estab- lished principles that were de- cided years ago, before growth of international trade," says Joel Richler, a partner and litigator at Blake Cassels & Graydon LLP. "The decision although corectly decided is going to send a message to the arbitration community that if you want to enforce an award in Canada, you only have two years to do it and that's not very arbitration friendly," says Richler. "Canada's been at the forefront of supporting commercial arbi- tration the provinces have been very supportive, all provinces have adopted the UNCITRAL model law to some degree." The case involves a dispute between Yugraneft Corp. of Russia and Rexx Management Corp., based in Alberta, over US$1-million worth of equip- ment Yugraneft claimed it paid Rexx for but didn't receive. Yugraneft launched internation- al arbitral proceedings and in 2002, the International Commercial Ar- bitration Court at the Chamber of Commerce and Industry of the Russian Federation ordered Rexx to pay the money back. More than three years later, Yugraneft then proceeded to the courts in Alberta to ensure it could collect on the award although the Alberta Court of the dismissal of the application based on the expiration of the time limitation, and also sought a stay of the application pending the resolution of Yugraneft's troubles with United States authorities that were investigating the company based on racketeering allegations. Despite the colourful details, lawyers worry about the matter's outcome. The case is based upon well- established principles that 'were decided years ago, before growth of international trade,' says Joel Richler. Appeal ruled that the province would not recognize or enforce the foreign arbitral award because the action was launched beyond the limitation period, which in Alberta, as in Ontario and several other provinces, is two years. Meanwhile, Rexx had sought "The main wrinkle in this case is that it puts an unrealistic time limitation on people outside the country when they want to enforce awards in Canada," says Richler. "Even the (Alberta) court noted that two years is not practical be- cause [for] people outside the coun- try it takes that long, if not longer, to determine if this is where they should be to enforce their award." Richler suggests the SCC has an opportunity to clarify the lim- itation period for foreign awards and if it doesn't, it would open the door for the federal govern- ment to introduce legislation to remedy the problem. John Judge, a senior partner at Stikeman Elliott LLP, agrees. "They've treated the internation- al award much like a domestic arbitral award and that's what's critical about this decision. We see a domestic limitation period that is frustrating the enforce- ment of the award. "Very often in an interna- tional award where you're chas- ing assets around the world, it may well be impossible to act that promptly after an award is rendered to find those assets and seek enforcement." He also says that the courts have interpreted the limitation pe- riod as a procedural issue whereas many signatories to the New York Convention (prepared prior to the United Nations' establishment of UNCITRAL) see limitation peri- ods as a substantive issue of law. "So to rely on this type of limitation period really can invite other countries to do the same and imposing more limited time or limitation periods to enforce those awards and completely undo the benefits of the conven- tion," says Judge. "If this deci- sion is to stand, it could send the wrong signal to other jurisdic- tions around the world and the reality is Canada is looked at as one of the leaders in the interna- tional arbitration community." 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"If one diminishes the effectiveness of the enforcement of an arbitral award it will impact the growth of business because people will start looking at Canada as a less friendly commu- nity and if you do have a contract, you may have greater difficulties with the dispute resolution pro- cess in resolving disputes within the contractual framework." Robert Wisner, partner at Mc- Millan LLP, echoes those concerns. "I think ultimately given the wording of the legislation in Alber- ta, the result is probably not sur- prising but what would be helpful is if the Supreme Court clarified some issues; most importantly, when does the limitation period begin to run?" says Wisner. "The Alberta Court of Appeal made some reference to the fact that the two-year limitation peri- od starts the day of discoverability of the cause of action for enforce- ment of the award. But still it's not entirely clear what triggers the limitation period." He notes that companies choose to include international arbitration clauses in their con- tracts because they're enforceable around the world. If it is upheld, it will require "parties to be vigilant and seek to find assets in Canada quickly." According to the SCC's case in- formation, the matter is scheduled to be heard in November. LT 4/15/09 4:07:21 PM