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The Quebec Court of Appeal Finds That an Arbitral Award Rendered In Florida Is Unenforceable In Quebec Because It Is Prescribed Under Quebec Law

The Quebec Court of Appeal Finds That an Arbitral Award Rendered In Florida Is Unenforceable In Quebec Because It Is Prescribed Under Quebec Law

In the recent decision Bard v. Appel, 2017 QCCA 1150, the Court of Appeal reviews the rules of prescription as they apply to the enforcement of judgments. In doing so, the Court finds that a post-judgment examination does not interrupt the ten-year prescription for the enforcement of judgments set out by art. 2924 C.c.Q.

The following is a chronology of the proceedings at issue in the case:

On December 4, 2002, in Florida, the arbitration tribunal of the National Association of Securities Dealers (“NASD”), found the respondent, a securities dealer, guilty of fraud towards the appellants and ordered the respondent to pay the appellants the amount of $1,145,500 US (“NASD Award”).

In 2003, the respondent filed for bankruptcy in the state of New York, and on October 2, 2003, the United States Bankruptcy Court of the Eastern District of New York ruled that the bankruptcy did not release the respondent from the obligation to pay the amount of the NASD Award (“NY Non-Release Judgment”).

On May 18, 2004, the Supreme Court of the State of New York homologated the NASD Award and the NASD Award became enforceable in that state (“NY Homologation Judgment”).

On April 10, 2013, by the simple filing of an affidavit into the court record, the appellants recorded the NY Non-Release Judgment with the Florida division of the United States Bankruptcy Court, resulting in the “Florida Non-Release Judgment”.

On July 31, 2013, as part of their efforts to receive payment of the NASD Award, the appellants conducted an examination of the respondent (“Florida Examination”), in order to identify his assets. As a result of the Florida examination, the appellants became aware that the respondent had assets in Quebec.

On June 11, 2014, the appellants filed a Motion to Homologate requesting the exemplification of the New York Non-Release Judgment with the Superior Court of Quebec; they amended their Motion on June 1, 2015 to request the exemplification of the NASD Award instead.

The trial judge ruled that the appellants’ action was prescribed since the ten-year period for the enforcement of judgments, which started running again in 2003 with the NY Non-Release Judgment, had run out by the time the appellants filed their Motion in Quebec in 2014 and 2015.The Court of Appeal upheld that decision.

Writing for a unanimous court, Savard J.A. summarily dismisses the appellants’ main argument at both instances, i.e. that the NASD Award was enforceable for twenty years under Florida law and that, pursuant to art. 3131 C.c.Q., the same twenty-year prescription was to be applied in Quebec. Savard J.A. explains that the trial judge was right to conclude that Florida law was neither alleged nor proven and therefore, pursuant to art. 2809 C.c.Q., Quebec law was to be applied.

Savard J.A. then turns to the appellants’ subsidiary arguments, i.e. that the NASD Award could be exemplified in Quebec since either the Florida Non-Release Judgment or the Florida Examination interrupted the ten-year prescription applicable to rights resulting from a judgment under art. 2924 C.c.Q.

Regarding the first subsidiary argument concerning the Florida Non-Release Judgment, Savard J.A. concludes that the appellants’ affidavit needed to obtain such a judgment was not a “judicial application” within the meaning of art. 2892 C.c.Q. and that its filing could not be said to constitute a civil interruption of prescription.

Art. 2892 C.c.Q. reads as follows:

2892. The filing of a judicial application before the expiry of the prescriptive period constitutes a civil interruption, provided the demand is served on the person to be prevented from prescribing not later than 60 days following the expiry of the prescriptive period.

Cross demands, interventions, seizures and oppositions are considered to be judicial applications. The notice expressing the intention by one party to submit a dispute to arbitration is also considered to be a judicial application, provided it describes the subject matter of the dispute to be submitted and is notified in accordance with the rules and time limits applicable to judicial applications. [Our emphasis]

Despite noting a liberal approach to what constitutes a judicial application under art. 2892 C.c.Q. in the case-law, Savard J.A. finds that an affidavit filed as part of the recording process in Florida was not akin to the proceedings listed in the above provision.

Savard J.A. also rejects the appellants’ second subsidiary argument, i.e. that the Florida Examination could be said to naturally interrupt prescription pursuant to 2891 C.c.Q.:

2891. Extinctive prescription is interrupted naturally where the holder of a right, having failed to avail himself of it, exercises that right.

Art. 2889 C.c.Q. states that prescription could be interrupted naturally or civilly. While civil interruption arises from a “juridical act” by the creditor or the debtor, natural interruption is the result of a “material fact”. Savard J.A. remarks that natural interruption of prescription must be intrinsically linked to the nature of the right under threat of extinguishment, such as the real rights of usufruct or servitude.

Though the post-judgment examination demonstrates the creditor’s desire to enforce his judgment, the right resulting from a judgment is not one that can be maintained by use. Savard J.A. decides that an examination is not a material fact needed to interrupt prescription naturally as set out by art. 2891 C.c.Q. She also expresses doubts that any exercise of a personal right could interrupt prescription naturally.

It is interesting to note that the Minister’s comments regarding art. 2891 C.c.Q. state that the article applies to both real and personal rights, thus supporting the appellants’ position. However, relying on the legislative history and on doctrinal analysis, Savard J.A. concludes that in this case the Minister’s comments were not an absolute authority on the proper interpretation of the provision.

In addition to the above clarification of the types of rights contemplated by art. 2891 C.c.Q., this case serves as a useful illustration of the importance of alleging and proving foreign law. Indeed, despite the fact that both the Superior Court and the Court of Appeal were aware of the possibility that a longer prescription existed under U.S. law, as well as of the context of fraud by the respondent at the root of the appellants’ claim, all four Quebec judges felt they were bound to apply the shorter ten year prescription period provided by the Civil Code.

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