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Statute of Limitations and International Arbitration

Thiago Marinho Nunes
(Professor at IBMEC-SP Arbitration Research Center; independent arbitrator)

 

Time forges and establishes harmony between social relations. The Law, as a standardized social relation, is influenced by time, which through predetermined deadlines, limits the adequate functioning of the legal system. Among other forms, the influence of time as a rule of general public interest, is evidenced by the statute of limitations whose objective is primarily that of social interest, halting situations of uncertainty, instability and penalizing those who have become inert.

This short article aims at provoking thought on other issues which are just as relevant, such as the legal framework applicable to the statute of limitations in the context of international arbitral proceedings, in which diverse laws are eventually invoked by the parties during the dispute (i.e. the State law of one of the parties, the law of the seat of the arbitration, the so-called lex arbitri, lex executionis, lex causae, lex contractus, inter alia).

It is worth emphasizing that we are dealing with international arbitration, one which results from an international transaction, which places the interests of international commerce at stake, and usually contemplates litigants from different States. On the other hand, domestic arbitration, which is necessarily linked to the domestic legal system, the statute of limitations must comply with the rules of the Civil Code of a country or another substantive law applicable to the case.

International arbitration is known for its extensive autonomy[1]. This broad autonomy pertaining to international arbitration also includes the parties’ freedom of choice in choosing the law applicable to the dispute. This autonomy extends to arbitrators, who are free to decide what the applicable law is to a certain legal point under discussion, if the parties fail to indicate their choice. Thus, international arbitrators are endowed with a dual autonomy: (i) the arbitrator is autonomous in relation to the state rules of conflict (absence of lex fori), even that of the seat of the arbitration; (ii) the arbitrator may freely choose the conflict rule that will apply or even rule out of any conflict of laws approach, applying for example, a lex mercatoria. In practical terms, in international arbitration, the autonomy and freedom of the arbitrators to assess the merits of the dispute are even greater.

Such autonomy is reflected on the substantive law, especially when the discussion is precisely under which circumstances a statute of limitations would occur. In the past, several decisions rendered in cases administered by the International Chamber of Commerce (ICC) determined that a statute of limitations should be submitted to the lex arbitri, erroneously applying this miscomprehension to Cases no. 4.491/1984 and 5.460/1987[2]. Over time, doctrine and arbitral case law have consolidated and established that in international arbitration, the statute of limitations is subject to the law applicable to the merits of the dispute (lex causae or lex contract), regardless of the mandatory provisions of lex arbitri.

The importance of the treatment regarding the statute of limitations in the scope of international arbitration is relevant due to its intrinsic peculiarities, notably its different treatment by civil law and common law countries. According to the civil law legal system, the statute of limitations is treated as a substantive issue, focusing on the subjective right to the claim. In the common law system, statute of limitations or the limitation of actions focuses primarily on the process, rather than on the issue or claim presented.[3]

When facing with these diverse systems, how does one deal with the present issue in international arbitration?

According to international arbitral case law, what matters is the existence of a statute of limitations, regardless of whether it is a procedural or substantive matter (at most, the effects of the statute of limitations that would imply different consequences in this case). The international arbitrator is solely bound to the law the parties have chosen to govern the dispute, as determined in the arbitration agreement or in the section of governing law the main agreement. They decide on the application of a statute of limitations even if such a law classifies the statute of limitations as a matter of procedural public policy, as is the case, for example, in the United States. Thus, the decision rendered in ICC’s Case no. 6.371 is emblematic. In this case, the Arbitral Tribunal clearly stated that the qualification of the statute of limitations is of little or no importance in determining the applicable law. In short, a dispute had arisen between an American company (defendant) and a Thai company (claimant) concerning the annulment of a request for a clothes delivery. The defendant refused to receive the clothes ordered due to the divergence of size, in relation to the original request. Therefore, the claim concerned an alleged breach of contract by the claimant. The city of New York was stipulated as the seat of arbitration. In its defense allegation, the defendant argued the expiration of a statute of limitations, according to the laws of the State of Oregon, United States, where the offense would have taken place. The Arbitral Tribunal, however, once verifying that the law applicable to the arbitration agreement, as chosen explicitly by the involved parties, was that of the law of the State of New York, had little concern with the procedural qualification attributed to the statute of limitations under the American law, and applied the previously chosen law, legally enforcing the lex causae to settle the defense’s claim.[4]

According to international arbitral case law, what matters is the existence of a statute of limitations, regardless of whether it is a procedural or substantive matter (at most, the effects of the statute of limitations that would imply different consequences in this case). The international arbitrator is solely bound to the law the parties have chosen to govern the dispute, as determined in the arbitration agreement. They decide on the occurrence of a statute of limitations even if such a law classifies the statute of limitations as a matter of procedural public policy, as is the case, for example, in the United States. Thus, the decision rendered in ICC’s Case no. 6.371 is emblematic. In this case, the Arbitral Tribunal clearly stated that the qualification of the statute of limitations is of little or no importance in determining the applicable law. In short, a dispute had arisen between an American company (defendant) and a Thai company (claimant) concerning the annulment of a request for a clothes delivery. The defendant refused to receive the clothes ordered due to the divergence of size, in relation to the original request. Therefore, the claim concerned an alleged breach of contract by the claimant. The city of New York was stipulated as the seat of arbitration. In its defense allegation, the defendant argued the occurrence of a statute of limitations, according to the laws of the State of Oregon, United States, where the offense would have taken place. The Arbitral Tribunal, however, once verifying that the law applicable to the arbitration agreement, as chosen explicitly by the involved parties, was that of the law of the State of New York, had little concern with the procedural qualification attributed to the statute of limitations under American law, and applied the previously chosen law, legally enforcing the lex causae to settle the defense’s claim (Bulletin de la cour internationale d’arbitrage de la CCI, Paris. ICC Publication, v. 13, n. 2, p. 64-67, 2002).

In another emblematic case, since the parties failed to indicate the applicable law to the arbitral agreement and to the merits of the dispute, the Arbitral Tribunal went further and determined, through the so-called voie directe[5], the rules established in the Unidroit Principles to govern the statute of limitations.[6] It is important to emphasize that in relation to the statute of limitations, the Unidroit Principles provide specific and objective rules, in line with the requirements of the international arbitration operators (for instance, establishing the time periods, rules on suspension and interruption, and expiration effects of the statute of limitations, among other aspects).

In the absence of a legal order in international arbitration, which, once again, functions free from the moorings of the state laws of the disputing parties or even from the seat of the arbitration, it is possible to state that statute of limitations takes place distinctively. This is the case because, while on the one hand the statute of limitations is an institute situated in the confines of internal public policy, in the international sphere, the statute of limitations remains at a distance from international public policy, that is, in international law it that would be tolerable and, therefore, also applicable to international arbitration.

Faced with the diversity of possible laws governing the statute of limitations in international arbitration, idyllically, the adoption of a global solution would be preferable. Although the legislative construction applicable to an international transaction is born from the will of the parties, who determine the regime that best suits their interests, this choice is laden with uncertainties which, according to Luiz Olavo Baptista, would cause “the enactment of distinct models and the search for a normative particular to international commerce and which removes the uncertainties and difficulties”.[7]

While its own intergovernmental regulation does not emerge, the current application of the rules established in the Unidroit Principles in international arbitrations can be regarded as an adequate means of regulating issues pertaining to statute of limitations, consequently rendering practicality, simplicity, objectivity and uniformity to international arbitration actors and, most importantly, providing legal certainty to the system of international arbitration.

[1] See, accordingly, GAILLARD, Emmanuel. Aspects philosophiques du droit de l’arbitrage international. Leiden/Boston: Les livres de poche de l’académie de droit international de l’Haye, Martinus Nijhoff

Publishers, 2008. p. 47.

[2] Decision proffered in ICC’s Case no. 4.491/1985. In: JARVIN, Sigvard; DERAINS, Yves. Collection of ICC Arbitral Awards (1974-1985). The Netherlands: Kluwer Law, 1994. p. 539-542, observation by Sigvard Jarvin; Decision proffered in CCI’s Case no. 5.460/1987. In: JARVIN, Sigvard; DERAINS, Yves; ARNALDEZ, J.J. Collection of ICC Arbitral Awards (1986-1990). The Netherlands: Kluwer Law, 1994. p. 138.

[3] In this sense, see . FAUVARQUE-COSSON, Bénédicte. Aspects de droit comparé de la prescription. Les désordres de La prescription. Textes réunis par Patrick Courbe. Rouen: Publications de l’Université de Rouen avec le concours du Centre de recherche en droit des activités professionnelles, 2000. p. 45.

[4] Arbitration award rendered in ICC’s case no. 6.371/1989. Bulletin de la cour internationale d’arbitrage de la CCI, Paris. ICC Publication, v. 13, n. 2, p. 64-67, 2002.

[5] Or “Direct Choice”; The method of direct selection is foreseen, for example, in the ICC’s Arbitration Rules, article 21 (1): “The parties shall be free to choose the rules of law to be applied by the arbitral tribunal to the merits of the case. In the absence of an agreement between the parties, the arbitral tribunal shall apply the rules it deems appropriate”.

[6] Principles developed by Unidroit (International Institute for Unification of Private Law), 2016 edition, for international commerce. Chapter 10 of the Unidroit 2016 Principles is fully dedicated to the statute of limitations:https://www.unidroit.org/english/principles/contracts/principles2016/principles2016-e.pdf. Accessed on: 23 Mar. 2019.

[7] BAPTISTA, Luiz Olavo. Dos contratos internacionais: uma visão teórica e prática. São Paulo: Saraiva, 1994. p. 129.

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