Report on the Statutes of Limitations in Arbitration in The United States

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SUMMARY

Statutes of limitations have an unusual position in arbitration, particularly in the United States.  In domestic court litigation in the United States, courts apply a range of choice-of-law rules to time-bar issues.  Historically, many courts viewed limitations as a procedural issue and applied the statute of limitations applicable to the forum (with variations under borrowing statutes), although in recent decades courts have diverged from that model significantly. If the forum-law approach were to be applied in arbitration, it would mean applying the statute of limitations at the seat of arbitration.

REPORT

STATUTES OF LIMITATIONS IN ARBITRATION IN THE UNITED STATES

Statutes of limitations have an unusual position in arbitration, particularly in the United States.  In domestic court litigation in the United States, courts apply a range of choice-of-law rules to time-bar issues.  Historically, many courts viewed limitations as a procedural issue and applied the statute of limitations applicable to the forum (with variations under borrowing statutes), although in recent decades courts have diverged from that model significantly.  If the forum-law approach were to be applied in arbitration, it would mean applying the statute of limitations at the seat of arbitration.

At the same time, some courts in the United States have held, in the context of applications to compel or stay arbitration, that arbitrators are not bound to apply statutes of limitations, typically on the ground that the statutes are directed to “actions” or similar terms interpreted to refer to lawsuits in court.  These courts, however, also conclude that the choice of whether to apply a statute of limitations and what statute to apply is one for the arbitrators that will rarely be overturned.  A few state statutes, in particular in Iowa, Georgia and New York, expressly allow courts to determine whether an arbitration claim is barred by the statute of limitations, but those jurisdictions are a minority.

Against this background, the New York City Bar International Commercial Disputes Committee has sought to determine, to the extent possible, what arbitral tribunals seated in the United States actually do when presented with a defense that a claim is barred by statutes of limitations.  A review of published arbitration awards that have addressed such defenses suggests that arbitral tribunals overwhelmingly apply a statute of limitations to decide the issue, but only rarely apply the statute of limitations at the seat of arbitration where the seat differs from the substantive law governing the dispute.[1]  Out of 58 U.S.-seated awards reviewed that addressed a statute of limitations defense, eight tribunals (14%) declined to apply any statute of limitations, and only two (3%) applied the statute of limitations at the seat.  In the remaining 48 awards (83%), the tribunal applied the governing contractual or statutory law (including on occasion applying a borrowing statute that referred to other law).  However, in about 40% of those 48 awards, the tribunal did not need to decide what law applied, either because the parties agreed to apply the governing law or because the seat and the jurisdiction of the governing law were the same.

These trends with respect to U.S.-seated awards are also observed in arbitration awards reviewed in a sample of jurisdictions outside the United States.  Of the 33 non-U.S.-seated awards, only two tribunals (6%) applied the law of the seat to determine the applicable statute of limitations, and 14 tribunals (42%) applied the law governing the claim to determine the applicable statute of limitations.  In 16 non-U.S.-seated awards (48%), the parties either agreed that the governing law should be applied to determine the applicable statute of limitations or the law governing the claim and the law of the seat were the same.  (In one of the non-U.S.-seated arbitrations, the tribunal ruled that the claim was timely under both the law of the contract and the law of the seat.)