International Commercial Arbitration in Mexico

Despite ongoing political headwinds, international arbitration in Mexico continues to move in a positive direction. Mexico maintains what can be described as a functional and up to the times international arbitration legal framework. Although international arbitration in Mexico has continued to evolve, it remains largely premised on the UNCITRAL Model Law on International Commercial Arbitration (UNCITRAL Model Law). Mexico has also entered into a number of international treaties and conventions favourable to arbitration and courts within a judicial body that has historically been supportive of international arbitration, albeit with some limited exceptions.

Mexico’s role in international arbitration – a streamlined overview of the legal framework

Mexico is a signatory to both the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), and the 1975 Inter-American Convention on International Commercial Arbitration (the Panama Convention), which Mexico ratified in 1971 and 1978, respectively.

Notwithstanding acceding to such international instruments, in reality Mexico was not an active market for the practice of arbitration, including international arbitration, for the better part of the 20th century.

It was not until the 1990s, when Mexico’s economy further opened to foreign investment, that the country became a player in the international arbitration arena.

In December 1992, Mexico signed the North American Free Trade Agreement (NAFTA) alongside the United States of America and Canada. NAFTA subsequently came into force as of 1 January 1994. In advance of NAFTA’s effective date, Mexico put in place a number of legal reforms to prepare the Mexican economy. One key reform involved the treatment and practice of arbitration.

In advance of NAFTA’s implementation, Mexico incorporated roughly 48 articles (Articles 1415 to 1463) to its Commercial Code specifically dealing with commercial arbitration, both domestic and international, under a monist approach.[2] With very few exceptions, the articles Mexico incorporated mirrored those of the 1985 UNCITRAL Model Law. On 27 January 2011, the Mexican Commercial Code was amended once more to incorporate a number of additional articles further updating its arbitration system and, in particular, clarifying perceived tensions between the newly-enacted arbitration framework and its interplay with Mexico’s judicial system.[3]

To further foment investment post-NAFTA, Mexico has subsequently entered into a number of free-trade agreements and bilateral investment treaties that expressly incorporate arbitration as a mechanism for the resolution of certain investor-state disputes.[4]

Mexico is likewise a party to multilateral free-trade agreements with the European Union, Mercosur, Central America, plus the Trans-Pacific Partnership and the relatively recent reincarnation of the North American Free Trade Agreement: the United States–Mexico–Canada Agreement (USMCA).[5]

Mexico signed on as a party to over 30 bilateral investment treaties, including with Argentina (1996), the Netherlands (1998), Austria (1998), Germany (1998), Belgium-Luxemburg Economic Union (1998), France (1998), Finland (1999), Uruguay (1999), Portugal (1999), Italy (1999), Denmark (2000), Sweden (2000), Korea (2000), Greece (2000), the Czech Republic (2002), Iceland (2005), the United Kingdom (2006), Spain (2006), China (2008), Singapore (2009), Turkey (2013) and the United Arab Emirates (2016), among others.[6]

Last, after much historical resistance and debate, on 27 July 2018, Mexico submitted its instrument of ratification to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) with the World Bank. [7] The ICSID Convention entered into force for Mexico on 26 August 2018.[8]

Today, the constitutional right to submit to alternative dispute resolution mechanisms, such as arbitration, has been enshrined in the Mexican Constitution via an amendment of the Constitution’s Article 17 in 2008.[9] As set forth in the legislative preparatory works to the constitutional amendment of Article 17, Mexican legislators’ were driven by a desire to promote the healthy resolution of conflicts, ease burdens on Mexico’s national courts and enhance their performance, as well as to reduce costs otherwise inherent to and in the judicial system for both Mexican tribunals and for the parties themselves.

Mexico has continued over time to build on and develop the Mexican international arbitration legal framework that exists today. 

Certain key features of Mexico’s commercial arbitration regime.

Validity requirements for arbitration agreements and enforcement

Under the Mexican Commercial Code, an arbitration agreement must be in writing and signed by the parties.[10] That said, an ‘agreement’ to arbitrate may arise via: (1) an exchange of letters, telex, telegrams, fax or other means of communication evidencing the agreement; (2) the exchange of the filing of an arbitration claim and an answer to the arbitration dispute in which one party alleges the existence of an arbitration agreement and the other does not deny its existence; or (3) incorporation by reference.[11]

Through legislation, Mexico has also resolved the question of whether an arbitral tribunal or the Mexican courts are empowered to rule upon the validity of an arbitration agreement. In a controversial decision rendered in 2005, Mexico’s First Chamber of the Supreme Court ruled that such competence belonged to the courts, rather than the arbitral tribunal empanelled by the parties to a dispute.[12] Thereafter Mexico in essence superseded the Supreme Court’s decision through the January 2011 reform of Mexico’s Commercial Code.

Today, pursuant to the revamped Article 1465 of the Commercial Code, courts must immediately compel disputes covered by arbitration agreements to arbitration. In exceptional cases, where the lack of validity of the arbitration agreement itself is deemed ‘notorious’ (i.e., manifest or evident), the court may be entitled to intervene and determinate whether arbitration should be compelled. In deciding whether to intervene, courts are to adopt a restrictive view.[13]

Disputes incapable of being referred to arbitration

The Mexican Commercial Code does not itself expressly carve out specific areas of law or types of dispute that are by their nature incapable of referral to arbitration. That said, there are other provisions of Mexican law that preclude or restrict certain types of claims from being arbitrated. For example, commercial insolvency, family- and inheritance-related disputes, intellectual property, and labour and employment matters are all excluded from arbitration under various other provisions of Mexican law. As such, these categories of claims must be brought before Mexico’s domestic court system.

Further limitations on the right to refer claims to arbitration apply via:

  • The Public Sector Acquisitions, Leases and Services Law, which provides that the administrative rescission (that is, termination with cause by the state or its instrumentalities) and early termination of administrative contracts governed by that Public Sector’s Acquisitions, Leases and Services Law, are not subject to arbitration;[14]
  • The Public Works and Related Services Law,[15] which prevents parties from submitting to arbitration certain matters including the administrative rescission and early termination of public works contracts;
  • The Public Private Partnership Law,[16] which prevents parties from submitting to arbitration claims related to the alleged revocation of concessions and authorisations, as well as matters concerning the validity of administrative acts; and
  • The Hydrocarbons Law,[17] which contains language seeking to block parties from submitting to arbitration issues related to the administrative rescission of contracts for the exploration and extraction of hydrocarbons.

Default language and place of arbitration

Parties are free to agree on the language or languages to be used in arbitral proceedings.[18] Where parties fail to designate a language in their arbitration agreement, the arbitral tribunal will determine the language.[19] The arbitral tribunal may also require that documents be translated into the language of the arbitration that was agreed by the parties or that was subsequently determined by the arbitral tribunal.[20]

Parties to an arbitration agreement are also free to agree on the place or seat of the arbitration.[21] Absent an agreement, the situs of the arbitration shall be determined by the arbitral tribunal after considering the circumstances of the case, including the relative convenience to the parties.[22]

Selection and challenge of arbitrators

Mexican law contains various provisions concerning the appointment of arbitrators in ad hoc proceedings.

Under the Mexican Commercial Code, parties are free to agree on a procedure for the appointment of arbitrators both before and once the dispute has arisen.[23]

If the arbitration agreement provides for a sole arbitrator, and the parties do not agree on one, the federal or state court seated at the situs of the arbitration may choose the arbitrator on application by either party.[24]

In ad hoc arbitrations, where an arbitration agreement provides for three arbitrators, each party shall appoint one arbitrator and the two co-arbitrators shall appoint the third. If one party fails to timely nominate its arbitrator, or if the co-arbitrators fail to agree on a third arbitrator, the federal or state court seated at the place of arbitration has the power to make such arbitrator appointments – on application by either party.[25]

Articles 1428 to 1431 of the Commercial Code also contain provisions dealing with the challenge of arbitrators in ad hoc or non-administered arbitrations.

Parties may likewise agree on the grounds to disqualify an arbitrator.[26] Absent agreement, a party who wishes to challenge an arbitrator must furnish the tribunal with a written statement of its intent and reasons for challenging the nominee or arbitrator.[27] A challenge pursuant to Mexican law must be filed within 15 days of a party having become aware of either the constitution of the arbitral tribunal or any circumstances likely to give rise to justifiable doubts as to an arbitrator’s impartiality, independence or lack of qualifications.[28]

Also with regard to ad hoc arbitrations governed by the provisions of Mexico’s Commercial Code, where a request to disqualify an arbitrator is unsuccessful, the requesting party may challenge the decision in a Mexican court within 30 days of receipt of notice of the arbitral tribunal’s decision.[29]

Determining the applicable substantive law

The Mexican Commercial Code requires arbitral tribunals to decide the dispute in accordance with the ‘rules of law’ agreed on by the parties.[30] The term ‘rules of law’ includes applicable statutes, codes, case law, any relevant and applicable customs or trade practice as well as any other rules expressly agreed on by the parties.

Where parties have not either pre-selected or subsequently agreed upon the substantive law to govern their dispute, the arbitral tribunal is empowered to decide the applicable law (after taking into account, among other considerations, the characteristics of the case at hand). [31]

An arbitral tribunal is likewise able to decide a dispute taking into account equitable considerations but only if the parties so agree and authorise the arbitral tribunal to do so.[32]

Confidentiality

There is no general rule under the Mexican Commercial Code – or other applicable Mexican statutes – relating to the confidentiality of arbitral proceedings or arbitral awards. That is to say, arbitral proceedings are not inherently confidential or treated as confidential under Mexican law. It is therefore helpful for parties to consider incorporation of confidentiality provisions as part of their dispute resolution agreement or via a separate confidentiality agreement. Critically, such confidentiality protections are not impervious. As in many other jurisdictions, the contents of an arbitration award may become public where enforcement or annulment proceedings are initiated before Mexican courts.

Interim relief

Under the Mexican Commercial Code, parties have the right to seek interim measures from the Mexican courts either prior to the initiation of an arbitration or while already in progress. Specifically, Mexico’s Commercial Code provides that: ‘Even when there is an arbitration agreement, the parties can, either before or during the arbitration, request the judge to adopt interim protective measures.’[33]

Further, as part of the January 2011 reforms to the Mexican Commercial Code, the scope of judicial intervention by state courts in commercial arbitration was specifically addressed. Article 1478 now provides that a ‘judge shall have absolute discretion’ to adopt preliminary measures.

Thus, the reform made explicit that the measures that were available to the court in aid of commercial arbitration were broad and not limited to only those matters that would ultimately be adjudicated before civil and commercial courts.[34] Indeed, Mexican Federal Courts of Appeal have recognised that Article 1478 confers broad powers upon the courts to fashion a provisional remedy as needed on a case-by-case basis depending on the set of circumstances involved.[35]

Under applicable law, an application seeking interim relief includes a 15-day period for the defendant to answer the request, followed by a 10-day period to present evidence, with a subsequent hearing, before a definitive ruling on the application is made. It is common for a court presiding to require the provision of security should interim relief be granted.[36]

Where an arbitral tribunal has issued a preliminary measure of its own, Mexican courts are bound to enforce them unless grounds for refusal exist on par with those found in Article 1462 of the Commercial Code, and its equivalent Article V of the 1958 New York Convention and Article 36 of the UNCITRAL Model Law.[37]

It bears noting that managing to secure a preliminary measure in Mexico may not be the end of the story and is not without subsequent future risk. Article 1480 of the Commercial Code contains provisions calling for liability against both the petitioner and the arbitral tribunal should it be determined by a Mexican court that the interim measure that was originally granted was improper and has caused damage to the affected party.[38]

Award enforcement or annulment

Unlike other jurisdictions, Mexico does not have specialised national tribunals who preside over or intervene in arbitral proceedings. Under the Commercial Code, when judicial intervention is required during the course of an arbitration, a federal judge of first instance in the federal circuit where the arbitration is seated or the local courts where the arbitration is seated, are deemed competent to preside over any action relating to the arbitration – including but not limited to the enforcement or challenge of arbitral awards.

Mexico’s existing legislative system and judicial precedents make for an arbitration-friendly jurisdiction. Mexico’s pro-arbitration stance is further supported by the fact that national courts have largely ruled in favour of the enforcement of national and international arbitral awards, with very few exceptions.

National courts may only reject the recognition and enforcement of an arbitral award based on the handful of reasons contained in Article 1462 of the Commercial Code, which echo the grounds found in both Article V of the 1958 New York Convention and Article V of the 1975 Panama Convention on the refusal to recognise and enforce an award, as well as at Article 36 of the UNCITRAL Model Law.[39]

The limited grounds for refusing to recognise or enforce an award do not allow for rejection of an award on a merits basis. This principle has been reinforced through Mexican jurisprudence issued by Mexican courts on various occasions. In short, Mexican national courts are expressly barred from denying the recognition and enforcement of an arbitral award due to disagreement as to the legal reasoning applied by the arbitrators in reaching their decision.

Conclusion

Mexico has an international arbitration legal framework that is generally on par with that of most modern arbitration regimes. Despite the swirling political headwinds that have affected many other sectors of the Mexican state, no imminent changes to Mexico’s arbitral system appear to be on the horizon. That said, given major shifts in various other sectors including with regard to the country’s energy policy (among other things seeking to reinsert the prominence of the state, its agencies and instrumentalities), and, subject to legislative buy-in concerning some cases and courts’ adjudication in others, the possible entry into force of expansive reforms to Mexico’s energy regulations and its potential knock-on effects to arbitration generally remain something to monitor. Numerous commercial or investor-state arbitrations have been and will continue to be pursued as private party investment is affected.


Notes

[1] Francisco Rivero is a partner and Eduardo J De la Peña Bernal is a counsel at Reed Smith LLP.

[2] See Mexico’s Commerce Code, Arts. 1415 to 1463.

[3] See Mexico’s Commerce Code, Arts. 1464 to 1480.

[5] id.

[6] id.

[8] id.

[9] See Article 17, Mexican Constitution. (‘Nobody can take justice into their own hands, nor have resort to violence to enforce his rights. All people have the right to enjoy justice before the courts and under the terms and conditions set forth by the laws. The courts shall issue their rulings in a prompt, complete and impartial manner. Court’s services shall be free, judicial fees are prohibited . . . The laws shall provide alternative mechanisms to resolve controversies.’).

[10] See Article 1423 of the Mexican Commercial Code.

[11] See Article 1423 of the Mexican Commercial Code.

[12] See commercial arbitration. Competence to adjudicate an annulment action of an arbitration agreement contemplated in the first paragraph of Article 1424 of the Commercial Code corresponds to the judge and not the arbitral tribunal. Contradicción 51 / 2005, Primera sala de la Corte, 11 de enero de 2006. (Tesis Jurisprudencial 25 / 2006, Contradicción de tesis 51 / 2005 - PS entre las sustentadas por los Tribunales Colegiados Sexto y Décimo, ambos en Materia Civil del Primer Circuito. Mayoría de tres votos. Disidentes: Olga Sánchez Cordero de García Villegas y José Ramón Cossío Díaz.)

[13] See Article 1465 of the Mexican Commercial Code.

[14] See Article 80 of the Public Sector Acquisitions, Leases and Services Law of 28 July 2010.

[15] See Article 98 of the Mexican Law on Public Works and Related Services Law of 4 January 2000.

[16] See Article 139 of the Mexican Law on Public and Private Partnership Law.

[17] See Article 21 of the Mexican Hydrocarbons Law of 11 August 2014.

[18] See Article 1438 of the Mexican Commercial Code.

[19] id.

[20] id.

[21] See Article 1436 of the Mexican Commercial Code.

[22] id.

[23] See Article 1427 of the Mexican Commercial Code.

[24] See Article 1427(a) of the Mexican Commercial Code.

[25] See Article 1427(b) of the Mexican Commercial Code.

[26] See Article 1429 of the Mexican Commercial Code.

[27] id.

[28] id.

[29] See Article 1429(3) of the Mexican Commercial Code.

[30] See Article 1445 of the Mexican Commercial Code.

[31] See Article 1445 of the Mexican Commercial Code.

[32] id.

[33] See Article 1425 of the Mexican Commercial Code. It is of course possible that this right is limited either by the dispute resolution clause itself or by the administrating bodies rules, which may limit this possibility.

[34] Examples of interim measures specifically identified in the Mexican Commercial Code include the potential seizure of goods by a court where circumstances exist that cause fear that the person against whom a claim would be made would go missing or would otherwise hide themselves; when there was a fear that the property would be hidden or destroyed in matters involving real property; and when a claim being raised is personal and there is a fear that the debtor will hide or transfer assets and those assets are the only ones capable of being attached. See Mexican Commercial Code Arts. 1168 & 1171. Mexican courts have now recognised that they can require that parties continue their contractual relationship to maintain the status quo as a type of interim protection measure. See Francisco Gonzalez de Cossio, Medidas Precautorias en Arbitraje: Instrument Viejo, Regimen Nuevo, p. 4. (In May 2011, it was noticed that a preliminary measure issued by a Mexican judge in support of an arbitration that was about to begin contained an order to continue the contractual relationship between the parties (what is known in common law jurisdictions as a positive injunction to maintain status quo) — something never seen before in Mexico.)

[35] Cuarto Tribunal Colegiado en Materia Civil del Primer Circuito, Procedimiento Para La Adopción Judicial de Medidas Cautelares Vinculadas al Arbitraje. Está Sujeto a Discreción Amplia Del Juzgador, Libro 34, Septiembre de 2016, Tomo IV, p. 2878.

[36] See Arts. 1472–1476 of the Commercial Code.

[37] These grounds include that: (1) a party to the arbitration agreement was under some incapacity, or the agreement is invalid; the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present their case; the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not submitted, the former can be subject to recognition and enforcement; or the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of the law from which the parties cannot derogate, or failing such agreement, was not in accordance with the law; or (2) the court finds that: the subject matter of the dispute is not capable of settlement by arbitration under the law of Mexico; or the award is in conflict with the public policy of Mexico.

[38] See Art. 1480 of the Commercial Code.

[39] See footnote 37.

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