Construction Arbitration

Last verified on Wednesday 24th June 2020

Construction Arbitration: Mexico

Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Ruiz-Silva Abogados, SC

Legal system

1. Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?

Mexico

Mexico is a civil law jurisdiction. Although Mexican laws do not derive substantially from laws of another jurisdiction, some foreign laws have served as guidance for the creation of some of our laws (for example, the North American Constitution, the French Civil Code). There are, at both federal and local level, laws, rulings, regulations and normativity in different branches of the law, including official Mexican standards, that constitute the instruments of legal effect in Mexico.

The lawmaking body in Mexico in a federal level is the Legislative Power composed by the Chambers of deputies and senators. Pursuant to the Mexican Constitution, law initiatives may be presented by the President, the Legislative Power and the different legislatures. The corresponding chamber of the Legislative Power (either deputies or senators) that received the law initiative is known as the Chamber of Origin where it will prepare a law or decree project that will be discussed and voted. If approved, then it will pass to the Revising Chamber and afterwards, if approved, to the President, who can comment on it, or can promulgate and public the law or decree in the Official Gazette of the Federation. 

Pursuant to article 14 of the Mexican Constitution, no law shall be passed with retrospective effect.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Contract formation

2. What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?

Mexico

The requirements for a construction contract are the same as other contracts. For a construction contract to be formed, there shall be consent and an agreement on the purpose of the contract. However, the parties shall observe the mandatory public dispositions. Likewise, regarding contracts entered into with public entities (public contracts) specific provisions apply. For example, public contracts shall be executed according to the Works Law, which in its article 15 states that any act, contract or agreement executed with public entities against dispositions foreseen in the law, shall be null.

A letter of intent itself does not have contractual effects. It becomes binding when the letter of intent is accepted, since it becomes valid the moment the consent is formed.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Choice of laws, seat, arbitrator and language

3. Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?

Mexico

In private construction contracts, parties are free to choose the governing law, the law of the arbitration agreement, the seat of arbitration, the arbitral rules, the arbitrators (as long as that person is impartial and independent), the language of the contract and the arbitration. Nonetheless, there are some limitations for public contracts. Pursuant to the principle of legality set forth in the Federal Constitution, authorities and public entities cannot act freely and they can only act as expressly contemplated in law. Therefore, there are limitations and the public entity can only act and agree as expressly foreseen in law. For example, article 115 of the Pemex Law allows it to agree arbitration in the terms of the commercial law. Article 21 of the Hydrocarbons Law states that disputes arising from contracts for the exploration and extraction can be subject to ADR and to arbitration. It establishes that the National Hydrocarbons Commission and the contractor shall not agree to be bound by foreign law and in the arbitral proceeding they shall agree the application of Mexican law, the language shall be Spanish and the award shall be in strict law.

If a construction contract that is governed by the Mexican Public Works Law (ie, a construction contract between a private party and the Mexican government or an instrumentality thereof) deviates from the mandatory rules contained thereunder, the contract will be null and void. However, the declaration that such a contract is in fact null and void must be issued by the competent judge or arbitral tribunal, as the case may be. 

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Implied terms

4. How might terms be implied into construction contracts? What terms might be implied?

Mexico

According to article 1796 of the Federal Civil Code, contracts are perfected by simple consent and upon its conclusion parties shall comply not only to what was expressly agreed but also to the consequences, derive from its natures or from good faith, usage or law.

Additionally, in the case of a lump-sum contract there is no express agreement in relation to specific aspects, the corresponding framework of Chapter III (Lump Sum Contract) of the Federal Civil Code would be applicable.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Certifiers

5. When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?

Mexico

Mexican law does not have the certifier figure, so parties may agree among themselves to bringing in a certifier and in that scenario its characteristics will depend on the agreement. However, regarding public contracts, article 53 of the Works Law foresees that whenever the supervision of the contract lies with the public entity, it shall be carried out by one of its employees who will be in charge of approving payment certificates. These dispositions also allow public entities to contract from third parties the supervision of the contract. In which case, the public entity shall also be responsible for payment approval.

The parties will be bound by certificates to the extent derived from the parties’ agreement.

Depending on the terms of the contract and the scope agreed for the performance of certifier, the contractor may bring proceedings directly against the certifier.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Competing causes of delay

6. If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?

Mexico

Mexican law does not regulate concurrent delay. Hence, if the parties have agreed specific rules applicable to it, such agreement shall be observed by Mexican courts. If the contract is silent in this regard, it is possible that the court would apply article 1917 of the Federal Civil Code that states that if two persons have caused a damage in common, they are jointly liable to repair the damage, so the court may grant to the contractor an extension of time of some days but would make a reduction of days due to the defective work.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Disruption

7. How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?

Mexico

As that Mexican law does not set forth specific rules applicable to disruption, such a claim would be treated as a damage claim. The contractor shall comply with the standard of proof for a damage claim. Therefore, the contractor shall prove the existence of an illicit act or the breach of contract, the existence of the damage and that the damage is a direct consequence of acts attributable to the employer. The contractor shall also prove the quantum of such damages.

If the contractor does not prove the amount of the damages, the Mexican court may not grant the indemnification for the damages nor would it estimate the damages. However, an arbitral tribunal, using their faculties, may summon the parties to provide additional information in connection to the damages or may also appoint an expert for the purpose of the quantification of the damages.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Acceleration

8. How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?

Mexico

The concept of ‘constructive acceleration’ is not regulated in Mexican law. Based on the principle of pacta sunt servanda, parties can agree rules applicable in the case of a constructive acceleration. If the contract is silent, contractor shall file a claim for damages. In this sense, contractor must prove that is entitled to an extension of time, the employer’s refusal to grant such extension and the costs incurred for accelerating the works. Likewise, when there has been a constructive acceleration to avoid liquidated damages, the costs incurred by contractor may be treated as elements of mitigation of damages. To avoid penalties, the contractor may argue that liquidated damages shall no proceed if contractor may prove that the failure to comply with the contract time completion was attributable to the employer.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Force majeure and hardship

9. What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?

Mexico

The Federal Civil Code article 2111 states that nobody is bound by an obligation under force majeure unless they contributed to such event, have expressly accepted such liability or whenever the law so states. Mexican law does not list events of force majeure. Therefore, it may be regulated by the parties.

Mexican courts have interpreted that for force majeure to proceed, there shall exist an event that is unforeseeable, or if foreseeable, it could not be resisted and that is not within the control or will of the parties. The event must be unforeseeable for the common of the people, not only for the parties to a contract. Mexican law is silent on the effect of the force majeure. Thus, it can be permanent or transitory. An impossibility to complete the contract must exist for a force majeure to proceed.

If there is force majeure, the affected party must seek relief since it does not operate automatically. Parties can agree on rules excluding force majeure pursuant to article 2111 of the Federal Civil Code.

For a public contract, the Works Law establishes in article 62, section (iv) that in the case of force majeure the performance of the works turns impossible, the contractor may opt to not perform them. If the contractor opts for the anticipated termination of the contract, the contractor shall request termination from the public entity, which will decide whether the termination should proceed. If the entity denies the request, the contractor shall request the termination from the corresponding judicial authority.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

10. When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?

Mexico

Mexico does not fully adopt the unforeseen event in contract doctrine or rebus sic stantibus. Some local Civil Codes expressly recognise such doctrine, such as the Civil Code of Mexico City that was amended to include this doctrine in articles 1796, 1796 bis and 1796 ter. So, for this doctrine to apply, it depends on the laws applicable to the contract. For example, pursuant to federal law, it will not be applicable. In contrast, if the contract is subject to the laws of Mexico City, the contractor may request the modification of the contract. If parties do not agree on the modification of the contract within 30 days of the request, the contractor may file a claim before the judge.

Nevertheless, parties can agree rules applicable to an unforeseen event and its effect.  

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Impossibility

11. When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?

Mexico

It would be applicable whatever rules the parties have agreed on. If nothing has been said in this regard, the type of impossibility preventing the contractor from performing a particular aspect of the contractual specification must be specified. If it is impossible for everyone, the contractor will be released from this obligation based on the principle of law that nobody is obliged to the impossible. However, article 1829 of the Federal Civil Code states that an act won’t be deemed impossible if it cannot be executed by the obligor, but can be executed by another person. Therefore, if it is only impossible for the contractor and not for everyone, the contractor will not be released from its obligation and so may incur a breach of contract.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

12. How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example, making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?

Mexico

Such provisions will be effective based on the principle of pacta sunt servanda. Pursuant to article 78 of the Commerce Code and article 1832 of the Federal Civil Code, each person is obliged in the manner and on the terms that appears to be bound.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Duty to warn

13. When must the contractor warn the employer of an error in a design provided by the employer?

Mexico

Mexican law does not provide for when the contractor must warn the employer of any error in the design. Therefore, the agreement of the parties mentioned in the contract shall prevail. However, acting pursuant to the principle of good faith and considering the expertise of the contractor in each case, when the contractor identifies an error in the employer’s design, the contractor shall notify employer of this circumstance within a reasonable period of time.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Good faith

14. Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?

Mexico

Mexican law recognises the duty of good faith in article 1796 of the Civil Code. This article establishes that from the perfection of the contract, the parties are obliged not only to the fulfillment of what is expressly agreed but also to the consequences derived by its nature, good faith, customs and the law.

Therefore, the level of intervention, the party’s discretion to terminate or suspend the contract and the employer’s discretion to claim pre-agreed sums will vary according to the agreement of the parties in each contract and what derives in good faith from such agreement. That shall be interpreted case by case.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Time bars

15. How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?

Mexico

Based on the principle of pacta sunt servanda recognised by Mexican law, parties may agree on contractual provisions to bar claims and the formality for any notification for such effect. The scope of these provisions depends on the wording agreed by the parties. generally, the parties are allowed to present any claim to the courts, and the courts are obliged to provide a remedy to the disputes raised by them. However, courts will be bound by the agreement of the parties, and if one party did not follow the precise procedure to submit a claim foreseen in the contract, the Mexican court may reject the claim. No difference in approach exists if the claim derived from matters caused by employer and those that were not, nor on claims for extension of time or monetary sums.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Suspension

16. What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?

Mexico

Any party to a contract with reciprocal obligations may suspend its obligations whenever the other party has failed to comply with its reciprocal obligations. Thus, the employer may suspend its paying obligations if the contractor has suspended the performance of the works. Likewise, pursuant to article 1949 of the Federal Civil Code, there is an implicit power in reciprocal obligations that allows a party to terminate a contract if the other party does not comply with its obligations. The party affected by the breach may claim the coerced performance of the other party or request the termination of the contract. In both cases, the affected party may claim indemnification derived from the damage caused by the breach.

In the case of a public contract, article 61 of the Works Law entitles the public entity to administrative terminate the contract in the case of breach of the contractor of its obligations.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Omissions and termination for convenience

17. May the employer exercise an express power to omit work, or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?

Mexico

If there is an express power to omit work or terminate the contract at will or for convenience, the employer may exercise such power, in which case, whatever consequences the parties agreed will apply to such termination shall be observed, such power shall be expressly agreed on the contract. Otherwise, the employer cannot validly terminate the contract since that is against article 1797 of the Federal Civil Code, which states that the validity and fulfillment of a contract shall not be left to the discretion of one of the contractors.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Termination

18. What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?

Mexico

A contract may be terminated based on law, in which case there will be a breach of contract or by agreement of the parties based on a termination clause. In the case of a breach of a contract, the law does not foresee a partial termination of the contract. However, parties may agree in a termination clause a partial termination that shall be observe by the parties and any court.

The practical and financial consequences, once again, depends on the agreement of the parties. When the termination of a contract proceeds, the employer will pay for the works that the contractor had performed and any amount due to the contractor according to the contract.

In practice, the parties shall agree on matters related to the possession of the works, the guarantee of the works already performed.

For public contracts, pursuant to article 60 of the Works Law, a public entity may be terminated due to public interest. 

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

19. If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?

Mexico

See responses to previous questions.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

20. What limits apply to exercising termination rights?

Mexico

The limits will depend on the agreement of the parties.

To terminate unilaterally a contract without a prior declaration of a competent authority, parties shall have agreed on that. In the absence of such an agreement, for a party to terminate the contract in the case of a breach, it shall request the termination to a judge.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Completion

21. Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?

Mexico

The Federal Civil Code in article 2631, which regulates lump-sum contracts, states that the portion of the works that had been paid is deemed to be approved and received by the owner. Article 2642 states that when parties agree that the works shall be performed to the satisfaction of the owner, the acceptance is reserved pursuant to the opinion of experts.

Once the works have been finalised by the contractor, prior to accepting them, the relevant government agency must, in accordance with article 64 of the Public Works Law, carry out an inspection of the site (where the works were performed or erected) together with the constructor. Thereafter, the relevant agency must issue the minutes of the inspection of the site or works, which in turn is the document that serves as the formal reception or acceptance of the works by such agency.

Despite the above, parties may agree specific rules regarding the acceptance of the works.   

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

22. Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?

Mexico

Regarding a lump-sum contract, article 2634 of the Federal Civil Code provides that once the work has been received and approved, the contractor is liable for any defect appearing later, defects in the construction and the workmanship, the quality of the materials used or defects in the floor where works were performed. The contractor shall not bear this liability if, after giving notice of the defects, the employer still consented to the use of defective materials, or works were performed on land chosen by the employer.

However, parties may agree on what acceptance and approval shall be and if taking over the works implies their acceptance.

Regarding public contracts, according to article 66 of the Works Law, when works are concluded, the contractor is liable for any defects, for hidden defects or any other liability incurred by the contractor pursuant to the contract and the applicable law.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Liquidated damages and similar pre-agreed sums ('liquidated damages')

23. To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?

Mexico

Liquidated damages for delay to the completion of the works are not exhaustive.

An employer is entitled to recover any damages caused by a breach of contract (articles 2110 Federal Civil Code) or derived from unlawful acts (article 1910 Federal Civil Code) attributable to the contractor.

Mexican law does not thoroughly regulate this matter. However, article 2106 of the Federal Civil Code establishes that it is not possible to waive liability derived from wilful misconduct.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

24. If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?

Mexico

No, in this case the employer will not be entitled to liquidated damages since, according to Mexican law, damages shall be a direct consequence from the breach of contract. In this case, the breach would not be attributable to the contractor as the employer would have contributed to the causation of the damages.

Pursuant to article 1847 of the Federal Civil Code, a penalty shall not be enforced whenever the obliged party could not fulfil the contract because of acts by the creditor or employer.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

25. When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?

Mexico

Mostly, it will depend on the wording of the agreement of the parties. However, Mexican law disposes that any penalty clause, in which it may interpreted that are included liquidated damages for delay, shall not exceed the amount of the principal obligation (article 1842 Federal Civil Code). Additionally, article 1843 of the Federal Civil Code states that an indemnity clause may be modified in proportion to the obligation that has been partially fulfilled.

Moreover, according to article 1845 of the Federal Civil Code, if the modification cannot be exactly proportional, the judge may reduce the penalty in an equitable manner, taking into account the nature and other circumstances of the obligation.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

26. When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?

Mexico

A court or an arbitral tribunal may award more than liquidated damages whenever a party is claiming additional damages derived from a breach of other obligations or from unlawful acts. In this case, the requesting party has the burden of proof for damages and their quantification.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Assessing damages and limitations and exclusions of liability

27. How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?

Mexico

Monetary compensation is assessed considering the damages and lost profits derived from the breach of the obligation. Pursuant to article 2110 of the Federal Civil Code, damage must be an immediate and direct consequence of the breach of the obligation, whether it has been caused or is likely to be caused.

Mexican law recognises damages and loss of profit. Lost profit is understood as the deprivation of any lawful gain that should have been obtained by the fulfilment of the obligation.

The lost profit compensation will proceed, even if exceptionally high, if the party claiming loss profit has satisfied the burden of proof.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

28. If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?

Mexico

When there exists the possibility of remedy, the contractor is liable for remedying the work regardless of whether it is disproportionate to the benefit. If the contractor has incurred in a breach of contract, such as for work technically non-compliant, is liable for damages derived from such breach.

Parties may agree a stricter regime in the contract and such agreement shall be observed unless it´s against mandatory provisions.  

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

29. If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?

Mexico

Mexican law does not have a specific rule in this regard; hence, the general rules of the statute of limitation for claims deriving from breach of contract, which is 10 years, would apply.

In respect of public contracts, article 66 of the Works Law states that liability derived from defects in works, for hidden defects or any other liability incurred by the contractor pursuant to the contract and the applicable law shall be guaranteed for 12 months upon fulfilment of the obligation.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

30. What is the effect of a construction contract excluding liability for “indirect or consequential loss”?

Mexico

Mexican law does not acknowledge indirect or consequential loss. They only proceed if there is an express agreement of the parties in this regard. Therefore, it is possible for parties to exclude such liability and this agreement shall be observed by a court or an arbitral tribunal.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

31. Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?

Mexico

Any agreement of the parties in connection with limitation of liability is usually effective, unless is against imperative dispositions, such as that contained in article 2106 of the Federal Civil Code, which states that it is not possible to waive liability derived from wilful misconduct.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Liens

32. What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?

Mexico

Mexican law does not foresee a specific rule, so it may defer to the agreement by the parties. The parties shall agree an obligation to grant a lien and the type of lien, and if an agreement exists, it would be enforceable.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Subcontractors

33. How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?

Mexico

Mexican law does not foresee a specific rule. The general contractual rule that parties shall act in good faith in terms of article 1796 of the Federal Civil Code would be applicable. See question 4.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

34. May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?

Mexico

Normally a subcontractor is not entitled to file a claim against an employer for obligations in charge of the contractor. However, for public contracts, article 83 of the Regulation of the Works Law, it is expressly stated that the subcontractor shall not have any claim or right against the public entity.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

35. May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?

Mexico

According to article 2633 of the Federal Civil Code, in a lump-sum contract, even when a contractor is authorised to use subcontractors, contractor is responsible before employer. A similar disposition is applicable for public contracts. Therefore, if an arbitration agreement exists between contractor and employer, the latter may hold the contractor to the arbitration agreement, despite the dispute being related the subcontractor, since contractor is responsible before employer. The subcontractor shall not participate in the arbitration because there is no binding arbitration agreement between the employer and subcontractor.

For a contractor to require litigation between itself, the employer and the subcontractor, the employer shall renounce to the arbitration agreement existing between itself and the contractor. If the contractor files a lawsuit before a court, employer may request the judge to refer the parties (only contractor) to arbitration pursuant to article 1424 of the Commerce Code.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Third parties

36. May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?

Mexico

No, considering that in Mexico it is applicable the principle of res inter alios acta (privity of contract), there is no legal disposition allowing third parties to obtain rights under construction contracts.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

37. How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?

Mexico

Based on the principle of res inter alios acta and the doctrine of separate legal personality of companies, it is not possible to face claims of delays, defects and payment. Additionally, for lump-sum contracts, article 2642 of the Federal Civil Code provides that the contractor is responsible for the works performed by the individuals or entities it uses.

Affiliates would not bear any liability unless they have expressly assumed such obligation in the contract, in which case there would be a contractual relationship between the affiliate and the employer.

Exclusion and limitations of liability in the construction contract are valid and may be relevant as a defence against a lawsuit.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Limitation and prescription periods

38. What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?

Mexico

Please see question 29. The general prescription rule is 10 years (article 1150 of the Federal Civil Code and 1047 of the Commerce Code). The statute of limitation may be interrupted by filing a lawsuit or any other type of judicial challenge against the debtor, or by the recognition of obligations, or by renewal of the contract where the right is contained.

These rules are substantive and are governed by the Commerce Code and the Federal Civil Code and not subject to parties’ agreement.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Other key laws

39. What laws apply that cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

Mexico

Specific requirements related to tax, environmental, labour, health and safety dispositions. However, in the case of a public contract, the Works Law shall be applicable, and parties cannot renounce the application of said law.

Parties are free to agree the terms and conditions of a contract. The Commerce Code and the Federal Civil Code will apply in the absence of a specific agreement in the contract.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

40. What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

Mexico

In a private construction contract, no law of Mexico will apply. However, if contracts are executed abroad regarding public works or services that are to be performed on foreign territory the contracts may be regulated by the law of such territory. Article 16 must also be observed. Hence, the selection of contractors shall be duly motivated, and the price and the services to be contracted shall follow the principles of economy, efficiency, impartiality and transparency.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

41. For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?

Mexico

According to article 1425 of the Commerce Code, whenever there is an arbitral agreement and even before the arbitration starts or during the arbitration, a party may request a judge as an interim measure. Judges have full discretion when adopting the interim measures (article 1478 of the Commerce Code). However, judges must bear in mind the circumstances of the case at hand, making it unlikely that an interim measure requiring payment will be granted considering that the employer gave timely notice of its dissatisfaction.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Courts and arbitral tribunals

42. Does your jurisdiction have courts or judges specialising in construction and arbitration?

Mexico

No, they are no specialised court in construction or arbitration. Disputes arising out of a construction contract shall be dealt with by a civil court. Civil courts deal with both commercial and civil matters. In the case of public works, some aspects may be dealt by an administrative court.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

43. What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?

Mexico

In the case of construction matters, the civil court has two instances: first instance and appeal. The decision of the appeal court can be challenged through an amparo proceeding whenever there is a breach of human or constitutional rights.

Pursuant to article 1422 of the Arbitration Law, the courts that have authority for certain functions for arbitration assistance are the local or federal judge of first instance of the seat of arbitration. In arbitration matters, the Arbitration Law states that there shall not be an appeal against the decision of the judge dealing with arbitration matters.

Decisions are not published. Decisions issued by federal courts and the Supreme Court are contained in the electronic systems of the Supreme Court and of the Federal Judicial Council, so they can be consulted through such systems if the corresponding information of the filing is known. Likewise, some decisions can be obtained by a request pursuant to the Transparency Law. 

There is no proper doctrine of binding precedent. If a criterion derives from a specific decision, said criterion (called tesis) is not binding but may serve as a guidance for the judge. A criterion is binding if it is a jurisprudencia (binding criterion), so it shall be observed by the courts as it constitutes a source of law.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

44. In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?

Mexico

The court is forbidden to raise issues that have not been put before the judge by the parties. The duty of the judge is to decide the disputes based on the pleadings and arguments of the parties.

This may be different in the case of arbitration because parties agree on procedural rules applicable to arbitration. Therefore, the arbitral tribunal may require the parties to give their views in connection with specific issues.

Nor the court or the arbitral tribunal is expected to give preliminary indications on how they view the merits of the dispute. In an arbitration, that may happen in arbitration if the parties have agreed on it.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

45. If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?

Mexico

If there is an arbitration agreement, whatever action to be brought shall be done through an arbitration. Article 1424 of the Arbitration Law provides that if a lawsuit filed before a judge in a matter subject to arbitration, the parties can ask the judge to refer them to arbitration, unless it is found that the contract is null and void, inoperative or incapable of being performed.

The issue of the preconditions to arbitration or of a party not complying with the preconditions is generally treated as a matter of admissibility of the lawsuit.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

46. If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?

Mexico

Mexican law is silent in this regard. In fact, the Mexican Arbitration Law foresees precisely the opposite case. Article 1415 of the Arbitration Law provides that its dispositions apply to national and international commercial arbitration whenever the seat of arbitration is Mexico, and that certain dispositions, regarding the petition to refer parties to arbitration, the granting of interim measures by a court before and during the arbitration procedure and the recognition and execution of the arbitral award apply even if Mexico is not the seat of arbitration. Interpreting a contrario sensu and considering that the law is silent in relation to this specific scenario, a contractor does not lose its right to arbitrate if it has applied to a foreign court for the interim or provisional relief.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Expert witnesses

47. In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?

Mexico

Both tribunal and party-appointed experts are used in arbitration. In litigation, the party-appointed experts are normally used and only when the opinion of the experts are substantially contradictory, the judge may appoint an expert.

They do not have duties to the parties or the arbitral tribunal since they have to be impartial and independent.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

State entities

48. Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer).

Mexico

In the case of a public contract, the Works Law and its Regulation will be applicable. According to the law, as a general rule, public entities shall enter into a bidding process for the adjudication of the contract. If the employer is a state entity or public authority, the types of contracts that can be executed are those foreseen in article 45 of the Works Law (unitary prices, lump sum, mixed contracts or scheduled amortisation).

Likewise, public contracts are subjects to specific rules. For instance, public contracts: (i) have to comply with article 46 of the Works Law, (ii) have specific rules applicable to the guarantees, (iii) can be anticipated terminated and (iv) can be temporarily suspended.

Public contracts can be subject to arbitration, except disputes deriving from the administrative rescission or from anticipated termination. If the public contract does not comply with the Works Law, it will be null and void.

Additionally, assets of public entities are considered public goods and subject to specific regulations. According to article 4 of the Federal Rules of Civil Procedure, public goods cannot be subject to writ of execution or seizure.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Settlement offers

49. If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?

Mexico

The Mexican Arbitration Law is silent in this regard. A settlement offer can be made if the parties have agreed to it.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Privilege

50. Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?

Mexico

Mexican law does not foresee ‘without prejudice’ privilege. Pursuant to the principle of pacta sunt servanda recognised by Mexican law, in principle, a penalty may be agreed in the case of disclosure of communications to a court or arbitral tribunal.  

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

51. Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?

Mexico

Mexican law does not contain protection for in-house counsel advice.

The law only protects communications from a lawyer to his or her clients, which is not quite applicable to the advice of an in-house counsel. Article 36 of the Mexican Professions Law establishes that all professionals are obliged to keep matters entrusted by their clients confidential. The Mexican Professions Law is a substantive law.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Guarantees

52. What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?

Mexico

The requirements depend on the type of guarantee but they shall be made in writing. According to article 166 of the Insurance and Bond Law, the guarantee shall comply with certain requirements, for example:

  • the guarantee shall identify the name of the guarantor, debtor and beneficiary;
  • the obligations that are being guaranteed, the sum guaranteed;
  •  the way in which the beneficiary shall prove that debtor breached the obligation that was guaranteed; and
  • the period of validity of the guarantee.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

53. Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?

Mexico

The guarantee is subject to what is agreed on it. Normally, the guarantor's liability is limited to that of the underlying construction contract.

In the case of public contracts, the Works Law provides specific requisites for certain guarantees. For instance, articles 66 of the Works Law states that the contractor shall give a guarantee covering hidden flaws or defects, which can be done through a (i) bond covering 10 per cent of the amount of the works, (ii) an irrevocable and confirmed letter of credit covering 5 per cent of the amount of the works, or (ii) a trust in which contractor has provided funds equal to 5 per cent of the amount of the works. Therefore, the guarantee shall be limit to the requirements foreseen in law.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

54. Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?

Mexico

The guarantor will be released it the obligations that are being guaranteed had been fulfilled. Also, the guarantor may be released from liability if the guarantee has expired and the beneficiary has not filed a claim within the time frame foreseen in law. For instance, if the guarantee is a bond, article 174 of the Insurance and Bond Law states that the claim for calling a bond shall be filed within the time frame contained in the bond or within 180 days of the expiration date or from the date in which the obligation being guarantee was breached.

The guarantee’s wording may affect the position and enumerate reasons for the release of liability. It is usual to include that the guarantor shall not be liable if the obligations being guaranteed had been modified without prior approval of the guarantor.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

On-demand bonds

55. If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.

Mexico

An on-demand might be challenged as matter of jurisdiction if the bond is not called within the time frame disposed on the Insurance and Bond Law. See question 54. As to the matter of substantive law, it can be challenged if the secured obligation has been fulfilled.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

56. If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts that the employer is entitled to (such as sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?

Mexico

The court and the arbitral tribunal shall apply the contract and terms agreed for the guarantee. Therefore, the courts and the arbitral tribunal will observe whether the employer is entitled to call the bond and in what amount.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

Further considerations

57. Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?

Mexico

No, everything has been covered in the above questions. In the case of construction contracts, there must be a difference between private and public contracts. The latter are subject to specific rules governing public resources. In Mexico, FIDIC contracts are not used for public contracts.

Answer contributed by Victor M. Ruiz Barboza and Andrea Orta González Sicilia

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