It is undisputed that certain deficiencies of the Mexican judicial system have sparked the need for developing and consolidating new alternative dispute resolution mechanisms such as international arbitration in Mexico. Mexico’s increasing multilateral trade, transnational dealings, disputes, as well as its international business community, have steered businesses to opt for incorporating international arbitration clauses into their contracts with their Mexican partners, in pursuit of greater legal certainty.[1]
Mexico has played an active role in developing its international arbitration laws to be competent to meet the needs of an international business community. Among the most relevant developments lies the approval of the Mexican Lex Arbitri, replicating the 2006 UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”), thus rendering it familiar and certain for foreign parties. Additionally, Mexico is party to both the 1958 Convention on the Recognition of Foreign Arbitral Awards (the “New York Convention”) and the 1975 Inter-American Convention on the International Commercial Arbitration (the “Panama Convention”), which simplify the reciprocal enforcement of arbitral awards.
In addition to this active role, Mexico has also taken actions that allow parties to resort to arbitration. Mexican courts have adopted a friendly approach to arbitration through interpretations of its Lex Arbitri. Mexico is also party to the US-Mexico-Canada Agreement as of 1 July 2020, through which its Article 31.22 calls upon the establishment and maintenance of an Advisory Committee on Private Commercial Disputes, which shall encourage, facilitate, and promote through education the use of arbitration between private parties in the free trade area, among others.
1. The Applicable Arbitration Law
Despite taking the form of articles contained in the 1993 Federal Commercial Code of Mexico (“FCCM”),[2] the applicable Mexican Lex Arbitri has correctly earned the status of an independent statute through judicial interpretation and practice. The Mexican Lex Arbitri is set forth in Articles 1415-1480 of the FCCM and, as explained, was originally intended to reproduce the Model Law, including slight modifications and subsequent amendments regarding specific topics such as judicial assistance in commercial settlement and arbitration, among others.
One interesting feature of the Mexican Lex Arbitri is that it fails to differentiate between domestic and international arbitration, which has allowed for homogenous interpretations regarding the application of the law.
2. The Arbitration Agreement under Mexican Law
According to Article 1416(1) FCCM, an arbitration agreement is “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them with respect to a predetermined legal relationship, whether contractual or not. The arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.” In this sense, the arbitration agreement is not only limited to an arbitration clause but also allows for a mere compromis, as any valid agreement to submit present or future disputes to arbitration is permissible.
– Form
Article 1423 FCCM differentiates between two forms of agreements, as it mentions that “[t]he arbitration agreement shall be in writing and must be contained in a document signed by the parties or in an exchange of letters, telex, telegrams, facsimile or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by another.”
Pursuant to this provision, scholars have differentiated between the so-called “orthodox” arbitration agreement, which is one made in writing and contained in a document signed by the parties, and the “unorthodox” arbitration agreement, whose validity stems from the intention of the parties and whose validity is more complex to prove. Such “unorthodox” arbitration agreements include (1) an exchange of electronic communications that document an agreement of the parties to submit disputes to arbitration, (2) the exchange of a complaint and a response where one party alleges the existence of an arbitration agreement without the denial of the counterparty, and (3) the incorporation by reference of a contract containing an arbitration agreement, as long as certain requirements are met.
– Electronic Forms
As to whether electronic forms of arbitration agreements are found to be valid, there are sufficient legal arguments that point to this possibility, as these comply with the “in writing” test. Additionally, Mexico has adopted the principles of functional equivalence and the advanced electronic signatures of the Model Law, with a welcoming position towards electronic communications in legal proceedings.
– Separability
Article 1432 FCCM explicitly foresees the principle of autonomy of the arbitration agreement, confirming that “an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.”
– Kompetenz-Kompetenz
Pursuant to Article 1432 FCCM, the arbitral tribunal holds the authority to determine its own jurisdiction, as it provides that “[t]he arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement”. The same applies for the authority of arbitral tribunals to rule on any challenges to the arbitration agreement.
2. Objective Arbitrability
To determine whether a matter is arbitrable or not, a threefold test must be conducted. First, it is necessary to determine whether a specific legal prohibition exists. Second, the possible involvement of third-party rights must be analyzed. Finally, the parties must examine whether the matter involves an issue of public policy. If none of these situations arise, the matter is arbitrable.
In light of the above, certain matters are classified as non-arbitrable under Mexican law. These include, among others:
- Criminal Liability, as per the National Code of Criminal Procedure;
- Tax Law, as per the Tax and Administrative Federal Court Organizational Law;
- Matters of the Family and Civil Status Law, as per the Superior Court of the Federal District Organizational Act;
- Personal and Commercial Bankruptcy, as per the Bankruptcy Law.
4. The Arbitral Tribunal
The appointment as well as the number of arbitrators to be appointed for the constitution of the tribunal are explicitly regulated in the Mexican Lex Arbitri. In pursuit of temporal and economic efficiency, Article 1426 FCCM establishes that despite parties being free to agree on the number of arbitrators, the default number of arbitrators is one absent agreement between the parties. Intriguingly, the FCCM allows for an even number of arbitrators, which should be avoided by the parties as this may lead to stalemate and stagnation in cases of disagreement.
5. The Arbitral Procedure
– Place of Arbitration
The place of arbitration is determined according to agreement between the parties, in the first place. If the parties fail to agree on a place of arbitration, the tribunal will designate the seat pursuant to the circumstances of the case and the convenience of the parties according to Article 1436 FCCM, which reads, “Failing such agreement, the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.”
– The Proceedings
The arbitral proceedings are governed by a duty to treat parties equally, as well as providing a full opportunity to the parties to present their case, as set out in Article 1434 FCCM, which provides, “The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.” Despite this fundamental principle, the Mexican Lex Arbitri has been brought before the Mexican Supreme Court for its deemed lack of standards equivalent to Mexican constitutional due process. The Mexican Supreme Court, however, has erred continually in favor of arbitration, signaling the arbitration-friendly position of the Mexican judicial system.[3]
6. Interim Measures of Protection
When a party decides to apply for interim measures of protection, it may decide to do so before arbitral tribunals, pursuant to Article 1433 FCCM, which states, “Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order any party to take such interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject matter of the dispute. The arbitral tribunal may require any party to provide appropriate security in connection with such measure.” Otherwise, a party may also decide to apply for interim measures of protection before domestic Mexican courts, pursuant to Article 1425 FCCM, which reads, “Even when there exists an arbitration agreement, the parties can, prior or during arbitral proceedings, request the court to take interim measures of protection.”
The first option is still a heavily unexplored option, as Article 1433 FCCM contains no clear guidance as to the requirements of this measure.
On the other hand, the second option involves a limited number of types of interim measures. This option does not dispose of the possibility of seeking arbitration, nor does it constitute a waiver of the right to arbitration. The court proceedings will be governed by the applicable procedural code.
7. Applicable Law
Parties are expected to agree upon the law applicable to the dispute, pursuant to which the arbitral tribunals must reason and ground their decisions. The applicable law may include, but is not limited to, merely the laws of a country, as the applicable law may also include lex mercatoria, as well as any other agreement between the parties, pursuant to Article 1445 FCCM. Unless the parties explicitly allow for a ruling in equity, also known as a ruling ex aequo et bono, arbitral tribunals are prohibited to depart from the applicable law when deciding a case, according to Article 1445(3) FCCM: “The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorized it to do so.”
It is worth mentioning that absent an agreement on the applicable law, arbitral tribunals must choose one taking into account the relevant characteristics of the case, as well as connecting factors, pursuant to Article 1445(2) FCCM.
8. Arbitration Fees and Costs
Interestingly enough, the Mexican Lex Arbitri has decided to base its fees and costs regime on the 1976 UNCITRAL Arbitration Rules, rather than on the Model Law. Among the most notable differences is Article 1416(IV) FCCM, which defines costs as “[t]he arbitration tribunal fees; the travel costs and other expenses incurred by the arbitrators; the cost of expert advice or of whatever other assistance required by the arbitration tribunal; travel costs and other expenses for witnesses, provided that such expenses are approved by the arbitration tribunal; costs for legal representation and legal assistance of the successful party if such costs were claimed during the arbitral proceedings, and only to the extent that the arbitral tribunal finds them reasonable; fees and expenses of the arbitration institution which appointed the arbitrators.”
As to who shall bear the costs of the arbitral proceedings, Article 1455(1) FCCM provides that costs follow the event, allowing the tribunal to allocate the cost depending on different relevant circumstances of the case, such as the amount involved, the complexity of the matter and the time spent on the dispute.
9. Enforcement of Arbitral Awards
The enforcement procedure of all arbitral awards, “irrespective of the country in which it was made”, is provided for in Articles 1461-1462 FCCM, along with the summary procedure set out under Article 360 of the Federal Code of Civil Procedure.
There are five basic steps for the enforcement of a foreign award. First, the enforcing party is expected to file a request before the competent court, providing the arbitration agreement and the award, in its authenticated version. The second step is taken by the court itself, as it should notify the counterparty of the existence of the enforcement procedure, as well as providing it with a three-day period to set forth its views on the matter. Additionally, the parties are allowed to produce additional evidence during this period. Third, a hearing is conducted. If the parties were to present any evidence, an additional period of ten days for the submission of evidence can be granted for the production of the evidence. Finally, the court must provide its decision of granting or refusing to enforce within a period of five days.
The final decision on enforcement is not subject to recourse and is unappealable. The only possible challenge involves a constitutional suit, pursuant to Article 114(III) of the Ley de Amparo.
Domestic and international awards may be refused enforcement only on the basis of the conditions set out in Article 1462 FCCM, notwithstanding the availability of other remedies such as setting aside the award, pursuant to Article 1457 FCCM.
As for foreign arbitral awards, the grounds for refusal of recognition and enforcement will depend on the provisions set out in the applicable international conventions and treaties to which Mexico is a party.
10. Means for Setting Aside an Award
The Mexican Lex Arbitri sets forth the grounds upon which a party may move to set aside an arbitral award in Article 1457 FCCM, which replicates the grounds for setting aside in the Model Law.
Under these grounds and their subsequent interpretations, the scope of the review of courts in setting aside and enforcement proceedings is very limited, excluding the possibility of reviewing the merits of the award. The exceptions remain public policy and arbitrability, which do allow for a greater review, when necessary, even on an ex officio basis by the court. The extent of interpretation, however, remains very limited in practice.
The procedure for setting aside an award mimics the procedure for non-enforcement of foreign awards, pursuant to Article 360 of the Federal Code of Civil Procedure. It is worth noting, however, that the party wishing to set aside the award must make the application within a three-month period from the date of receipt of the award or disposition of a request for correction or interpretation, as set forth in Article 1458 FCCM.
11. Rules of Public Policy
Article 1462(II) and Article 1457(II) FCCM provide that public policy is a ground to set aside an award rendered in Mexico, and to deny recognition of an award in Mexico, respectively. Notably, pursuant to the reasoning of the court in Nordson Corporation v. Industrias Camer,[4] which was further restated by the Collegiate Court of the 15th Circuit,[5] Mexican courts shall refrain from reviewing the merit of arbitral awards. This has been supported by the First Chamber of the Mexican Supreme Court, which has reversed a lower court’s decision through certiorari, which attempted to set aside domestic awards based on the procedures implemented by the arbitrators. This court interpreted that “an arbitral award is considered contrary to public policy, and will be set aside and denied enforcement, whenever the matter trespasses the limits of said order, which is to say, goes beyond the judicial institutions of the State, the principles, norms, and institutions that form it and transcends the community due to the offensive nature of the error committed in the decision. Such an award would be altering the limit set by public order, namely, the mechanism through which the state prevents certain private acts from affecting the fundamental interests of society”.[6]
In conclusion, international arbitration in Mexico is governed by Articles 1415-1480 of the Federal Commercial Code, which has been considered as an independent statute and has been based almost entirely on the Model Law. These laws, to the advantage of arbitration, have been interpreted in an arbitration-friendly manner by the courts and have been bolstered and supported by the adoption of relevant international conventions. Its strategic geographical position, its increasing transnational transactions, as well as its striving for rigorous dispute settlement mechanisms, calls upon enterprises, both Mexican and foreign, to resort to arbitration in Mexico in pursuit of the resolution of disputes.
[1] E. Muñoz, Under40 International Arbitration Review, in Young Arbitration Review (Ed.24), 10. Alternative Dispute Resolution as a Tool to Overcome Access to Justice Impediments and Institutional Dysfunction in Mexico, pp. 58-62.
[2] Decree 22 July 1993, Containing Amendments and Diverse Additional Provisions Made to the Commercial Code and the Federal Code of Civil Procedure.
[3] Amparo en Revisión 759/2003.
[4] Nordson Corporation v. Industrias Camer S.A. de CV, Mar. 14, 1996.
[5] Mecalux Mexico S.A. de C.V., May 28, 2002.
[6] Amparo en Revisión 755/2011, para. 81.
