MEXICO

Javier Navarro Treviño and Francisco Franco

A. LEGISLATION AND RULES

A.1 Legislation

The Commercial Code (“Code”) governs international and domestic arbitration in Mexico. The Code was enacted in 1889, and its last amendment on arbitration took place in 2010.

The Code incorporates the provisions of the UNCITRAL Model Law in its relevant section. Mexico is a signatory to the New York and Panama Conventions on the enforcement of foreign arbitral awards.[1]

USMCA Investor-State Dispute Settlement provisions

Recently, Mexico has taken some steps that may change the rules of Investor-State Dispute Settlement (ISDS) between the country and investors from the US and Canada. On 30 September 2018, Mexico, Canada and the United States reached an agreement to replace the North American Free Trade Agreement (NAFTA). The new agreement, the United States-Mexico-Canada Agreement (USMCA), is not in force yet, but it provides for significant changes in the ISDS field upon ratification. First, it eliminates previous ISDS provisions between Canadian investors and Mexico. Second, it restricts ISDS between US investors and Mexico, distinguishing between investors that have contracts with the Mexican government and those that do not.

Once the USMCA is binding, Canadian and US investors will have three years to file arbitration claims in connection with investments made between NAFTA’s entry into force and its termination (USMCA’s entry into force). During the three year period, investors will still have access to arbitration under NAFTA chapter 11. Once this period elapses, Canadian investors will not have access to arbitration under the USMCA and some US investors will only have limited access to it.

After the above three year period, Canadian investors will not have access to international arbitration under the USMCA against Mexico. If they have a claim against Mexico, they would have to rely on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which entered into force on 30 December 2018.[2] The CPTPP, also known as TPP-II, succeeds the Trans-Pacific Partnership which never entered into force after the United States withdrew its support in early 2017. The ISDS provisions under the CPTPP are narrower than those under chapter 11 of NAFTA. They impose a higher burden of proof on investors to establish breaches of investment obligations and give governments more leeway to implement public welfare measures without giving rise to claims of expropriation.

As discussed above, US investors will have access to arbitration even after the three year period. Mexico and the US have conditioned and limited their consent to arbitration, distinguishing between claimants who have regular investments and claimants who are parties to covered government contracts.[3]

US claimants with regular investments may only challenge measures in breach of articles 14.4 (national treatment), 14.5 (most-favored-nation treatment), and 14.8 (expropriation, excluding indirect expropriation). Most importantly, these claimants must initiate domestic litigation in Mexican courts before submitting their claim to arbitration. They can only commence arbitration if there is a final decision of a “court of last resort of the respondent or 30 months have elapsed” after the initiation of the domestic court proceedings. Another noteworthy addition is a four-year statute of limitations for investment-related claims. This means that investors may have to be quick to bring their claim in the courts in order to make sure they have time to bring their arbitration claim following the 30 month litigation period.

US Claimants who are parties to covered government contracts enjoy a broader scope and direct access to arbitration (after a six-month cooling-off period). They may challenge measures in breach of the whole chapter 14. Claims under a covered government contract will be subject to a three-year statute of limitations.

A.2  Institutions, Rules and Infrastructure

The Cámara de Comercio (CANACO) and the Centro de Arbitraje de México (CAM) are the most important local arbitration institutions in Mexico. The Mexican Chapter of the ICC (ICC Mexico) is located in Mexico City but has recently extended to various major cities in the country. Additionally, most of the major arbitration institutions operate in Mexico. The ICDR and the LCIA are better known and widely chosen. Mexican users and lawyers are getting familiar with these institutions and their rules. Each arbitration institution has its own infrastructure that is currently expanding to other major cities in the country, as arbitration is more commonly resorted to for the settling of disputes.

B. CASES

• Supreme Court holds that decisions on annulment or enforcement of arbitral awards are subject to indirect amparo action (adding two instances of judicial review)

On 6 December 2019, the First Chamber of the Supreme Court of Justice held that decisions on the validity and enforceability of awards are subject to indirect amparo actions.[4]

In Mexico, amparo actions are a form of judicial review to challenge the constitutionality of government actions. The Amparo Law in Mexico provides for two types of constitutional challenges; direct and indirect. Under article 170 of the Amparo Law, direct amparo actions proceed against final decisions issued by judicial authorities such as civil, labor, criminal, or administrative courts. Federal Circuit Courts have jurisdiction over direct amparo actions (collegiate benches, similar to US courts of appeal). The decisions on these matters are generally not subject to further judicial review, they are final and binding. Indirect amparo actions, on the other hand, are filed to challenge any other government actions that are not final judicial decisions (e.g., court rulings, orders, laws, decrees, etc.).

District Courts have jurisdiction over these actions. The decisions in indirect amparo proceedings are subject to judicial review by the Circuit Courts (revisión). The Circuit Court may either affirm, annul or remand the District Court’s decision.

In October 2019, the Mexican Supreme Court held a session to discuss the kind of amparo action that would proceed against decisions on the validity of arbitral awards. It held that the proper amparo action would be indirect. The court based its decision on the reasons below.

First, the request for recognition and enforcement or the challenge of an arbitral award are not civil actions. Second, the decision annulling or affirming an award is not a final and binding decision, subject to direct amparo. Third, this special proceeding only analyzes procedural, non-substantive matters. Finally, under article  170  of the Amparo Law, an amparo claim can proceed against these decisions.

This decision reverses prior judicial precedent holding that direct amparo actions proceed against decisions on the enforcement and validity of arbitral awards[5]. Practitioners and academics have expressed their concerns regarding this decision. They believe this to be a setback in Mexico’s progress towards becoming an arbitration-friendly jurisdiction because this adds a further judicial instance to the enforcement/confirmation of arbitral awards.

[1] Mexico ratified the New York Convention on 14 April 1971. See New York Arbitration Convention, Contracting States, http://www.newyorkconvention.org/countries (last accessed 5 December 2018). México signed the Panama Convention on 27 October 1977. It was ratified on 15 February 1978. See Organization of American States, Inter-American Convention On International Commercial Arbitration, http://www.oas.org/juridico/english/Sigs/b-35.html (last accessed 5 December 2018).

[2] Jamie Smyth and Robin Harding, Trans-Pacific Partnership to start in December, 30 October 2018, https://www.ft.com/content/274d411c-dc99-11e8-9f04-38d397e6661c (last accessed 15 November 2018).

[3] The USMCA defines covered government contracts as “a written agreement between a national authority of [Mexico or the US] and a covered investment or investor of [Mexico or the US], on which the covered investment or investor relies in establishing or acquiring a covered investment other than the written agreement itself, that grants rights to the covered investment or investor in a covered sector.”

[4] Jurisprudence 1a./J. 87/2019 (10a.) of the First Chamber of the Supreme Court of Justice, published in the weekly Gazette of the Federal Judiciary on 6 December 2019 under the name “Arbitral Award. Decisions issued in a special proceeding on annulment or enforcement of an arbitral award, are subject to indirect amparo action.”

[5] Thesis PC.I.C. J/23 C (10a.) of the First Circuit Courts Plenary, published in the Gazette of the Federal Judiciary on 15 January 2019 under the name “Arbitration Award. Final decisions on annulment or enforcement of an arbitral award issued in a special proceeding are subject to direct amparo action.”