By: Salvador Fonseca González1Salvador Fonseca González is a partner in Baker & McKenzie’s Mexico City office. He has more than 19 years of experience representing corporate and individual clients in complex international and domestic arbitration and litigation. Mr. Fonseca has participated in cases under the rules of the major arbitral institutions and is familiar with dispute boards and other methods of solving disputes. He has served as sole arbitrator and chairman of arbitral tribunals in several international and local cases. He has lectured on International Commercial Arbitration at the most prestigious universities in Mexico. and Juan Carlos Zamora Müller2Juan Carlos Zamora Müller is an associate in Baker & McKenzie’s Mexico City office. His practice focuses on dispute resolution, commercial litigation and arbitration. He has meaningful experience representing clients before Mexican courts and arbitral tribunals in ad hoc and ICC proceedings. He has served as associate professor in Procedural Law and Arbitration at the School of Law of the Centro de Investigación y Docencia Economicas in Mexico City.
A. Legislation, Trends and Tendencies
A.1 Legislation
Arbitration law in Mexico has not changed since 2011, when there was significant reform. During this period of time, the legal framework has remained stable.
A.2 Trends and Tendencies
As discussed in the 2014 and 2015 Arbitration Yearbooks, reforms to the Amparo Law3Amparo refers to an extraordinary judicial remedy intended to allow a person to question whether or not a certain action or law conforms with the rights protected under the Mexican Constitution. that took place during 2013 made it possible to bring constitutional challenges against private entities or individuals that perform activities equivalent to those performed by government authorities.4Article 5 of the current Amparo Law reads: “Are parties to the amparo proceeding: […] II. The responsible authority, being held as such, despite of its formal nature, the one that pronounces, orders, enforces or attempts to enforce the act that creates, modifies, or terminates legal situations in a unilateral and obligatory manner; or fails to perform the act, that if performed, it would create, modify or terminate such legal situations.
For the purpose of this Law, private parties will be held as a responsible authority when they perform acts equivalent to those of an authority, that affect rights in terms of this section, and whose functions are determined by a general law. […].”
This new version of the current Amparo Law has been used to sue arbitrators as if they were authorities (in a fashion similar to state judges) and at the same time challenge awards on the basis that the award violated the fundamental or human rights of the losing party.
Fortunately, in 2015, there were a couple of judicial resolutions that confirmed the private nature of commercial arbitration and that arbitrators are not to be regarded as authorities of the state for the purposes of the Amparo Law.
B. Cases
B.1 Arbitrators Not to Be Subject to Amparo Actions
In a judicial precedent (jurisprudence thesis) recently published,5Thesis I.8o.C.23 C (10a.) of the Eighth Collegiate Tribunal in Civil Matters of the First Circuit, published in the weekly Gazette of the Federal Judiciary on 15 May 2015 under the name “Private arbitrators. Do not have the character of responsible authorities in the amparo proceeding.” the federal Mexican judiciary confirmed that arbitrators cannot be regarded as “responsible authorities” for the purposes of the Amparo Law.
The core reasoning in this precedent is as follows:
“[…] although private arbitrators are empowered to resolve legal disputes that the parties submit to them, as it stems from an agreement made between individuals, the role of arbitrators is private and all activities carried out by them in order to resolve the dispute in question have the same character; that is, they are not state officials nor have their own or delegated jurisdiction, since their powers derive not from a general rule, but from the will of the parties expressed in the [arbitration] agreement that the law recognizes, and as one who appoints arbitrators and determines the limits of their office does not act in the public interest, that is, as an organ of the state, but in his own private interest, of course the functions of such arbitrators are not public but private, which means they lack imperium, so that the same arbitrators cannot be conceptualized as state authorities and their actions are not equivalent to those of an official authority.”
This precedent is important to prevent attacks on arbitration using the amparo as a means to delay and obstruct the arbitrators’ appointment or the continuance of arbitral proceedings on the argument that arbitrators should be subject to the possibility of an amparo action and their acts (procedural orders, interim decision, awards, etc.) subject to being scrutinized through this form of constitutional control. In summary, this precedent confirms the principle of no judicial intervention in arbitration and the longstanding position of the Mexican law and judiciary that the only remedies against the acts of the arbitrators are those established in the arbitration law, which in Mexico are simply those of the UNCITRAL Model Law.
C. Costs in International Arbitration
C.1 Allocation of Costs
Mexico’s arbitration law follows the UNCITRAL Model Law, which was incorporated as a section of the Code of Commerce as long ago as 1993. However, as regards costs, Mexican arbitration law includes certain specific articles not found in the Model Law.
6The drafters of the Model Law considered that, “questions regarding the fees and costs of arbitration are not an appropriate matter to be dealt with in the model law.” Report of the Working Group, UN Doc. A/CN.9/216 (1986), at p. 99. These are Article 1416 paragraph VI of the Code of Commerce, which defines what is to be understood as “costs,” and Articles 1452 to 1456 of the same code, which stipulate the basis for the allocation of costs in commercial arbitration.
According to Mexican arbitration law and provided that there is no party agreement to the contrary, the following rules apply to costs in arbitration:
a) Upon its constitution and during the course of the arbitration, the arbitral tribunal may request the parties to deposit amounts to cover the fees and expenses of the arbitral tribunal. If a party refrains from making its corresponding deposit, the other party should do so; otherwise, the arbitral tribunal may order the suspension or termination of the proceedings. In the final award, the arbitral tribunal must include a statement of the sums received and reimburse to the parties any unused amounts, as appropriate.
b) The default rule is that the losing party should pay the costs of the arbitration. However, arbitrators have discretion with regard to allocating costs if they feel a different allocation is proper, considering the particular circumstances of each case. Arbitral tribunals do not seek guidance from the local procedural rules when considering the allocation of costs.
c) While the arbitrators have the power to determine the amount of costs (including the arbitrators’ and party counsel’s fees), these must be reasonable, having in mind the amount in dispute, the complexity of the case, the time devoted to the case and any other relevant circumstances of the particular case.
d) The arbitral tribunal must include the determination and allocation of costs in the award. Each arbitrator’s compensation must be indicated separately.
e) The arbitrators cannot charge fees for the interpretation and/or correction of their award or for issuing an additional resolution dealing with issues not resolved in the final award.
f) Upon the request of a party, a judge may discretionarily opine on issues regarding the determination of costs and its allocation.
C.2 Security for Costs
According to Article 1425 of the Code of Commerce (similar to Article 9 of the UNCITRAL Model Law), which establishes that a judge can issue provisional measures in aid of arbitration, and Article 1478 of the Code of Commerce, which in turn clarifies that the judge has discretion to grant such measures, it is possible for a party to obtain a provisional measure ordering the other party to provide security for the costs of the arbitration.
Likewise, in terms of Article 1433 of the Code of Commerce (similar to Article 17 of the UNCITRAL Model Law before the 2006 reforms), the arbitral tribunal could also grant an interim measure regarding security for costs. In this regard, it is important to note that while Article 1433 does not expressly give arbitrators the power to grant this kind of interim measures, it does confer on them ample discretion to issue interim measures of protection “as necessary in respect of the subject matter of the dispute,” and this can be understood as providing enough room to include interim measures in respect of security for costs.
However, it is still unusual in Mexican arbitration practice for parties to request this type of interim measure for security of costs.
C.3 Recovery of Costs
According to Article 1416, paragraph IV of the Code of Commerce, arbitration costs include: (i) the fees of the arbitral tribunal; (ii) the arbitral tribunal’s travel and other expenses; (iii) the cost of any expert advice or any other assistance required by the arbitral tribunal; (iv) travel and other expenses of witnesses as approved by the arbitral tribunal; (iv) legal and representation costs of the prevailing party in the amount that the arbitral tribunal finds reasonable; and (v) the fees and expenses of the institution that appointed the arbitrators. All these costs are, of course, recoverable. Other kinds of costs may also be recoverable, particularly if they are reasonable considering the nature of the case and all other relevant circumstances.
According to Mexican arbitration practice, it is usual that arbitral tribunals require the parties to furnish a schedule of costs, along with the backup documentation supporting their respective claims (invoices, statements of account, etc.) before issuing its final award. Also, it is not uncommon to find procedural orders concerning costs requiring the parties to indicate whether the costs claimed have actually being disbursed or paid, as well as to disclose any contingency and/or third party funding agreements that may have an impact on the arbitral tribunal’s award and allocation of costs.