Focus on: Arbitration in Mexico

Malpica, Iturbe, Buj y Paredes, S.C.

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The rise of arbitration as an alternative dispute resolution mechanism in Mexico is recent and dates back to the early years of the 1990s, when Mexico opened its trade with the United States with the signing of NAFTA during the early stages of President Carlos Salinas de Gortari six-year term. Faced with the accumulation of international commitments recently acquired, as well as the progressive but imminent commercial opening and privatization of public entities, the need for a sound and modern legal dispute resolution system, on a par with the jurisdiction of Mexican courts, was pressing.

The evolution of alternative dispute resolution mechanisms from the 1990s until 2008 encountered certain practical complications due to a degree of reluctance on the part of the jurisdictional authorities, who, in view of the lack of clarity of the national legal system, often made excessive use of their jurisdictional powers through interventions in arbitral proceedings and annulment of awards requested by the parties in national forums.

However, despite the fact that the evolution and adaptation process has been unhurried, the fact is that Mexico is today an important center of arbitration in Latin America. Mexico’s legal framework and its institutions today have shown themselves to be solid and respectful of arbitration institutions, not only because they have become an efficient safeguard for the resolution of disputes, but also as an effective mechanism to avoid the intrinsic problems that plague the national judicial system, giving confidence to parties and investors in their commercial disagreements.

On the national scene, the current context has proven uncertain for investments and capital. The abrupt changes in energy regulation, for example, and the implementation of a public policy which radically modifies the one that prevailed less than four years ago, seen by some as regressive or detrimental in the context of capital and investment inflows, requires strong institutions to remedy any claims that may arise from violations or non-compliance generated by this novel state of affairs.

This environment of political uncertainty could lead to the emergence of commercial disputes, both between individuals and between investors and the State. Therefore, without wishing to prejudge what is coming in the future, it is pertinent to mention that in the Latin American experience, arbitration has been a security mechanism for the parties at the time of settling their disputes in times of crisis.

As reference, we can take into account what happened in Argentina after the default of 2001; as a result of the crisis, different situations arose that affected both contracts between individuals and contracts where the State was a party, and it was through arbitration that companies found a suitable way to solve their conflicts and to protect their investments.

By not having the excessive formalisms and procedural ritualisms of the state jurisdiction, the margin for dilatory articulations is extremely reduced and the solution of the conflict is more agile; Likewise, judgments handed down by judges in the first instance can be appealed in succession, which can lead to lengthy proceedings. This is not the case in arbitration, since awards are non-appealable (they can only be reviewed for issues related to the validity of the arbitration clause or agreement and irregularities in the procedure, but not for issues relating to the merits of the case). In this way, arbitration satisfies the growing need for companies to enforce their claims quickly in order to clean up their balance sheets. Furthermore, it grants a wide margin for private autonomy since the parties, by mutual agreement, can design the type of procedure that best suits their needs according to the particularities of the dispute; they can choose the rules of procedure, choose arbitrators specialized in the matter who can cover the complexity of the dispute, establish that the arbitrators can order interim measures, choose the applicable law to resolve the merits of the dispute and the language in which the process will be carried out, etc.

Therefore, the inclusion of arbitration clauses in contracts, or their subscription once a dispute arises, is one of the measures that companies, regardless of the sector in which they operate, must take into account in times of crisis. Arbitration is an effective remedy that, in a scenario of uncertainty and instability, provides clear and customized guidelines for and by the parties.

On the other hand, experienced litigators in the national forum will be able to say with certainty and knowledge of the cause, that the ravages caused by COVID 19 have spread to the judicial system with the same speed and damage as the virus itself. After multiple total suspensions of jurisdictional work and multiple but unsuccessful new normality policies, there is today an institutional backlog in the resolution of cases as never seen before.

In this context, parties are increasingly agreeing to arbitration clauses in their contracts. In today’s Mexico, where the benefits and advantages of arbitration are already known; where the myths and unfounded fears regarding the scope of this institution as an effective and safe dispute resolution mechanism have been left behind, there is a movement that is stirring forward with inertia towards the practical generalization of the institution.

Special mention should be made of the development of local arbitration administrators, who in recent years have made an important effort to raise awareness of the advantages of arbitration. Likewise, in our opinion, local arbitration administrators present a viable and accessible arbitration option for all those who wish to access such institution, not only because the national seat would seem to be more attractive for those who enter into contracts in Mexico and between nationals, but also because they are also more accessible in economic terms. In our opinion, although the context in which this new trend was born is not exactly ideal, it is undoubtedly fertile ground for the flourishing and normalization of alternative means of dispute resolution in Mexico, particularly, arbitration. Therefore, we are confident that the final balance will be positive. We hope to see that in the coming years the practice of arbitration will be consolidated as a known and viable option to be implemented at all levels and types of legal relations developed in the national context. This will not only favor those who begin to opt for these means, but will also serve as a catalyst in the consolidation of arbitration institutions in Mexico, giving greater strength to the national legal and institutional framework around alternative means of dispute resolution.

Co-authors: Juan Iturbe (Partner), Rolando Zarate (Partner) and Andres Hernandez (Associate) at Malpica Iturbe Buj and Paredes, SC.

Juan Iturbe

Rolando Zarate