Mexico maintains a functional and modernised international arbitration legal framework. Although international arbitration in Mexico has continued to evolve, its foundations are rooted on the Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law (the UNCITRAL Model Law). Mexico is a party to multiple international treaties and conventions that are largely supportive of arbitration, and counts on a judiciary historically supportive of international arbitration, albeit with some limited exceptions. Today, Mexico is a centre for multiple investor-state claims, including legacy claims pursuant to the now superseded North American Free Trade Agreement (NAFTA).

Evolution of international arbitration in Mexico

At the heart of international arbitration in Mexico are the international treaties and conventions to which it subscribes. Mexico is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) of 1958 and the 1975 Inter-American Convention on International Commercial Arbitration (the Panama Convention), which Mexico ratified in 1971 and 1978, respectively.

Notwithstanding acceding to these international instruments, Mexico was not an active jurisdiction for the practice of arbitration, including international arbitration, for most of the 20th century. It was not until the 1990s, when Mexico’s economy further opened to foreign investment, that it became an important player in the international arbitration arena.

In December 1992, Mexico signed NAFTA, along with the United States and Canada. NAFTA subsequently came into force as of 1 January 1994. In advance of NAFTA’s effective date, Mexico put in place a number of legal reforms intended to prepare the Mexican economy. One key reform involved increasing reliance on commercial arbitration as a means of domestic and cross-border dispute resolution.

In advance of the implementation of NAFTA, Mexico incorporated 48 articles into its Commercial Code (Articles 1415 to 1463), which specifically addressed commercial arbitration, both domestic and international, under a monist approach. With limited exceptions, these articles mirrored those of the UNCITRAL Model Law. On 27 January 2011, the Commercial Code was amended once more to incorporate additional articles, further updating Mexico’s arbitration system and, in particular, clarifying perceived tensions between the newly enacted arbitration framework and its interplay with the judicial system.

To increase investment post-NAFTA, Mexico has subsequently entered into a number of free trade agreements and bilateral investment treaties that expressly incorporate arbitration as the mechanism for resolution of certain investor-state disputes. These modifications have paved the way for a multitude of currently active and varied investor-state claims, including those involving mining disputes, railway concessions and energy reforms.

Mexico is a signatory to more than 30 bilateral investment treaties in force, including with Argentina (1996), Netherlands (1998), Austria (1998), Germany (1998), Belgium-Luxemburg Economic Union (1998), France (1998), Finland (1999), Uruguay (1999), Portugal (1999), Italy (1999), Denmark (2000), Sweden (2000), Republic of Korea (2000), Greece (2000), Czech Republic (2002), Iceland (2005), United Kingdom (2006), Spain (2006), China (2008), Singapore (2009), Turkey (2013), United Arab Emirates (2016) and Hong Kong (2021), among others.

Mexico is likewise a party to multilateral free trade agreements with the European Union, Mercosur, Central America and the Trans-Pacific Partnership and the relatively recent reincarnation of the North American Free Trade Agreement: the United States–Mexico–Canada Agreement (USMCA).

Last, after much historical resistance, on 27 July 2018, Mexico submitted its instrument of ratification to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) with the World Bank. The ICSID Convention entered into force for Mexico on 26 August 2018.

Today, the constitutional right to submit to alternative forms of dispute resolution mechanisms, including arbitration, is enshrined in the Mexican Constitution via the amendment of Article 17 in 2008. As set forth in the explanatory memorandum to the constitutional amendment of Article 17, Mexican legislators were driven by a desire to promote the efficient resolution of conflicts, ease burdens on Mexico’s national courts and thereby enhancing their performance, as well as by a desire to reduce costs inherent to and within the judicial system for both Mexican tribunals and for the parties themselves.

Over time, Mexico has continued to flesh out and develop the domestic and international arbitration legal framework that exists today.

Key features of mexico’s commercial arbitration regime

Requirements for arbitral agreements and enforcement

Per Mexico’s Commercial Code, an arbitration agreement must be in writing and signed by the parties. That said, an ‘agreement’ to arbitrate may arise via (1) an exchange of letters, telex, telegrams, fax or other means of communication evidencing the agreement, (2) the exchange of the filing of an arbitration claim and an answer to the arbitration dispute in which one party alleges the existence of an arbitration agreement and the other does not deny its existence, or (3) where such an agreement has been incorporated by reference.

Via legislation, Mexico has addressed whether an arbitral tribunal or the Mexican courts themselves are empowered to rule on the validity of an arbitration agreement. In a controversial decision rendered in 2005, Mexico’s First Chamber of the Supreme Court ruled that competence belonged to the courts, rather than the arbitral tribunal empanelled by the parties to a dispute. The Supreme Court’s decision was superseded by a January 2011 reform to the Commercial Code.

Today, pursuant to a revamped Article 1465 of the Commerce Code, courts must immediately compel disputes covered by arbitration agreements to arbitration. In exceptional cases, where an arbitration agreement is deemed manifestly null and void, or incapable of being performed, a court may, upon a party’s petition, intervene and determine whether arbitration should be compelled. In deciding whether to intervene, courts are bound to take a restrictive view.

Disputes incapable of being referred to arbitration

The Mexican Commercial Code does not itself expressly carve out specific areas of law or types of dispute that are by their nature incapable of referral to arbitration. That said, there are provisions of Mexican law that expressly preclude or restrict certain types of claims from being arbitrated; for example, commercial insolvency, family-related and inheritance-related disputes, intellectual property, and labour and employment matters are all claims excluded from arbitration under various provisions of Mexican law. As such, these categories of claims must be brought in Mexico’s domestic court system.

Further limitations on the right to refer claims to arbitration include the following:

• The Public Sector’s Acquisitions, Leases and Services Law provides that administrative rescission (i.e., termination with cause by the state or its instrumentalities) and early termination of administrative contracts governed by said Law are not subject to arbitration.
• The Public Works and Related Services Law prevents parties from submitting to arbitration certain matters, including the administrative rescission and early termination of public works contracts.
• The Public Private Partnership Law prevents parties from submitting to arbitration claims concerning the alleged revocation of concessions and authorisations, and matters concerning the validity of administrative acts.
• The Hydrocarbons Law contains language seeking to block parties from submitting to arbitration issues regarding the administrative rescission of contracts for the exploration and extraction of hydrocarbons.

Language and place of arbitration

Under Mexico’s Commercial Code, parties are free to agree on the language or languages to be used in arbitral proceedings. However, where parties fail to designate a language in their arbitration agreement, the arbitral tribunal will determine the language. The arbitral tribunal may also require that documents be translated into the language of the arbitration that was either agreed by the parties or that was subsequently determined by the arbitral tribunal.

Parties to an arbitration agreement are also free to agree on the place or seat of their arbitration. Absent an agreement, the seat of the arbitration shall be determined by the arbitral tribunal after considering factors such as the circumstances of the case and the relative convenience to the parties.

Selection and challenge of arbitrators

Mexican law contains various provisions concerning the appointment of arbitrators in ad hoc (or un-administered) arbitral proceedings.

Under the Mexican Commercial Code, parties are free to agree on a procedure for the appointment of arbitrators both before and after a dispute has arisen.

• If the arbitration agreement provides for a sole arbitrator, and the parties do not agree on one, the federal or state court at the seat of the arbitration may intervene to select the arbitrator on application by either party.
• Where an arbitration agreement provides for three arbitrators, and unless otherwise stated, each party shall appoint one arbitrator and the two co-arbitrators shall appoint the third. If one party fails to nominate its arbitrator in a timely manner, or if the co-arbitrators fail to agree on the third arbitrator, the federal or state court at the seat of arbitration has the power to intervene and make the appointments, on application by either party.

Mexican law also contains provisions dealing with the challenge of arbitrators in ad hoc or unadministered arbitrations.

Parties may agree on procedures to seek the disqualification of an arbitrator. Absent agreement, a party who wishes to challenge an arbitrator must furnish the arbitral tribunal with a written statement of its intent and must set forth the reasons for its challenge. A challenge pursuant to Mexican law must be filed within 15 days of a party having become aware of either the constitution of the arbitral tribunal or any circumstances likely to give rise to justifiable doubts as to an arbitrator’s impartiality, independence or lack of qualifications.

With regard to ad hoc arbitrations governed by the provisions of Mexico’s Commercial Code, where a request to disqualify an arbitrator is unsuccessful, the requesting party may challenge the decision before Mexican courts, but must do so within 30 days of receipt of notice of the arbitral tribunal’s decision.

Determining the applicable substantive law

The Mexican Commercial Code requires arbitral tribunals to decide disputes in accordance with the ‘rules of law’ agreed by the parties. Any reference in the parties’ agreement to the applicable laws of one country will be understood to incorporate its substantive laws (e.g., applicable statutes, codes, case law, any relevant and applicable customs or trade practices) as opposed to its rules regarding conflicts of laws.

Where parties have not pre-selected or subsequently agreed on the substantive law to govern their dispute, the arbitral tribunal is empowered to select the applicable law (after taking into account, among other considerations, the characteristics of the case).

In certain circumstances, an arbitral tribunal may decide a dispute taking into account equitable considerations (ex aqueo et bono or as amiable compositeur) but only where the parties so explicitly agree and authorise the arbitral tribunal to do so.

Disregarding the parties express agreement as to the means of resolving a dispute could potentially subject an award to being set aside.

Confidentiality

There is no general rule under the Mexican Commercial Code, or other applicable Mexican statutes, inherently providing for confidentiality of arbitral proceedings or arbitral awards. That is to say, arbitral proceedings are not automatically confidential or treated as confidential under Mexican law. It is therefore helpful for parties seeking to maintain the confidentiality of proceedings to incorporate confidentiality provisions as part of their dispute resolution agreement or via a separate confidentiality agreement. Critically, such confidentiality protections are not impervious. As in many other jurisdictions, the contents of an arbitration award may become public where enforcement or annulment proceedings are initiated before Mexican courts, thereby requiring disclosure of the same.

Interim relief

Under the Mexican Commercial Code, parties have the right to seek interim measures from the Mexican courts either prior to the initiation of an arbitration or while it is already in progress. Specifically, the Commercial Code provides: ‘Even when there is an arbitration agreement, the parties can, either before or during the arbitration, request the judge to adopt interim protective measures.’

Further, as part of the January 2011 reforms to the Commercial Code, the scope of judicial intervention by state courts in commercial arbitration cases was specifically addressed. Article 1478 now provides that a ‘judge shall have absolute discretion’ to adopt preliminary measures relating to commercial arbitration matters.

The reform left clear the broad nature of measures available to courts in aid of commercial arbitration that extended beyond merely matters adjudicated before civil and commercial courts. Mexican federal courts of appeal have found that Article 1478 confers broad powers on the courts to fashion provisional remedies as needed on a case-by-case basis, depending on the set of circumstances involved.

Under the Mexican Commercial Code, an application seeking interim relief includes a 15-day period for the defendant to answer the request, followed by a 10-day period to present evidence, with a subsequent hearing, before a definitive ruling on the application is made. It is common for a court presiding over an application for interim relief to require the provision of security should interim relief be granted. This interim relief is intended to compensate the party being enjoined, should it ultimately prevail. Critically, there is no statutorily defined security amount that a court must impose upon ordering interim relief.

Where an arbitral tribunal has issued a preliminary measure of its own, Mexican courts are bound to enforce them unless grounds for refusal exist on a par with those found in Article 1462 of the Commercial Code, and its equivalent Article V of the New York Convention, as well as Article 36 of the UNCITRAL Model Law.

It bears noting that managing to secure a preliminary measure in Mexico may not be free of future risk. Article 1480 of the Commercial Code contains provisions calling for liability against both the petitioner and the arbitral tribunal should it be determined by a Mexican court that the interim measure that was originally granted was improper and has damaged the enjoined or affected party.

Award enforcement and annulment

Unlike other jurisdictions, Mexico does not have specialist or dedicated national tribunals to preside over or intervene in arbitral proceedings. Under the Commercial Code, when an arbitration is seated in Mexico, a federal judge of first instance in the federal circuit at the seat of the arbitration or the local courts where the arbitration is seated, are deemed competent to preside over any action relating to the arbitration – including but not limited to the enforcement or setting aside of arbitral awards. When an arbitration is seated outside Mexico, the federal judge of first instance in the federal circuit, or the local courts, where the respondent is domiciled, or if the respondent is not domiciled in Mexico, where the assets subject to execution are located, will be deemed competent to preside over any action involving the enforcement of arbitral awards.

On balance, Mexico’s current legislative system and judicial precedents provide an arbitration-friendly jurisdiction. Mexico’s pro-arbitration stance is further supported by the fact that its national courts have largely ruled in favour of the enforcement of domestic and international arbitral awards, with very few exceptions.

National courts may only reject the recognition and enforcement of an arbitral award based on a handful of reasons contained in Article 1462 of the Commercial Code, which mirror the types of grounds found in Article V of the New York Convention, Article V of the 1975 Panama Convention on refusal to recognise and enforce an award, as well as Article 36 of the UNCITRAL Model Law. The limited grounds for refusing to recognise or enforce an award do not allow for the rejection of an awards on its merits. The grounds for annulment of awards are the same as the grounds for refusing to enforce an arbitral award, and the time limit to seek the setting aside of arbitral awards is three months after the award has been notified to the parties.

The decision on the annulment or enforcement of an award can be subject to a constitutional challenge action called an indirect amparo, which is adjudicated by Mexican federal district courts. The eventual amparo decision may be appealed subsequently before Mexico’s federal collegiate courts. Nevertheless, it is important to highlight that, in amparo proceedings, Mexican courts are expressly barred from affirming or reversing a decision on the annulment or recognition and enforcement of an arbitral award, based on challenges as to the legal reasoning behind the award.

What to expect: the potential for increased arbitral activity

The Mexican arbitration market is very active now, with the expectation of more to come, as a result of government policies, particularly in the energy and natural resources sectors, and a recent boost in foreign investment flowing into the country.

Government intervention

The Mexican government has been keen to re-establish the prominence of the state, its agencies and instrumentalities in certain sectors of the Mexican economy, including in particular the energy and natural resources sectors. These policy changes have generated a rash of disputes with private entities (in both commercial and investor-state arbitration forums), with more to come.

On 8 May 2023, Mexico enacted substantial reforms to the country’s mining laws and related regulations, which could limit investor rights. Logically, this could result in the filing of additional mining-related investor-state arbitrations. Moreover, the possible entry into force of expansive reforms to Mexico’s energy and electricity regulations, subject to legislative buy-in in some cases and court adjudication in others, could create a ripple effect in the number of prospective arbitration disputes.

Nearshoring

The covid-19 pandemic, with the aggregation of trade and political disputes across the world, has materially disrupted transcontinental supply chains. Companies confronted with these realities have altered the means by which they do business, favouring regional and neighbouring production sources over geographically distant suppliers. This new phenomenon (termed ‘nearshoring’) has allowed companies to have faster access to parts and components, thereby expediting production and ultimately delivery to their clients.

Given its proximity to the United States, Mexico has been a prime beneficiary of nearshoring-related investment. As one of the ‘latest sign[s] that corporate nearshoring efforts are contributing to the country’s export boom’, it has been reported that ‘Mexico’s foreign direct investment rose 48% in the first quarter [of 2023] from regular flows recorded during the same time last year’. And that is not all: ‘[I]f the current pace continues, total investment for the year could reach $43 billion. . . . That would represent a 51% gain in total foreign direct investment from 2022.’

As economic activity goes, arbitration goes. The significant international economic activity that Mexico is experiencing will undoubtedly multiply the number of arbitrations (primarily commercial, but also investor-state) arising from, or relating to the country and its business climate.

Concluding remarks

Mexico has an international arbitration legal framework that is generally on par with that of most modern arbitration regimes. Mexico is a party to a multitude of international treaties providing protections to foreign investors while granting them recourse to international arbitration to adjudicate disputes with the Mexican state. Despite swirling political headwinds, there are no imminent changes to Mexico’s arbitration laws on the horizon. Moreover, Mexico has not threatened to denounce the treaties it has entered relating to international arbitration and the safeguards afforded to foreign investors.

That said, although no fundamental changes to Mexico’s arbitral system are anticipated, the country is likely to continue to see increases in arbitration cases. As explained above, this is due primarily to two factors. First, major shifts implemented or soon to be implemented by the Mexican government are affecting, and will affect, various industries and sectors of the Mexican economy. Second, there has been an increased flow of foreign investment to circumvent supply chain disruptions. This in turn creates the potential for an increase in arbitral proceedings.

It follows that, if any prediction can be made about Mexico, it is that it will continue to be an important player in the international arbitration marketplace in the near future.

Footnotes