The Arbitration Review of The Americas 2008

Section 2: Country Overviews

Mexico

Omar Guerrero Rodríguez1, César Martínez Alemán2

Barrera Siqueiros y Torres Landa SC3

Judicial Precedents in Arbitration

Arbitration is more frequently being used as an effective alternative to dispute resolution. Following this trend, Mexico has been chosen as a seat of arbitration, and subject to proceedings related to setting aside and to recognising and enforcing private commercial awards, both domestic and international.

Since the implementation in Mexico of the 1985 United Nations Commission on International Trade Law Model Law on International Commercial Arbitration as amendments to the Commerce Code (sections 1415 to 1463), most cases have reached local and federal courts. Thus, the judiciary has provided its interpretation as to assistance and control of arbitration. Recently, Mexico's federal courts have provided binding interpretation over procedural issues (that influence the speed of arbitration) related to setting aside procedures arising out from domestic commercial arbitration.

This article explains the approach of the Mexican judiciary when dealing with judicial proceedings to vacate awards that could also be applicable to the recognition and enforcement of private commercial awards.

Brief background

At the international level, Mexico is party to both the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the NY Convention), and the 1975 Inter- American Convention on International Commercial Arbitration (the Inter-American Convention).

Likewise, title IV of the Mexican Commerce Code regulates commercial arbitration (sections 1415 to 1461) and provides for substantive and procedural rules in commercial arbitration on the domestic level and other specific rules (sections 1424, 1425, 1461 to 1463) to be applicable for international arbitration.

The Mexican Congress modelled such provisions after the 1985 UNCITRAL Model Law. Thus, its underlying principles could provide assistance when construing provisions of Mexican commercial arbitration. Those rules, such as exceptional judicial intervention, flexibility and quickness of arbitration, restrictive causes for settingaside or recognising and enforcing an arbitral award, prohibition to review the merits of the case and pro-enforcement bias (especially in procedural aspects) are also applicable. These principles should underlie the Mexican proceedings.

The Commerce Code (sections 1457 to 1460 and 1461 to 1463, respectively) sets forth summary proceedings for both vacating and recognising and enforcing an arbitration award. Notwithstanding this, the Federal Code of Civil Proceedings (FCCP) governs these proceedings since the provisions of the Commerce Code expressly remits the parties to the rules for ancillary proceedings (incidentes) set forth in section 360 of the FCCP. These are assumed to be the most expeditious proceedings set forth by a Mexican procedural statute and, therefore, they comply with the speedy nature of arbitration.

Thus, according to the Commerce Code and its referral to the FCCP, the proceedings for vacating or enforcing and recognising an arbitral award4 need the following basic requirements:

  • A competent court. The filing could be submitted to either local or federal courts of the place of issuance of the award (in case of a setting-aside action or place of arbitration in Mexico) or of the defendant's domicile or in its absence of the place where assets are located (in case of recognition or enforcement actions).
  • A written request to set aside5 or recognise and enforce an award. This request must attach the original award or a certi- fied copy thereof and the document containing the arbitration agreement. Likewise, there must be a translation of documents into Spanish, as well as an apostille of documents if so needed. Furthermore, when filing on behalf of a legal entity it is necessary to evidence proper authority through a power of attorney.
  • Service of process and response. Once the court admits the request, the brief will be served to the other party to produce its response within a three-business-day term. Within this term, the respondent must file all evidence to rely upon (including all documents) and produce all objections to documents attached thereto by plaintiff.
  • Rendering of evidence and closing arguments. If the parties had announced proper evidence (not usually related to factual evidence) to be rendered before the court, then, a 10-businessday period would be granted. Otherwise, (or once the evidence stage has concluded), the court will set a specific date for a final hearing. Closing arguments will be filed at this hearing.
  • Judgment and challenge. Subsequently, the court must enter a judgment within a five-business-day term. The court's judgment is not subject to an ordinary appeal or any other ordinary challenge (ie, motion to reconsider), but can only to be contested through a special constitutional action called amparo. This constitutional challenge is considered as an 'extraordinary' challenge. The basis for filing this constitutional challenge is the violation of fundamental rights provided by the Mexican Constitution. This constitutional challenge must be filed before the federal courts within 15 business days.

The procedure for recognition and enforcement of arbitration awards (which resembles the one for vacating the award) is depicted in the chart overleaf.

The procedure for setting-aside or recognising or enforcing an award was intended to govern 'ancillary' (incidentes) procedures under the FCCP. These ancillary proceedings normally relate to procedural items arising out of federal civil proceedings (lack of authority, forum non-conveniens, consolidation, etc).

The principal consequence of considering such proceedings as having an ancillary nature and not as independent or summary proceedings is that its judgment would have to be challenged by an indirect amparo. This is a two-stage constitutional procedure that includes a summary federal proceeding and a federal appeal (recurso de revision) that is filed before a federal district court and filed before a collegiate circuit court respectively. This way of challenge is more time consuming and hence, slows down the setting-aside or recognition or enforcement of arbitral awards. Such policy contravenes a pro-enforcement bias underlying commercial arbitration.

On the other hand, if the ancillary proceedings were considered as a summary and independent procedure, the challenge would be a direct amparo. This is a one-stage procedure filed before a collegiate circuit court, whose end is reviewing the constitutionality of judgments. This resembles a federal appeal, whose cause of action is also an allegation of violation of constitutional rights.

Recently, the First Chamber of the Supreme Court following the trend set forth by the plenary session of the Supreme Court has resolved two landmark decisions. In a four-to-one majority voting, the First Chamber resolved that a two-stage procedure (indirect amparo) needs to be filed against the judgment arising out of a setting-aside action. This judgment seems to be contrary to a pro-enforcement bias and violate the essence of a quick and expeditious enforcement. Likewise, in its second unanimous vote, the First Chamber has clarified that rulings of the trial-court hearing the setting aside actions (also applicable to recognition and enforcement) cannot be reversed by the same judge and, therefore, a constitutional proceeding (indirect amparo) would also have to be filed. These last two precedents would certainly enlarge the timing for securing a binding and enforceable award contrary to a pro-enforcement bias that underlies commercial arbitration. These last two judgments join a couple more so rendered that could be questioned from the pro-enforcement bias perspective.

The judicial approach: recent precedents

Kompetenz-Kompetenz

A year ago, the SCJ issued a landmark decision related to the Kompetenz-Kompetenz principle. According to article 1432 of the Commerce Code, the arbitral tribunal can decide about its own jurisdiction.6 The first paragraph of article 1424 of Commerce Code complements the Kompetenz-Kompetenz principle by establishing:

The judge before whom an action is brought in a matter that is subject of an arbitration agreement shall, when requested by a party, refer to parties to arbitration unless he finds that the agreement is null, void, inoperative or incapable of being performed [...]

By general rule, the judge must refer the parties to arbitration in order to allow the arbitral tribunal decide its own jurisdiction. By exception, this will be decided by the court under the limited grounds set forth above. By the same token, Mexican law does not provide the kind of ancillary proceeding to resolve such issue.

Thus, the Supreme Court decided, by a binding precedent for lower courts, that a court that by way of action or complaint hears a case where the validity, existence, incapability or inoperativity of the arbitration agreement is called into action will hear the case and will not refer the parties to arbitration. Notwithstanding, it will not impede arbitral proceedings that are commenced or continued in parallel:

[...] When in the terms of article 1424 of the Commerce Code, a dispute over a contract within containing the arbitration agreement is submitted to a judicial authority and at the same time is filed an action in order to declare its invalidity, ineffectiveness or its impossible execution, agreement, then it shall be necessary a previous judicial judgment over such nullity action. The aforementioned is because on the one hand it shall not be let apart the existence of the proper judicial control over the arbitration and, on the other hand, the jurisdiction of arbitrators arise from the free and autonomous will of the parties. So if it is alleged, for example, the existence of any vice on the will in the act where the authority of the arbitrator is granted, such nullity action must be previously resolved by the judiciary, prevailing the rights of the parties to initiate the arbitral actions related to the dispute over the compliance, existence and validity of the Contract that contains the arbitration clause: in this case the arbitral tribunal conserves its exclusive authority [...]"7

This judgment can affect arbitration since it invites parties to seek to avoid arbitration to commence a judicial action to challenge the arbitration clause itself and can convert an exceptional rule into a general one.

Recognition and enforcement of arbitral awards

A 1993 binding judicial precedent establishes that this kind of proceeding can be challenged by an indirect amparo (two-stage) or indirect constitutional lawsuit. The main reasoning relies in its complexity and especially by having considered acts commenced 'out of trial'or to 'enforce' a judgment under Mexico's Amparo Law. Therefore, they are not independent proceedings or main commer-cial actions. The landmark precedent provides the following:

When it is challenged in a constitutional lawsuit a judgment ordering to enforce an arbitration award, the indirect constitutional lawsuit (amparo indirecto) must be filed before the District Judges, in accordance with Section 114-III of the Amparo Law, because of complexity of acts, namely, enforcing an arbitration award is not a single definitive judgment to be challenged through direct constitutional lawsuit (amparo directo), as mentioned under article 158 of such statute.8

Besides, as mentioned before, in proceedings for setting-aside or recognising and enforcing arbitration awards, a final judgment cannot be challenged by an ordinary appeal or any other ordinary challenge, but only by an extraordinary challenge: amparo proceeding. The underlying principle was to ensure a speedy process where the parties were not entitled to ordinary challenges to reverse procedural rulings.

However, it was common for practitioners9 to file motions to reconsider or reverse procedural rulings during such procedures. Notwithstanding this, in October 2007, the SCJ set forth a binding precedent that reverses an isolated and not binding precedent that allowed the parties to file intermediate or interim motions to reconsider rulings. Now, it is clear that even simple procedural rulings have to be challenged through an indirect or two-stage amparo proceeding. Although correct from the technical point of view, the option to reverse an intermediate ruling would have helped the proceeding. This issue was resolved to try to move quickly in arbitration proceedings, but could probably result in the opposite in the long-run if the decision of the judiciary in an amparo proceeding is for remand (amparo para efectos).

Article 1463 of Commerce Code establishes that the final judgment of a proceeding for recognition and enforcement of arbitral awards cannot be challenged by any ordinary appeal, without specifying to which ruling it refers. However, this does not implies that reference is made exclusively to the ruling that ends the proceeding, but to all court rulings so issued. If arbitration is an alternative means of resolution for commercial disputes in a quick and expeditious manner, the ancillary proceedings for recognition and enforcement of arbitral awards must follow the same quickness and practicity. Otherwise it would be illogical to admit, on one hand, that arbitration is a simple and quick alternative for solving disputes and, on the other hand that the ancillary proceedings for recognition and enforcement of arbitral awards imply a major complexity on its processing, which could happen if all not final court rulings could be challenged by any ordinary appeal.10

Setting aside an arbitral award

The Plenary Session of the Supreme Court has recently resolved that the two-stage amparo lawsuit is the proper challenge against a resolution vacating the award. The case known as the Radio Centro- Monitor case is based on a commercial judgment arbitration between two Mexican radio broadcasters; Radio Centro was the losing party at the arbitration. Consequently, Radio Centro filed an action to set aside the award. Finally, this party obtained a favourable commercial judgment vacating the award.

Monitor filed a constitutional challenge (amparo indirecto) and reversed the setting-aside finding. Then, Radio Centro filed a federal appeal (recurso de revisión) and obtained a declaration of the collegiate circuit federal court that recharacterised the amparo from indirect (two-stages) to direct (one-stage). Therefore the collegiate court re-heard (to judge the constitutional challenge again instead of acting as a federal appeal court), the case and declared that all challenges filed by Monitor against the original judgment rendered by the local court did not comply with several formal requirements and practically dismissed all grounds for challenge.11 In normal circumstances this was the last resort, and, therefore, the final result would be for the award to be vacated for an improper argument that could place Mexico in a very adverse position as a proper forum for commercial arbitration.

Then, Monitor filed an exceptional (and certainly a creative interpretation for legal counsel in such case) direct amparo before the Supreme Court in order to decide if the collegiate circuit court acted correctly in recharacterising the issue as a direct amparo or should have acted as an appeal court. On 31 January 2006, this case was resolved by the Supreme Court that decided that the recharacterisation of the challenge was incorrect, namely, that the correct challenge in this case was the amparo indirecto. This case will be finally resolved as to the merits at the collegiate circuit court shortly.

Thus, the SCJ in a 6-5 vote issued resolved the following:

  • An arbitration award is the final stage of an arbitration procedure, which should be considered as an action falling 'outside' the judicial process or 'out of trial', and that does not have definitive effects. Hence, the proper means to challenge is the indirect constitutional lawsuit set forth in article 114, section III of the Amparo Law.
  • An arbitration award is a ruling that represents the final step of a difference derived from an agreement between parties who decided to be subject to a particular procedure and accept the obligation to comply with the corresponding ruling in an independent way. Therefore, this procedure is different from the judicial one provided by the government, and its decision cannot be deemed as a definitive resolution on the controversy, notwithstanding the fact that it cannot be challenged.11 Subsequently and just a few months later, this criteria was revisited but this time not by the Plenary Session of the Supreme Court (11 Justices) but only by its First Chamber (five Justices). There were contradictory views of the collegiate courts that needed to be settled and that can be summarised as follows:12
  • On the one hand, the Third and Thirteenth Civil Collegiate Circuit Courts of Federal District considered that an ancillary proceeding for setting aside an arbitral award is an autonomous procedure with a principal action and specific relief sought. Thus, they are not related to another one, ie, ancillary proceedings only refer to formal and procedural matters. Therefore, as an independent procedure, the final judgment must be challenged by direct constitutional lawsuit (amparo directo).
  • On the other hand, the Second Collegiate Tribunal of Sixth District and Second and Sixth Collegiate Circuit Civil Courts of the Federal District consider that this ancillary proceeding for setting aside an arbitral award is an action falling 'out of trial'. Therefore, its final judgment is an act executed outside judicial process that can be challenged by indirect constitutional lawsuit (amparo indirecto).

Because of these contradictory positions and in order to establish a uniform interpretation13 that could be applied by all lower federal courts, as the Amparo Act orders, the First Chamber of Supreme Court heard this action. Thus, it issued a binding criteria according to which the ruling that declares the setting-aside of an arbitral award does not constitute a definitive judgment for purposes of admissibility of the direct constitutional lawsuit because it has not been recognised nor enforced.

Therefore, if an arbitration award constitutes the final stage of a procedure issued as a judicial process, the final judgment of the ancillary proceeding about setting aside an arbitral award must be challenged in an amparo indirecto [two-stage] proceeding.14

This precedent does not contemplate that the only finality of the 'ancillary' processing is a quick proceeding and simple process formalities for setting aside and recognition and enforcement of arbitral awards; besides, these proceedings fulfil all the requirements to be considered as an authentic and independent summary proceeding, as seen before. Furthermore, this precedent allows a larger way of challenging it, in opposition to a speedy and expeditious arbitration principle.

The chart above depicts the proceedings for the setting-aside and recognition and enforcement of arbitration awards.

Conclusion

The Supreme Court of Justice has followed interpretations that do not ensure an effective and speedy resolution of actions to vacate awards and to recognise and enforce awards.

There should be legislative amendments to our law or a notlikely subsequent Supreme Court precedent revisiting its position and reversing such binding procedures in order to provide: (i) a direct amparo to be filed to both judgments in setting-aside and recognition and enforcement actions; (ii) the option to attach assets once a condemnation judgment is rendered; (iii) the option to challenge through interim motions to consider against procedural rules (recurso de revocación); and (iv) the implementation of an implicit recognition and enforcement when a party does not prevail in a setting-aside action (domestic arbitration). If these amendments are implemented, then a real pro-enforcement bias will be created and Mexico will remain a proper venue for commercial - both national and international - arbitration.

Notes
  1. Luis Omar Guerrero Rodríguez (LLM LSE with merits 1996-97) is a senior partner in the commercial litigation dispute resolution department at the Mexico-City based law firm Barrera, Siqueiros y Torres Landa.
  2. César Martínez Alemán is a senior associate at Barrera, Siqueiros y Torres Landa. He specialises in international commercial litigation, dispute resolution and IT law.
  3. The authors would like to thank Ximena Suárez Enríquez for her assitance in the research produced for this article.
  4. Although each procedure seeks different purposes we are outlining common features.
  5. The grounds to set aside an arbitral award are limited to the statutory grounds set forth under article 1457 of the Commerce Code which are almost entirely identical to the ones for recognising and enforcing an award. The party seeking that the award must be vacated bears the burden of proof.
  6. Article 1432 of Commerce Code: "[...] The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement [...]"
  7. Binding precedent (contradicción de tesis) 51/2005-PS between Sixth and Tenth Civil Collegiate Circuit Courts Tribunal of the Federal District. January, 11 2006.
  8. Binding precedent (contradicción de tesis) 21/93 between Third and Second Civil Collegiate Tribunals on one hand and Fifth Civil Collegiate Tribunal on the other, all of them of Federal District. October 18, 1993.
  9. See 'Incidente de reconocimiento y ejecución de laudo arbitral. Los acuerdos dictados durante el desarrollo de este, son impugnables mediante el recurso de revocación en materia mercantil' ['Ancillary proceedings for recognition and enforcement of arbitral awards. The rulings rendered during the proceedings are challenged through the revocation recourse in commercial matters']. Isolated precedent. Precedent I.7o.C.36 C, Federal Appeal [Amparo en Revisión] 284/2002. Seventh Collegiate Circuit Court in Civil Matters for the First Circuit, Page 1386. Cabo Urbano, SA de CV, 23 August 2002.
  10. Binding Precedent (contradicción de tesis) 40/2007-PS between Fourth and Seventh Collegiate Tribunal both of Civil Matters of Federal District. 13 June 2007.
  11. To review such filing see 'Recurso de Revisión Constitucional: Monitor v Radio Centro' published by Quijano, Cortina, López y de la Torre Abogados, Mexico 2006.
  12. Federal Appeal 1225/2006. Radio Centro SA de CV, January 2007.
  13. A binding precedent (contradicción de tesis) arises when two or more collegiate courts within or from different circuits have different resolutions over the same topic. Thus, the Supreme Court acting in Plenary Session or in Chambers decides the prevailing and binding interpretation.
  14. Binding precedent (contradicción de tesis) between Third and Thirteenth Civil Collegiate Tribunal of Federal District and Second Collegiate Tribunal of Sixth District and Second and Sixth Civil Collegiate Tribunals of Sixth District. 19 September 2007.

Barrera Siqueiros y Torres Landa SC3

Barrera, Siqueiros y Torres Landa, S.C.


México City:
Paseo de los Tamarindos # 50 - PB
Bosque de las Lomas
México, D.F. 05 20
Tel. + 52 (55) 509 -0000
Fax. + 52 (55) 509 -0 23


Monterrey:
Av. De la Industria # 555 B Piso 3, Santa
Engracia, San Pedro Garza Garcia,
Nuevo León
Tel. + 52 (8 ) 8220- 500
Fax. + 52 (8 ) 8220- 529
www.bstl.com.mx

Contacts

Omar Guerrero Rodríguez

César Martínez Alemán

Barrera, Siqueiros y Torres Landa, S.C. ("BSTL") with close to 60 years of experience is one of the leading law firms in Mexico providing its clients with personalized legal advice and services, premised on a code of ethics strictly held and honored by its members.

BSTL has focused on creating a professional team with the necessary skills to handle a full scope of services to its clients. This includes commercial, civil, administrative, and other business areas, including specialized litigation at both federal and local levels.

The experience of BSTL has widened in the last decade with an increasing presence in arbitration, including advising our clients on the drafting of arbitration agreements, party representation in domestic and international arbitrations and court assistance for filing actions to set-aside or to recognize and enforce arbitration awards. Likewise, a couple of partners and former partners are recognized arbitrators in the field. BSTL has participated in a wide array of arbitration proceedings including commercial, investment, foreign trade, commercial, energy and entertainment law. The arbitral institutions that members of the firm have appeared to before as arbitrators, party counsel, secretaries of the tribunal or members of the arbitral institution are the ICC, AAA, LCIA, ICSID and IFTA at the international level and the Centro de Arbitraje de México (CAM) and the Cámara Nacional de Comercio de la Ciudad de México (CANACO) at the local level.

Finally, BSTL promotes teamwork, professionalism and commitment as the key tools to succeed in its representation of clients in arbitration and litigation cases.

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