The Mexican Supreme Court has settled a contradiction between the rulings of two federal courts relating to the applicability of the principle of kompetenz-kompetenz, according to which an arbitral tribunal is the judge of its own jurisdiction. See Contradicción de Tesis 51/2005-PS, Tesis de Jurisprudencia 25/2006. With this decision, the Supreme Court attempted to reconcile diverging interpretations of two seemingly inconsistent provisions of the Mexican Commercial Code on the question of whether the validity of an arbitration agreement should be decided by the arbitral tribunal or the judge.
The debate centered on the interpretation of two articles of the Mexican Commercial Code that appear to provoke contradictory results when applied to concrete cases. Article 1424 mirrors the language of Article 8 of the UNCITRAL Model Law on International Arbitration (the "Model Law") and Article II.3 of the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards, or "New York Convention." It provides that judges shall refer the parties to arbitration when their dispute is subject to an arbitration agreement, unless such agreement is found to be null and void, inoperative or incapable of being performed. In turn, Article 1432 of the Commercial Code tracks Article 16 of the Model Law and provides that an arbitral tribunal shall decide on its own jurisdiction, including objections related to the existence or validity of the arbitration agreement.
On January 11, 2006, the Mexican Supreme Court held that parties are free to refer contractual disputes to arbitration and affirmed the applicability of the principle of kompetenz-kompetenz, stating that the general rule is that arbitral tribunals have jurisdiction to intervene, hear and decide on the existence or validity of both the underlying contract and the arbitration agreement.
The Supreme Court also affirmed the parties' rights under paragraph 2 of Article 1424 to commence or continue arbitration proceedings while the issue of validity of the arbitration agreement is pending before a judge, even when the subject of the arbitration is the existence or validity of the underlying contract, over which the arbitral tribunal retains exclusive jurisdiction.
At the same time, however, the Supreme Court carved out an exception for disputes brought before the courts where the submitting party claims that the arbitration agreement is null and void, inoperative or incapable of being performed. The Supreme Court reasoned that the existence of due judicial control over arbitration should not be disregarded, and that given that the jurisdiction of an arbitral tribunal emanates from the free will of the parties, if the arbitration agreement is affected by a defect of consent, the annulment action should be resolved previously by the Court. The Supreme Court decision may have implications for arbitration matters that fall within the exception carved out by the Court.
The Supreme Court in effect adopted language that is already set forth in two of the leading international instruments relating to arbitration: the Model Law and the New York Convention. The risk is that the exception established by the Court will nonetheless provide an opening for parties to interfere with arbitration proceedings by resort to Mexican courts. Unless that risk is realized, it may be hyperbole to suggest that the exception constitutes an erosion of Mexico's comparatively strong pro-arbitration tradition.