Litigation in pursuit of arbitration

Introduction
Potential issues
Comment

Introduction

The "competence-competence principle" in arbitration essentially means that prior to a judge's verdict on a matter, the arbitrator or arbitration tribunal may first determine its own jurisdiction to oversee the arbitration.

According to Mexican law, alternative dispute resolution methods are optional for parties that decide to make use of them – arbitration being one such method. These alternative methods aim to be a quicker or a more specialised option for dispute resolution between parties.

In general, parties will freely and voluntarily agree to be subjected to an arbitration in order to settle the disputes that result from executing an agreement. An arbitration agreement is independent to the other agreements between the parties, as outlined by Mexican business laws.

If one of the parties does not acknowledge or intends to not acknowledge the arbitration agreement's validity – instead, they instantly seek to initiate litigation proceedings – as a general rule, the arbitration remittance regulatory body will remit the case back to arbitration upon the request of one of the parties, unless the judge nullifies the arbitration clause.

The Supreme Court made this procedure a legal requirement through Jurisprudential Thesis 1a/J, 25/2006, which resulted from Thesis Contradiction 51/2005-PS. In brief, the aforementioned thesis states that in order to declare an arbitration clause void, ineffective or unenforceable and thus negate the remittance to arbitration, a prior judicial verdict to nullify said clause must exist.

Potential issues

This procedure gives raise to some potential issues:

• It is possible that a party that voluntarily and freely agreed to arbitration may try to later claim that the clause or agreement is void. However, it is highly unlikely that the clause or agreement is in fact void, although it may be inefficient to deal with the dispute that arises.
• Arbitrators do not enjoy the same absolute power (imperium) as judges. This entitles judges to enforce coercion orders. However, arbitration parties will require a judicial action to enforce or execute an arbitration order that is not voluntarily complied with by the losing party.
• According to Mexico's business laws, arbitration remittance is considered standard practice if there is an arbitration agreement (unless the agreement's nullity, inefficiency or unenforceability is evidenced). This means that the judge can prejudge the case, and rule in favour of remittance, without examining the case and facts thereof.
• Given that a judge's prior and special ruling regarding the nullity of an arbitration agreement is necessary to overturning arbitration remittance, resorting to litigation becomes necessary before arbitration proceedings can be enforced (which can take a long time, potentially years). This stands in contrast to one of the fundamental purposes of arbitration, which is to be an alternative dispute solution that prevents the parties from having to go to trial.

Comment

The existence of a jurisprudence criteria that a litigation proceeding must take place so that arbitration remittance can be enforced thereafter affects the functionality of the competence-competence principle. This is because it draws out the process:

• The arbitration tribunal must have the first chance to rule on the case. As such, first they must decide if the arbitration clause is void, inefficient or unenforceable.
• Only after the tribunal's verdict can their decision by confirmed or revoked by a judge.
• If the judge confirms the verdict that the case may be sorted by arbitration, they will order arbitration remittance. The parties are thus back at the point where they started – facing arbitration proceedings.

This contradicts the point of this alternative dispute solution method, which is supposed to be faster than a trial before a judicial power. This is even more concerning as, in the ways outlined above, the criteria for the litigation procedure could be abused in order to delay or obstruct remittance to arbitration.

For further information on this topic please contact Raúl Herrera Hazas at Becerril, Coca & Becerril SC by telephone (+52 55 5263 8730) or email ([email protected]). The Becerril, Coca & Becerril website can be accessed at www.bcb.com.mx.