This article is an extract from GTDT Market Intelligence Dispute Resolution 2022. Click here for the full guide.

1 What are the most popular dispute resolution methods for clients in your jurisdiction? Is there a clear preference for a particular method in commercial disputes? What is the balance between litigation and arbitration? What are the advantages and disadvantages of the most popular dispute resolution methods?

In numbers, litigation is the most common dispute resolution method in Mexico. This includes commercial disputes. We believe this to be natural, considering arbitration is a method with which both clients and practitioners nationwide are less familiar. In other words, not that litigation is preferred over arbitration, but simply arbitration is not yet known, understood and embraced by all, although the country is heading that way. The other reason for this is that many disputes do not warrant arbitration, either because of claim amount, nature of the dispute, arbitrability issues, etc. For example, in Mexico, proceedings in which the claim is based on judgments or arbitration awards, notary public documents, judicial confessions, negotiable instruments, among other documents that ‘entail enforcement’, enjoy being more expeditious than other types of proceedings, because the law grants a certain preferential protection to those who have a right by such circumstances. In this type of case, arbitration is often unnecessary. However, this is only an example. There are many other scenarios in which arbitration may well be worth it. In general, the challenge in our jurisdiction is for people to regard cases that do not warrant arbitration as reasoned exceptions, rather than to regard cases that do warrant arbitration as rare exceptions to litigation.

Some of the disadvantages of litigation became more visible during the past couple of years. Covid-19 uncovered an obvious reality: litigation does not adapt to change as easily as arbitration. Resolving conflicts through litigation in Mexico became much slower in the wake of the pandemic, while arbitration continued to be expeditious and flexible. The lack of regulation regarding virtual hearings is an example of something from which litigation suffered. And while some things have been corrected, in general terms, to date the resolution of conflicts through litigation has not yet fully recovered the rhythm it had before the pandemic.

Litigation aside, arbitration is, of course, Mexico’s preferred method of dispute resolution. Although it has not yet become a natural means of resolving disputes in the country, there is an increasing tendency to include it as an alternative when negotiating contracts, and not only at an international level but also domestically. It continues to grow apace. The latest International Chamber of Commerce (ICC) statistics show promising results for Mexico. It is tenth in the global list of most frequent nationalities among parties (compared to fourteenth according to previous year’s statistics), and second only to Brazil among the Latin American and Caribbean countries. It is eighth in the global list of most frequent nationalities of arbitrators (compared to twelfth according to previous year’s statistics). And it is the eleventh most selected country as place of arbitration (same as prior year). All of this, regarding, of course, ICC cases. These statistics are no surprise though, since Mexico has a respectable number of recognised experts, law firms, institutions, university programmes and moot competitions focused on international arbitration.

Mediation is now settled as a common alternative, especially in fields such as family law, non-sensitive criminal issues, and, in general, in civil matters. But there also seems to be a tendency to extend the use of mediation in commercial relationships. This is particularly true in Mexico City, where more experts are becoming certified mediators and are seeking to develop the mediation market in every field of law, including commercial law. Monterrey and Guadalajara are also cities where mediation has found positive development.

Dispute boards continue to be an ADR method that the construction and infrastructure sector wants to promote, due to their unique nature and advantages. After failure to include this ADR method in the reform of the Public Works and Related Services Law, on 18 March 2020, the Mexican Association of Civil Engineers presented a draft legislative initiative of the Public Works Law, where proposed article 122 would include dispute boards. Despite the interest of the sector and the existence of the ICC Dispute Board Rules, there is still a lack of knowledge of this method, especially because it is not regulated in Mexican law. As a consequence, dispute boards are not yet a widely used method in our jurisdiction as of today.

Regarding expertise, ICC Rules for Expertise are, of course, an example of a useful tool for this type of method, although it must be said that there is still considerable generalised ignorance surrounding this alternative, as, among other things, it is not expressly regulated under Mexican law. Like dispute boards, expertise is also mostly used in the construction and infrastructure sectors, as most issues are technical (or factual) rather than legal.

2 Are there any recent trends in the formulation of applicable law clauses and dispute resolution clauses in your jurisdiction? What is contributing to those trends? How is the legal profession in your jurisdiction keeping up with these trends and clients’ preferences? What effect has Brexit had on choice of law and jurisdiction clauses?

Covid-19 brought new ways of doing things, including the way disputes are resolved and negotiations are held. Mexico is not the exception. Technology has inevitably gained a lot of ground, mainly due to the confinement that has become necessary at different times during the pandemic (both in Mexico and in other countries), but also due to the need to save costs (eg, travel costs).

In addition, perhaps as a natural consequence of the gain that mediation has had as an alternative, step-clauses including mediation and then arbitration, are becoming increasingly used. As is commonly known, mediation is less expensive and complex than arbitration, and, therefore, users have started to evaluate how to accommodate this two-step process. While there are professionals who deal with both mediation and arbitration, it is more common to find in Mexico experts only in one of these two fields; this implies the need to team up with colleagues.

It is doubtful that Brexit has had an effect on choice of law and jurisdiction clauses. Indeed, English law will remain just as good a choice of governing law post-Brexit, and the United Kingdom will keep applying the Rome I and Rome II Regulations (which deal, respectively, with the law applicable to contractual and non-contractual obligations) as these will be incorporated into domestic law. The Regulations do not require reciprocity, and Rome I requires its member states to give effect to the governing law chosen by the contracting parties (irrespective of whether the parties are from outside the European Union). As for jurisdiction, the Hague Convention on Choice of Court Agreements is of relevance, which operates to give effect to exclusive jurisdiction clauses and the enforcement of any resulting judgment. Following the UK–EU transition period, the UK submitted an instrument of accession on 28 September 2020, thus confirming itself a party to the Convention. The Convention, which came into force on 1 October 2015, includes as parties (ratification or accession) the EU, Denmark, Mexico, Singapore, Montenegro and the UK. Parties that signed it but have not ratified it include China, Israel, North Macedonia, Ukraine and the United States.

3 How competitive is the legal market in commercial contentious matters in your jurisdiction? Have there been recent changes affecting disputes lawyers in your jurisdiction? How is the trend towards ‘niche’ or specialist litigation firms reflected in your jurisdiction?

It is quite competitive in commercial contentious matters as there is a great number of expert firms and solo practitioners. However, the number of experts in ADR and, more specifically, in international arbitration, remains relatively small, as in many countries. This notwithstanding, we believe covid-19 has had an impact on the number of dispute lawyers that have decided to place their sights on arbitration, given its advantages.

Also, as already mentioned, there is a tendency to develop mediation as an alternative or a prior step to litigation or arbitration. This has become a source of concern for some litigators who do not sympathise with ADR, as they see these alternatives as a threat to their practice. Pitifully, a considerable number of practitioners do not support ADR.

As to ‘niche’ or specialist litigation firms, they have always existed but have indeed become more common in recent years. Given the high level of competition in the market (especially in litigation), it has become increasingly common to see practitioners opening firms specialising in a certain area only, or in a specific topic within an area, thus seeking, through specialisation, to differentiate themselves from other firms and solo practitioners.

4 What have been the most significant recent court cases and litigation topics in your jurisdiction?

Since 2021, Mexican President Andrés Manuel López Obrador (AMLO) presented an initiative to reform the Electricity Industry Law (EIL), which was approved in the same year. This reform brings substantial changes, dismantling the market policy implemented in 2013, which contemplated the purchase of electricity from the private sector through auctions. However, due to this reform, the Federal Electricity Commission (CFE) is granted the power to choose who to buy energy from, therefore discarding the auctions. In addition, the Energy Regulatory Commission (CRE) gains the ability to revoke self-supply permits. Such changes impact private investors in the sector. Naturally, when the reform was approved, hundreds of companies resorted to amparo proceedings, which in the first instance resulted in the general suspension of the proposed changes to the EIL.

Shortly afterwards, a group of senators brought an action of unconstitutionality against the reform of the EIL. The action of unconstitutionality is a control mechanism to expel from the national legal framework, general norms that are contrary to the Mexican Constitution, or to international treaties to which our country is a party. In April this year, the Supreme Court justices discussed the case. Unfortunately, in the end, the reforms were not declared unconstitutional, as the required eight out of 11 votes were not reached. However, the Supreme Court at least left a precedent for the resolution of the pending amparo proceedings brought against the reform, because although the required eight votes were not reached, the majority of the justices considered some parts of the reform to be unconstitutional. Therefore, at least this precedent is left for when the collegiate circuit courts and district courts draft their decisions on the pending amparo proceedings, as now that the action of unconstitutionality has been resolved, the review of the amparo proceedings that had been suspended resumes.

Now, additionally, in the interest of complementing the reform of the EIL, AMLO had presented an initiative to reform articles 25, 27 and 28 of the Mexican Constitution in September 2021, an initiative commonly referred to as the ‘counter-reform’ for its attempt to reverse the positive constitutional energy reform of 2013, which had brought positive changes for the private sector. The counter-reform also caused great concern, as it sought to increase state control and limit the participation of the private sector in the market. It sought, among other things, for the CFE to (1) generate 54 per cent of Mexico’s energy (leaving only the remaining 46 per cent to the private sector); and (2) determine electricity transmission and distribution tariffs. The counter-reform would have affected investors and their investments, and would have resulted in breaches by Mexico to United States–Mexico–Canada Agreement (USMCA provisions). Fortunately, in April this year, it failed to gain the required two-thirds approval in Congress, resulting in its rejection. Thanks to its rejection, among other things, Mexico avoided at least several investment arbitration claims.

Nevertheless, Mexico’s controversial reforms do not end there. The initiative to reform the Mining Law, specifically in relation to lithium, was approved and entered into force in April this year. The reform provides for the creation of a decentralised public body to exploit lithium, and will restrict foreign companies from entering the national lithium market. This undoubtedly represents a risk for Mexico, as the transitional provisions of the reform do not regulate what will happen to existing investments and concessions, as well as to concessions awaiting resolution. This could generate both local and investment arbitration claims against Mexico.

5 What are clients’ attitudes towards litigation in your national courts? How do clients perceive the cost, duration and the certainty of the legal process? How does this compare with attitudes to arbitral proceedings in your jurisdiction?

Clients are aware that both litigation and arbitral procedures may involve time and money. While over time the Mexican judiciary adapted as quickly and as best it could to the new normal, and the pandemic is not something that continues to directly affect the judicial system as of today, in our view, courts have not yet fully recovered from the backlog and generally from the effects of the pandemic, as they are clearly overburdened with more cases than they can reasonably handle at once. Moreover, litigation procedures have always taken longer because there are a considerable number of appeals and other remedies that may be filed during the course of litigation before obtaining a final and binding judgment. This includes, for example, amparo proceedings. The time it takes for litigation cases to be resolved has always been a source of frustration for clients, but we sense that this frustration has not diminished over time (and less so lately). It should be noted, however, that as previously explained, certain types of cases, because of their nature or regulation in law, are quick to resolve through litigation.

Arbitration, on the other hand, attracted the interest of the market since the beginning of the pandemic, because of its unique characteristics of expeditiousness and flexibility, as well as openness to the use of technologies, especially when compared to litigation. Also, in arbitration, remedies in general are limited to stages where the judiciary intervenes. These are obvious advantages of arbitration.

In relation to cost, as has always been acknowledged litigation does not represent a cost associated with courts, as opposed to arbitration, where the parties must absorb the fees and costs of the institution (where applicable) and the arbitrators.

Finally, the perception of certainty of the legal process can be a subjective matter. According to the Corruption Perceptions Index 2021, out of a list of 180 countries, Mexico ranks 124th in perceived corruption. Indicators such as these can lead to the conclusion that there is a poor perception of the public sector. In our view, this could also extend to the judiciary. Although it is certainly not poor, we believe that clients’ perception of the legal process is far from optimal. Client perceptions of arbitration face other barriers; for example, although few, some clients are still not fully familiar with arbitration, and therefore there is still work to be done for arbitration to be seen by all as what it is: a fully legitimate and binding way to resolve disputes.

As a general rule, arbitration could be considered as a more suitable alternative to resolve disputes. Whether a dispute should be resolved through litigation or arbitration almost always depends on the circumstances of each case. However, changing the paradigm to incorporate arbitration as the natural and, in many cases, more appropriate means for dispute resolution, continues to be a challenge in Mexico. Cost and lack of understanding seem to be two of the factors that have hindered both the growth and general acceptance of arbitration, especially in complex and technical cases that require sophisticated counsel and expertise, although it is clear that it is precisely in these types of cases that arbitration can provide quality resolutions, whereas litigation in many cases cannot. These factors are increasingly influencing clients; they make them seriously consider arbitration, especially when the case is complex. A cost-benefit analysis is crucial, especially considering long-term costs, in addition to other circumstances that are unique to each case.

6 Discuss any notable recent or upcoming reforms or initiatives affecting court proceedings in your jurisdiction (including any changes as a result of the covid-19 pandemic).

On 9 August 2021, a reform initiative was published, seeking to amend various provisions of the Federal Code of Civil Procedures; the proposal of this reform consists in replacing the term conciliation with the term mediation, when referring to the mechanisms for the settlement of trial hearings provided for in articles 595 and 596.

These articles currently provide for a pretrial and conciliation hearing to be held before the evidentiary stage in ordinary civil proceedings. The aim: to bring proceedings to an end before they progress (often pointlessly) on the merits.

Now, to better understand the reason for this reform, it is appropriate to clarify the difference between mediation and conciliation in Mexico. Simply put, conciliation is the procedure in which a person proposes a solution and persuades the parties to abide by it, while mediation is the voluntary procedure in which a person only guides the parties to reach an agreement. With these definitions in mind, the reform initiative is justified on the grounds that, in practice, the judge is actually taking on the role of mediator, not conciliator, since, following his or her proposals, the judge does not persuade the parties to abide by the proposed solution, but rather urges them to engage in dialogue so that the parties themselves reach a solution to the conflict. It is therefore more accurate for the term in the law to be mediation and not conciliation. Hence the reform initiative.

7 What have been the most significant recent trends in arbitral proceedings in your jurisdiction?

Mexico’s long-awaited ratification of the International Centre for Settlement of Investment Disputes (ICSID) Convention in 2018 had an immediate impact. Last year, we mentioned about six pending claims against Mexico under the ICSID Convention’s Arbitration Rules: Legacy Vulcan, Highlands, ES Holdings, Rabobank, First Majestic and Finley and others. To date, all are ongoing except for the Rabobank case, which concluded after the claimant filed a request for the discontinuance of the proceeding late last year, pursuant to ICSID Arbitration Rule 44.

In relation to the Legacy Vulcan case, tensions between the Mexican government and the company have been at the forefront in recent months. AMLO has spoken publicly about the case more than once, emphasising the importance of settling with the investor. But at the same time, the Mexican government has continued to take new and additional measures against Legacy Vulcan, for example, by ordering the closure of its operations in Mexico and suspending a customs permit to import and export, both in May this year.

Now, over the past year, several cases that were initiated before Mexico ratified the ICSID Convention have been concluded. A very relevant one is Lion Mexico Consolidated LP v United Mexican States (Lion v Mexico). This arbitration was initiated in 2015 under the ICSID Arbitration (Additional Facility) Rules. It was initiated as a result of a judgment issued in 2012 by the Ninth Mercantile Court of Jalisco, which resulted in the cancellation of three promissory notes and three mortgages that were in favour of the company, and which was followed by other judicial and criminal actions. For the investor, this cancellation and the other actions were irregularities to its detriment, which it alleged was a violation of the North American Free Trade Agreement (NAFTA) by the Mexican government. In September 2021, the ICSID tribunal issued its award, finding that Mexico had violated NAFTA by the actions taken by the Mexican judiciary, and ordered it to pay US$47 million in damages, plus a proportionate share of the costs of the arbitration. The tribunal found that Mexico had committed a denial of justice (by the local courts) and failed to provide Lion with fair and equitable treatment under NAFTA. A few months later, in December, Mexico sought annulment of the award before a court in the District of Columbia, US, relying on NAFTA and arguing that the ICSID tribunal had based its decision on an obligation not contained in the treaty by ignoring that the relevant section of NAFTA only protects investments, not investors. This was the last reported update on this case.

In September 2021, the arbitral tribunal in the Eutelsat SA v United Mexican States case (Eutelsat v Mexico) issued its award in favour of Mexico. It ruled that Mexico was not in breach of the invoked France-Mexico BIT, dismissing the claims on the merits. The arbitration, conducted under the ICSID Arbitration (Additional Facility) Rules, had been initiated in 2017 by Eutelsat, which claimed US$120 million. The case related to a telecommunications concession. The French company Eutelsat, one of the world’s leading satellite operators, had acquired 100 per cent of SATMEX’s share capital in 2014, thereby becoming the holder of the concessions granted to SATMEX to occupy geostationary orbital positions in Mexico. Eutelsat claimed that the Ministry of Communications and Transport had acted arbitrarily because it had refused to reduce the satellite capacity reserved for the state, contained in its concession titles, relating to free satellite capacity in favour of Mexico. Eutelsat demanded that the Mexican government amend the satellite law to achieve what it argued would be fair satellite regulation between Mexican and foreign companies. Eutelsat alleged that Mexico had affected its legitimate investment expectations, had failed to grant it fair and equitable treatment, and had treated it in a discriminatory manner compared to the treatment given to other companies in the sector, but the arbitral tribunal ultimately dismissed these claims.

Another recently concluded case is PACC Offshore Services Holdings Ltd v United Mexican States (PACC v Mexico). In January this year, the award was rendered. This ICSID arbitration to which UNCITRAL rules were applicable commenced in 2018. The dispute related to acts by Mexican authorities that prevented the Singaporean company and its subsidiaries from continuing to charter vessels to Petróleos Mexicanos (Pemex). In the end, the arbitral tribunal found that Mexico breached its obligation to provide fair and equitable treatment to the investor in violation of article 4 of the Mexico-Singapore BIT. Although PACC was initially seeking US$200 million, the tribunal ultimately ordered Mexico to pay only US$6.7 million in damages. The tribunal also ordered each party to bear its own costs. An interesting aspect to note is that arbitrator W Michael Reisman issued a concurring and dissenting opinion.

Since last year’s issue, two additional cases have emerged under the ICSID Convention’s Arbitration Rules. The first was initiated in November 2021 by L1bre Holding, LLC, a US technology company specialising in the urban mobility sector in Latin America. However, the case was concluded in March 2022, shortly after the parties filed a request for the discontinuance of the proceeding pursuant to ICSID Arbitration Rule 43(1). The claim related to a concession for the replacement, installation, and maintenance of taximeters in the individual public transport of passengers for Mexico City, including a geolocation system and the development, operation and exploitation of a mobile application. This platform had been withdrawn after AMLO entered the Mexican government. The reason for discontinuing the proceedings would most likely be that L1bre Holding is involved in another ICSID arbitration (currently ongoing) against Mexico, alongside Canada’s Espiritu Santo Holdings for what appears to be the same concession (ES Holdings v Mexico). The latter ongoing case started in May 2020.

The second of two cases under the ICSID Convention’s Arbitration Rules arising over the past year, was initiated in February 2022 by the Dutch company Consolidated Water Coöperatief, UA. On this case, the claimant invoked the Mexico-Netherlands BIT. The dispute falls within the water, sanitation and flood protection sector, and relates to a desalination plant and pipelines. The case is in very early stages, with the only development so far being the Secretary-General’s registration of the request for the institution of arbitration proceedings.

In July 2021, the Canadian company Americas Gold and Silver and the Mexican government reached an agreement that resolved a conflict that had kept the San Rafael mine, located in Cosalá, Sinaloa, closed for more than a year, thus avoiding arbitration against Mexico, which the mining company had been previously considering. Another arbitration against Mexico brought by a mining company is the aforementioned and ongoing First Majestic case.

In a statement published in February this year, the US company Monterra Energy informed that it filed a notice of intent to submit a claim to arbitration under NAFTA with the Mexican government over the closure of Servitux, its petroleum fluids storage terminal in Tuxpan, Veracruz. Servitux had received a 30-year permit from the CRE in 2018. Monterra Energy described the closure, which began in September 2021, as arbitrary, illegal and inconsistent with evidence presented to the CRE. The company alleged violations of NAFTA provisions, arguing that Mexico had failed to comply with the provisions of (1) treatment in accordance with international law (minimum standard); (2) expropriation; (3) national treatment; and (4) most favoured nation treatment. Monterra Energy accused the government of rejecting attempts to cooperatively resolve the situation. It also accused it of taking actions to restrict the importation, storage, and distribution of petroleum products by foreign companies with the aim of restoring Pemex to the monopoly position it held before the energy reforms enacted in 2013. The company referred to potential damages of US$667 million, although it expressed its preference for an amicable resolution, urging the Mexican government to cooperate to resolve the dispute.

The energy and mining reforms promoted by AMLO’s government have sparked a lot of controversy, especially among investors in these sectors, and will almost certainly trigger even more investment arbitrations in the short and medium term. On the positive side, at least the energy counter-reform initiative that would have changed the Mexican Constitution did not pass, as it is believed that several foreign companies were threatening to initiate arbitration proceedings; practically just waiting for the outcome to decide whether to do so or not.

In sum, a total of 39 investment arbitration cases have been brought against Mexico under the ICSID Convention’s Arbitration Rules. Mexico’s ratification of said rules on 2018 adds to the fact that Mexico has currently in force dozens of bilateral investment treaties and treaties with investment provisions, including the USMCA and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. More arbitration proceedings against Mexico under the ICSID Convention’s Arbitration Rules may be expected, especially considering the often-unsettling attitudes towards foreign investment from the current federal government.

In fact, so confident was the Mexican government that it would be very active in investment arbitration that last year it issued a call for tenders to hire counsel for both the First Majestic and Finley and others cases. According to the published information, the counsel to be retained would also provide services for 10 other notices of intent to arbitrate received up to that date (if they eventually became arbitrations), for other possible new proceedings that the government anticipated could arise in the short term, and for those proceedings before foreign courts that could eventually be required in connection with enforcement or challenges to arbitration awards.

Regarding commercial arbitration, there have also been very relevant trends as of lately. In last year’s edition we mentioned that, in May 2021, news came out revealing that Goldman Sachs initiated an international arbitration against CFE for US$400 million for a non-payment related to a natural gas contract with CFE International. We remarked that the alleged breach was triggered during a freeze that hit the state of Texas, the largest energy producer in the US and one of the largest in the world, in February 2021, after the extreme low temperatures severely affected the supply of electricity, affecting millions of people and causing prices to skyrocket. While this case is still ongoing, another case related to the same issue arose a couple of months later, when in July 2021, the US company Whitewater Midstream initiated arbitration against CFE, also for a non-payment of natural gas supply resulting from the same weather event. This claim was reported to be for around US$100 million. Shortly after Whitewater Midstream initiated the arbitration, CFE announced that it would pursue civil and criminal legal action against the company in both Mexico and the US, and even alleged corruption by Whitewater Midstream, statements that the US company described as false.

In July 2021, the construction consortium formed by Omega Construcciones Industriales, Sinohydro Costa Rica, Desarrollo y Construcciones Urbanas and Caabsa Infraestructura reached an agreement with CFE regarding the arbitration award related to the Chicoasén hydroelectric power plant. This followed the filing in July 2020 of a request for enforcement of the award in a New York federal court. The arbitral tribunal had reportedly ordered CFE to pay around US$226 million. The construction companies reportedly withdrew the request for enforcement after an agreement was reached with CFE. The arbitration had initiated in 2016 before an international tribunal based in Mexico City, under the rules and administration of the London Court of International Arbitration.

A striking thing to note is that CFE currently has 21 ongoing international arbitrations, according to its financial statements. However, the state-owned company has not provided a clear explanation of the reasons, companies involved, amounts of claims, etc.

In September 2021, an ICC arbitration between Compañía Nitrógeno Cantarell (a Linde company) and Pemex was reportedly concluded. According to published information, the arbitral tribunal ordered Pemex to pay about US$200 million. The dispute related to the Cantarell Complex, one of the most important oilfields in the world. Compañía Nitrógeno Cantarell had filed the arbitration against Pemex in relation to two nitrogen supply contracts to increase production from Pemex offshore platforms in the Sonda de Campeche.

8 What are the most significant recent developments in arbitration in your jurisdiction?

With regard to foreign investment and investment arbitration, amid the hostile behaviour towards foreign investment shown by the current administration, a rare highlight is that, in June 2021, a new BIT between Mexico and Hong Kong came into force. Mexico’s last BITs before this one had come in 2018, when BITs with Brazil and the United Arab Emirates came into force.

Regarding commercial arbitration, the law has not changed since the 2011 reform of the Code of Commerce, where relevant modifications were introduced, particularly in regard to the intervention of the judiciary in the arbitration process. Case law has been limited as well. This may be because of the reduced number of cases that are challenged before courts. However, occasionally, relevant cases that contribute to case law emerge. Below, we describe those we consider to be among the most relevant in the past year.

A federal court ruled that arbitrators cannot be ordered to reimburse the fees they received for their services when an award rendered by them is declared null and void. The court justified its decision by reasoning that the role of an arbitrator can be reduced to diligently applying his or her knowledge to the resolution of a dispute through the rendering of an award, without the arbitrator being required to guarantee that his or her decisions cannot be overturned or annulled, because law is not an exact science and the appreciation of facts, circumstances and rules is always subject to criteria that may vary.

In relation to the same case, more case law was produced, as the same federal court also determined that arbitrators lack legal standing in court proceedings in which the annulment of an arbitral award rendered by them is claimed. It ruled that arbitrators cannot be defendants in such proceedings. In the specific case, a party claimed the annulment of an arbitral award, but not only sued its counterparty in the arbitration, but also sued the arbitrators who issued the award. The court justified its decision by explaining that, in proceedings in which the annulment of an arbitral award is sought, the persons whose rights will be legally and directly affected by the judgment (ie, claimant and respondent) have standing. The court explained that the arbitral tribunal does not have such standing because of its neutral and impartial nature.

In another case, another federal court ruled that the effects of a judicial decision that resolves the challenge of an arbitrator for lack of impartiality, generate damages to the arbitrator because they affect his moral and even economic assets, as well as his or her reputation. The following is a summary of the case. In relation to an arbitration proceeding, the defendant challenged an arbitrator before a commercial court in the state of Sonora. The judge ruled in favour of the challenge, considering that the arbitrator had not been impartial. As a result, the arbitrator filed amparo proceedings before a district judge against the decision of the commercial court that ruled in favour of the arbitrator’s challenge. The district judge dismissed the claim on the grounds that, although the challenged act (the decision to challenge the arbitrator) remained, it could not have any legal or material effect, since the arbitration had already been resolved and the arbitrator’s mission had concluded. In view of this, the arbitrator filed an appeal for review, arguing, among other things, that the effects of the challenge decision continued even though the arbitration had already ended, because the decision had been based on impartiality and this was something that continued to affect such arbitrator’s moral and even economic assets, as well as that person’s reputation as an arbitrator. Ultimately, the federal court ruled in favour of the arbitrator. Therefore, it was confirmed (merits aside), that a decision challenging an arbitrator for lack of impartiality causes damages to the arbitrator because it affects the arbitrator’s moral and even economic assets, as well as the arbitrator’s reputation. This is irrespective of whether or not the arbitration proceedings from which the arbitrator was challenged have concluded.

In another case, a different federal court ruled that, with respect to an action for annulment of an arbitral award, if either party invokes a foreign law, it is for that party (and not the arbitrator) to prove its existence as well as its applicability to the case. The basis being the Commercial Code, which provides that whoever invokes foreign law must prove its existence, as well as that it is applicable to the case. The background leading to this criterion is as follows. In an arbitration proceeding, the arbitrator considered that he did not have the power to request the existence of the Constitution of the State of California from the foreign authorities, and therefore did not admit such proof, as this was something that was up to the offering party. After the award was rendered, an action for annulment of the arbitration award was filed in which the issue explained above was claimed, but the judge considered the arbitrator’s determination to be correct, which was also confirmed in the last instance by the federal court.

More case law on a different issue derived from the same case above, as this federal court also determined that arbitrators lack the power to declare a public deed null and void. This decision stemmed from the following. In the arbitration proceedings, the arbitrator had made this same determination, which was also confirmed by the judge who ruled on the action for annulment of the arbitral award (filed after the award was rendered). This was also confirmed by the federal court in the last instance. The criterion was justified on the grounds that notarial deeds cannot be declared null and void by means of arbitration proceedings, since according to the applicable local notarial law, these deeds can only be nullified by means of court rulings.

9 How popular is ADR as an alternative to litigation and arbitration in your jurisdiction? What are the current ADR trends? Do particular commercial sectors prefer or avoid ADR? Why?

ADR is growing in popularity at a fast pace. Clear proof of this is the increasing number of programmes involving ADR at law schools and other institutions, as well as the increasing competition among students and practitioners throughout the country. It seems that the new generations are pushing hard to normalise the resolution of disputes through arbitration and ADR. While older generations generally regard litigation as the one and only method, younger practitioners have a mindset in favour of alternatives. The fruits of this paradigm shift are becoming increasingly evident.

There is also a genuine interest in improving our ADR legislation. For example, in 2017, an initiative for an ADR Law was published; in 2020, two others followed. This has been a very present topic. It is possible that it will soon come to fruition. One very important thing is that the new ADR law that is eventually passed and comes into force not only regulates national mediation, but also international commercial mediation in line with international standards.

The judiciary has also shown positive progress regarding both arbitration and ADR. The more time passes, the more familiarity and less hostility there is. We have many good judges that are constantly and decidedly learning and understanding these methods, although there is still work to be done to make this generalised, especially in smaller cities. But it is certainly good to see that it is becoming normal to have judges and judiciary staff virtually attending courses, conferences, etc, seeking to gain knowledge and deep understanding of the technicalities involving arbitration and ADR.

In relation to if certain sectors prefer or avoid ADR in our jurisdiction, it could be said that there are certain types of commercial disputes in which ADR is naturally avoided, for example, those that involve credit titles, guarantees, etc. This is expected. For example, let us imagine that a mortgage guarantee is agreed upon in a credit agreement. If the party breaches its obligation to pay the loan, the bank or financial institution will very rarely agree or be open to a negotiation or mediation; it will very likely foreclose.

10 What is the position in relation to litigation funding in your jurisdiction? Is funding available? Have there been any significant developments in this area in your jurisdiction?

Third-party funding in general is not as common in our jurisdiction as it is in others. However, it does not seem to be prohibited either. We do not reckon there have been any notable developments in Mexico regarding this area as of late, but we do believe it is an interesting area of opportunity that deserves more attention.

The Inside Track

What is the most interesting dispute you have worked on recently and why?

Among the cases we have faced recently, one has been particularly interesting, as it has involved a dispute mostly focused on the possible application of two different laws, in this case of Mexico and of one state in the US, with issues related to public policy. This case has been a reminder of the importance of defining the applicable law to a contractual relation, whenever possible, given the diverse outcomes that the application of different laws can produce in the same contract.

What do you consider to have been the most significant legal development or change in your jurisdiction of the past 10 years?

There have been several significant legal changes in Mexico over the past 10 years. Some have had a direct impact on arbitration, and others have done so only indirectly but still are of a high relevance. In 2013, a new Amparo Law was published that, among other changes, introduced the admissibility of this special remedy against acts of private institutions when acting as authorities. Fortunately, the existing judicial precedents have excluded the admissibility against arbitration awards.

What key changes do you foresee in relation to dispute resolution in the near future arising out of technological changes?

Before covid-19, the use of technology for legal purposes in Mexico was very limited, including litigation. Virtual hearings, for example, came in the wake of the pandemic, and only as a temporary solution. Arbitration, on the other hand, has always shown less resistance towards the use of new technologies. What follows for the legal industry is a relentless search (and openness) to find new ways to use technology (new software, AI, etc) to simplify processes, time and costs and, in general, to add value for clients. Many technologies are already in use, but this is only the beginning.