Introduction. Since NAFTA, commerce has steadily increased between the U.S. and Mexico. As would be expected, increased trade brings greater pressure on these countries to provide effective and enforceable resolution of commercial disputes. Historically, a xenophobic distrust exists between the United States and Mexico concerning the fairness and efficacy of the other’s legal system. Outsiders frequently view the U.S. legal system as a forum that involves burdensome and intrusive discovery, erratic jury verdicts and outrageous punitive damages awards. Likewise, Mexican courts are often stereotyped as being ineffective, subject to influence and ill-suited to handle complex commercial disputes. However, this natural predilection in favor of resolving disputes in one’s backyard often gives birth to a number of problems in the enforcement and collection stages of the litigation.
Balancing the perceived or real advantages associated with litigating at home versus the resulting difficulties that may be encountered in enforcement and collection, recent improvements in the laws and infrastructure of Mexico indicate that U.S. entities and their attorneys should consider selecting Mexico for arbitration proceedings in order to improve results during the enforcement and collection stages of the dispute.
Enforcement of U.S. Judgments in Mexico. The result for cross-border disputes resolved in the U.S. courts is that unless the responsible entity possesses assets in the United States sufficient to satisfy the judgment, a successful party is still required to enforce and collect by bringing an action in Mexico to assess liability or to seek formal recognition.
Over the past thirty years, Mexico has been quite proactive in its attempts to modernize its legal system with respect to international legal issues. Mexico has entered into a number of agreements with other countries, primarily the non-U.S. members of the Organization of American States, providing for reciprocal recognition of foreign judgments. Mexico also entered into a series of multinational agreements designed to promote international judicial cooperation. To effectuate these agreements, an extreme overhaul of Mexican law occurred with the 1988 amendments to the Federal Code of Civil Procedure. The amendments established, for the first time, a procedure for the application of foreign law in Mexico; allowed for the processing of letters rogatory; provided for international cooperation for the taking of evidence; and provided for uniform enforcement of foreign judgments.
Because no cooperative agreement or treaty exists between Mexico and the U.S., to give formal effect to a U.S. judgment (as opposed to an arbitration award) in Mexico, one must institute an expensive and subjective judicial procedure known as homologación. Under this process, the foreign judgment is scrutinized to determine whether the requirements under Mexican law for validity have been met.
The cumbersome process for enforcing a U.S. judgment in Mexico highlights the potential pitfalls associated with making a knee-jerk decision to litigate in the U.S. Even if the U.S. litigation efforts are initially rewarded with a judgment, the ultimate success of the matter will be determined in large part by whether it is necessary to reach assets that are located in Mexico. If so, obtaining the U.S. judgment may merely signify the beginning of the true battle – the Mexican enforcement proceeding.
The difficulty in utilizing the homologación process to enforce a judgment is circumstantially confirmed by the frequent tactic of Mexican entities of simply choosing not to participate in the U.S. proceedings, particularly if they do not have assets in the U.S. subject to execution. Understanding the difficulties of recognition in Mexico, a Mexican entity finding itself named as a defendant in U.S. litigation commonly makes a calculated gamble to wait and defend against the claims in the Mexico courts.
When obtaining jurisdiction is clear or when circumstances make it possible to exert leverage upon the Mexican entity’s interests in the U.S., a significant advantage may exist for the U.S. company to resolve its claims in the U.S. courts. Under such conditions, the ability to disrupt cross-border commerce or seize U.S.-based assets may be sufficient to give credibility to the U.S. court proceedings, and it may indeed be better to leave the dispute resolution process to the hands of the U.S. courts. However, the extent of the Mexican entity’s U.S. contacts is beyond the control of the U.S. entity. Because collection uncertainties and the forum chosen for dispute resolution have such determinative implications in cross-border disputes, this issue is best decided at the time of contracting.
Enforcement of Arbitration Awards in Mexico. The United States and Mexico have both demonstrated a commitment to fostering international arbitration and in enforcing arbitral awards. Arbitration awards between citizens of Mexico and the U.S are governed by the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) and the 1975 Inter-American Convention on International Commercial Arbitration (the Panama Convention), to which both the U.S. and Mexico are signatories. Compared with enforcement of a foreign judgment (if not governed by a reciprocal recognition agreement) in Mexico, the requirements to enforce an arbitral award are significantly less rigorous: provide an original or certified copy of the arbitral award and the arbitration agreement and a certified translation of the award, if not already in Spanish. A party challenging the enforcement in Mexican court is left with limited defenses, generally relating to lack of notice and inadequate due process.
Despite the cooperative framework to ease enforcement of foreign arbitral awards, it must be recognized that a Mexican court asked to enforce an award issued in the U.S. may still view the award with the skeptical eye under which U.S. judgments are traditionally viewed. Although the steps involved in award recognition appear simplistic in comparison to the homologacíón process, a Mexican court may still refuse to recognize awards for hazily-defined bases, including proof that a party “was unable to otherwise present his case,” that the “award deals with a difference not contemplated by . . . the terms of the submission to arbitration,” if the “subject matter . . . is not capable of settlement by arbitration under [Mexican] law,” or, if “recognition . . . would be contrary to the public policy” of Mexico.
Choosing Mexico as an Arbitration Venue. One approach to increase the odds of a successful Mexican enforcement proceeding is to surround the arbitration proceeding with the trappings of Mexican notions of law. Specifically, by choosing a location in Mexico for the arbitration hearing and having an arbitration institution with Mexican ties, it may be possible to ease any preexisting apprehension of the Mexican court during the enforcement stage. As noted, if for no other reason, an eventual need for recognition and enforcement of the arbitration award by a Mexican court is another reason that Mexico should be considered as the seat of the arbitration hearing. It is also beneficial to have a panel with at least one member knowledgeable of Mexican enforcement procedure, laws and policy.
As the law and the infrastructure promoting arbitration in Mexico have developed, Mexico provides an increasingly attractive venue for arbitration. Among the factors favoring a decision to provide Mexico as the arbitration seat are the possible need to request interim measures in Mexico, where the assistance of local courts can be vital, or to compel witnesses and documents. A number of capable arbitral bodies operate in Mexico, and commonly selected institutions in disputes between U.S. and Mexican parties include the International Chamber of Commerce and the American Arbitration Association’s International Centre for Dispute Resolution.
Conclusion. In transactions between U.S. and Mexican parties, the benefits of considering the likely scenarios to be encountered in the event of a subsequent dispute are heightened. If for no other reason than because both countries favor the process, arbitration is the recommended dispute resolution method. Mexico’s embrace of international law and international arbitration has led to the development of an infrastructure of experienced arbitrators and arbitration institutions within Mexico, and to the extent that enforcement and collection concerns also can be ameliorated by doing so, U.S. entities and their lawyers should be less hesitant to choose Mexico as the place for arbitration.