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Rules and industry standards

Describe any industry-standard form contracts used in the energy sector in your jurisdiction.

Mexican law provides for no specific forms of contracts, therefore - and considering the recent reform - Mexican industry has adopted the models provided by international organisations such as the Association of International Petroleum Negotiators. These have been broadly accepted and used by governmental agencies and private participants when modelling their own contracts.

Note also that all exploration and production activities in Mexico are ruled by the National Hydrocarbons Commission (CNH) and awarded through bidding rounds. For such purposes, the CNH has produced model contracts with little to no room for negotiation.

What rules govern contractual interpretation in (non-consumer) contracts in general? Do these rules apply to energy contracts?

Mexican legislators have acknowledged the rules of objective interpretation of contracts. Pursuant to the Civil Code for the Federal District, a contract should be interpreted in its literal sense - if its terms are clear. Articles 1852 to 1856 further detail the rules of interpretation based on objective criteria of strict interpretation of its wording and the usage of the country. In addition, article 1857 provides for the principle of subjective will of the parties, whenever the terms of the contract are unclear.

These same rules of interpretation apply to energy contracts subject to Mexican law.

Describe any commonly recognised industry standards for establishing liability.

Mexican contractual liability is standardised by the civil codes, and concepts such as breach of contract, negligence, misrepresentation, default, damage or loss or profit are common standards widely applied in Mexican contracts including those of the energy sector. However, Mexican contracts for the energy sector are heavily influenced by international practice. Therefore, standard forms (the Association of International Petroleum Negotiators, among others) have brought to the newly reformed Mexican sector new terms and references that have been accepted as industry standards.

It is common to find terminology such as ‘industry practices’, ‘best efforts’, ‘international practice’ to measure the expected conduct of a certain party to an energy contract. Certain terms such as ‘reasonable and prudent operator’, ‘owner prudence’, ‘wilful misconduct’, ‘gross negligence’, are frequently used and have gained acceptance in the sector.

Performance mitigation

Are concepts of force majeure, commercial impracticability or frustration, or other concepts that would excuse performance during periods of commodity price or supply volatility, recognised in your jurisdiction?

Force majeure is a concept recognised by Mexican law. Some contracts have adopted the principles of commercial impracticability. However, if this concept is not based on objective parameters (such as objective damage or losses) or the party claiming it is unable to prove its case, then chances are that Mexican courts will not accept such a principle as a valid excuse of performance.

Nuisance

What are the rules on claims of nuisance to obstruct energy development? May operators be subject to nuisance and negligence claims from third parties?

Nuisance claims are valid and enforceable under Mexican law. If the nuisance is caused by an act of authority or derived from the application of a statutory disposition or law, then the affected party may initiate an amparo proceeding against the said authority aiming to suspend the act or activity or against the law aiming to suspend its application.

If the nuisance is caused by a private entity (an operator or a contractor, for example) then civil law provides for actions against the nuisance conduct, claiming damages and losses (profit loss).

The recent reform provides for compensation to landowners, social and environmental impact assessments and other pre-operational duties aimed at avoiding or diminishing adverse effects on third parties. However, if third parties’ rights are definitely affected, then operators, contractors or authorities can - as a general rule - be held liable.

Liability and limitations

How may parties limit remedies by agreement?

The Mexican legal system allows the parties to agree to limitations of remedies, except for statutory rights for which the law strictly prohibits to be waived.

Among others, although Mexican law does not provide for the concept of liquidated damages, the parties can agree to contractual penalties by assigning specific value to specific damages, whose penalties can be limited in time (exercise) or amount (penalty value).

Is strict liability applicable for damage resulting from any activities in the energy sector?

Yes. Strict liability is recognised in the Civil Code, determining that any person who uses mechanisms, instruments, apparatus or substances that are dangerous per se, by the speed at which they work, explosive nature or other similar reasons, shall be held liable for any damage caused. There is no need to prove fault, negligence or intention.

Also, the environmental laws such as the General Law for Ecological Balance and Environmental Protection and the General Law for the Prevention and Integral Management of Wastes recognises the strict liability of any persons contaminating the environment as a consequence of the use of mechanisms or substances that are in themselves dangerous.

With this in mind, the National Agency for Industrial Safety and Environmental Protection for the Hydrocarbons Sector incorporates an article for information purposes in all the general administrative provisions that regulate an activity that involves risk, that any person who carries out hydrocarbon activities shall be held responsible for any damage or loss caused to third parties or to the environment as a consequence of his or her actions.