Judicial Precedents Favorable to Arbitration in Mexico

Judicial Precedents Favorable to Commercial Arbitration in Mexico

Cecilia Flores Rueda

Judicial Precedents Favorable to Arbitration in Mexico

Cecilia Flores Rueda[*]

Even though as a general rule, judicial intervention is not required in arbitration proceedings,[1]courts play a significant role in arbitration, since they enforce the arbitration agreement, if any of the parties may not do so voluntarily. Specifically, the cases in which according to Mexican Law[2] courts get involved are: (i) enforcement of the arbitration agreement;[3] (ii) composition of the arbitral tribunal;[4] (iii) interim measures;[5] (iv) taking evidence;[6] (v) fixing the arbitrators’ fees;[7] (vi) arbitration costs;[8] (vii) annulment of the award;[9] and (viii) recognition and enforcement of the award.[10]

Mexican courts have adopted a positive attitude towards arbitration, which makes us trust the effectiveness of arbitration in Mexico. As an example of such attitude, following I will brieflyrefer to some judicial precedents in regards to arbitration:

Legal nature of arbitration

A very old, but important precedent is the thesis “Arbitration”.[11] Through it, the Supreme Court of Justice of the Nation contributed to define the legal nature of arbitration upon establishing that:

• Arbitration is an agreement recognized in the law, by which the parties refuse that courts settle the dispute between them; instead, the dispute is settled by one or more private persons, called arbitrators.
• Arbitrators’ powers come from the parties’ agreement to arbitrate.
• Law provides that courts shall enforce arbitral awards and assist arbitrators upon request.
• When recognizing and enforcing an award, courts do not have powers to review the merits.

A more recent precedentwhich also refers to the nature of arbitration, is the judgment dated April 28, 2004, pronounced by the Supreme Court of Justice, in the amparo237/2004.[12] This judgment establishes the following:

• Mexican legislation on arbitration contained in articles 1415 to 1463 grants parties’ freedom to submit their disputes to arbitration.
• Arbitrators are appointed pursuant the arbitration agreement, reason why they are not considered special tribunals, as those prohibited by the Mexican Constitution.
• Arbitratorsare individuals empowered by the partiesto solve a dispute; they are not judges of the State.
• Article 1445 sets forth that the arbitral tribunal may decide as amiable compositeur, if the parties have expressly authorized it to do so.

Inadmissibilityof the amparoagainst awards

Even though it is a subject that has been long overcome, it should be mentioned the judicial precedent “Arbitrators. Its resolution does not imply an act of authority”[13], since it was useful to determine that the amparo[14]proceeding is not admissible against awards. Said precedentestablishes that:

• The arbitrators’ decision or award is an act of a private individual, which cannot be subject matter of amparo for relief.[15]

Arbitrability, jurisdiction of the arbitral tribunaland characteristics of the award

Another precedentis the judgment dated March 8, 2001, issued by the Third Civil Collegiate Court of the First Circuit, in direct amparo 1303/2001.[16] This precedent,besides specifying the nature of the arbitration, sets forth relevant subjects upon establishing that:

• Parties are free to submit to arbitration as the means to solve their disputes. Arbitration is recognized by the law and implies a waiver to the courts’ jurisdiction.
• Partiesmay submit to arbitration disputes related to private law, provided that their rights are within the realm of contractual freedom.
• Arbitratorsare empowered to decide on their own jurisdiction, therefore, courts cannot decide on same.
• Arbitral awards are res judicata, final and not subject to revision. However, arbitrators lack imperium,which is the power to use the State force against the parties that refuse to recognize and perform; therefore, parties seeking enforcement of an arbitral award, must resort to the competent courts, which must provide enforcement, unless they find violations to the principles of due process of law or that the award is against public policy.

Arbitrators’ powers to conduct the arbitration

Constitutionality of article 1435[17]was questioned for considering that it fails to fulfill the essential formalities of the proceeding upon granting all-embracing powers to the arbitral tribunal. Upon resolving the question in the judgment dated June 30, 2004, issued in the amparo under review 759/2003, the Supreme Court of Justice of the Nationestablished that:

• Article 1435 is part of a procedural system; therefore, it must be related to the other articles of Title IV, of Book V of the Code of Commerce, which regulates arbitration.
• Consequently, Title IV, of Book V of the Code of Commerce observes the due process of law, particularly since it provides that parties must be given full opportunity to present their case.[18]
• The powers of the arbitral tribunalto conduct the arbitration are neither absolute nor all-embracing, but they are regulated by the content of Title IV, of Book V of the Code of Commerce.

Recognition and enforcement of the award

On refusing the review of the merits of the award is the judicial precedent “Arbitral award. Its enforcementby the courtsdoes not allow the review on the merits.”[19] In sum, said thesis sets forth the following:

• An arbitral award is the decision of a private individual, so agreed by the parties to solve a dispute; thus, the award is an extension of said will.
• Courts have no powers to review the merits when recognizing and enforcing an award.
• Article 1462 provides as grounds to refuse the recognition and enforcement of an award formality matters, which do not include the review of the merits of the award.[20]

The court precedent“Proceeding for the recognition and enforcement of an arbitral award. The intermediate decisions issued within it are subject to no appeal (interpretationof article 1463 of the Code of Commerce)”[21], is in accordance with the international practice tending to avoid any obstacles to arbitration. It provides for that:

• The proceeding for the recognition and enforcement of arbitral awards must follow the same celerity and practicality as the arbitration proceeding.
• Due to the preceding reason, if in accordance with article 1463, the final resolution issued in said proceeding does not admit any appeal, the intermediate resolutions or others issued in it do not admit it either.[22]

Grounds for setting aside an award

In the amparo under review 1542/2001, by means of judgment dated December 6, 2001, the Seventh Collegiate Civil Court of the First Circuitset a significant precedentin matter of grounds for setting aside an award:

• The proceeding for setting aside an award must not be considered as an appeal against the award.
• The analysis of the judge to set aside an award is limited to the grounds established in article 1457.[23]
• The judge may not review the merits of the award.

To the same effect that the last precedent, in the judgment dated June 12, 2001, the Twenty Fifth Civil Judge denied the petition for annulment of the award for considering that:

• The mere arguments about irregularities in the arbitration are not sufficient to set aside an award.

Public policy

In the setting aside proceeding 153/2005-A, by means of judgment dated July 14, 2006, the Eleventh Judge of District in Civil Matters of the Federal District, made pertinent considerations regarding the concept of public policy as grounds to setting aside an award in terms of article 1457:

• The law does not provide a definition of public policy and the judicial criteria coincide that it is the judge who should determine, in each case, the existence of any infringement to public policy.
• Public policy can be understood as a duty of the citizens of not altering the organization of society; therefore, its direct and immediate purpose must be taken care of in relation to the community.
• To determine if there is an affectation to public policy it is not enough that the law on which the act is based is known as “public order and social interest”, but it must be evaluated if its contents, purposes and attainment are contrary to the values and principles inspiring public policy.

The preceding criteria was confirmed by the Eighth Court of District in Civil Matters of the Federal District, in judgment dated December 11, 2006, pronounced in the amparoproceeding 619/2006-III.

Conclusions

The above precedents are only a sample of the cases that have been resolved in favor of commercial arbitration. Thus, it can be affirmed that in most cases, Mexican courts have adopted a position of respect to the conventions between the parties and therefore, favorable to arbitration.

1

[*] Cecilia Flores Rueda is an attorney at the ADR and Arbitration Practice Group of Santamarina y Steta in México City. For sixyears she served as Secretary General for the Mediation and Arbitration Center of the México City National Chamber of Commerce (CANACO). She is Mexican Delegate before the Conciliation and Arbitration Working Group of the United Nations Commission on International Trade Law (UNCITRAL). She teaches Negotiation, Mediation and Arbitration in the postgraduate course of Business Law at the Universidad La Salle. Email:

[1] Article 1421 of theMexican Code of Commerce.

Hereinafter, all articles will refer to the Mexican Code of Commerce, unless otherwise indicated.

[2] Mexico adopted the UNCITRAL Model Law on International Commercial Arbitration since 1993.

[3] Article 1424.

[4]Which includes appointment of arbitrators, review of the decision of the arbitral tribunal about the challenge of an arbitrator and substitution of arbitrators. Articles 1426 to 1431.

[5] Article 1425.

[6] Article 1444.

[7] Article 1454.

[8] Article 1456.

[9]Articles 1457 to 1460.

[10]Articles 1461 to 1463.

[11]Fifth Period,Third Chamber of the Supreme Court of Justice, Weekly Federal Court Report,part XXXVIII, page 801. Amparounder review 4660/31.- Compañía Mexicana de Petróleo "El Águila", S.A.- May 26, 1933. Five unanimous votes.

[12]This judgment gave rise to the following court precedent: “Commercial arbitration. Articles 1415 to 1463 of the Code of Commerce, do not infringe article 13 of the Federal Constitution.” NinthPeriod, FirstChamber of the Supreme Court of Justice, Weekly Federal Court Report, Volume XXI, January 2005, page 411. Amparo under review 237/2004. Emilio Francisco Casares Loret de Mola et al. April 28, 2004. Four unanimous votes.

[13]Eight Period, Collegiate Circuit Courts, Weekly Federal Court Report, Volume VIII, December of 1991, page 155. Claim 1/91. Section Number One of Sindicato de Trabajadores de la Industria Cinematográfica, Similares y Conexos de la República Mexicana, CTM.- March 20, 1991.- Four unanimous votes.

[14]Amparo is a Federal Court remedy under Mexican Law.

[15] In accordance to article 1 of the Amparo Law, the amparo relief may only be filed against acts of authority.

[16]This judgment gave rise to the following court precedent thesis: “Arbitrator. His resolutions are acts of authority, and execution thereof corresponds to the judge designated by the parties.” Ninth Period, Collegiate Circuit Courts, Weekly Federal Court Report, Volume XIV, July 2001, page 1107. Direct amparo 1303/2001. Constructora Aboumrad Amodio Berho, S.A. de C.V., March 8, 2001. Unanimous voting.

The text of the thesis does not correspond to the caption, since said thesis does not establish that the arbitratoris an authority. It is advised to look up not only for the thesis, but also for the corresponding final judgment.

[17] Article 1435: “Subject to the provisions of this Title, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings.

Failing such agreement, the arbitral tribunal may, subject to the provisions of this Title, conduct the arbitration in such manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence.”

[18] See Flores Rueda, Cecilia, El trato igual y la plena oportunidad de hacer valer los derechos: regla fundamental en el arbitraje, (Equal Treatment and Full Opportunity of Presenting the Case: Fundamental Rule in arbitration), in Seguridad Jurídica: Diagnóstico y Propuestas (Legal Certainty: Diagnostic and Proposals), Themis, Mexico, 2007, Foro Collection of the Mexican Bar.

[19]Ninth Period, Collegiate Circuit Courts, Weekly Federal Court Report, Volume XVI, August, 2002, page 1317. Amparo under review 138/2002. Mecalux, México, S.A. de C.V. May 28, 2002. Unanimous voting.

[20] Article 1462: “Recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be refused only when:

I.the party against whom the award is invoked, furnishes to the competent judge of the country where recognition or enforcement is sought proof that:

a)a party to the arbitration agreement was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made;

b)such party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;

c)the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration. However, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced;

d)the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

e)the award has not yet become binding on the parties or has been set aside or suspended by a judge of the country in which, or under the law of which, that award was made; or

II.The judge finds that, under Mexican law, the subject-matter of the dispute is not capable of settlement by arbitration, or the recognition or enforcement of the award are contrary to the public policy.”

[21]Ninth Period, FirstChamber of the Supreme Court of Justice, Weekly Federal Court Report, Volume XXVI, September of 2007, page 141.

Thesis by contradiction 40/2007-PS, among those sustained by the Fourth and Seventh Collegiate Civil Courts, both of the First Circuit. June 13, 2007. Five votes.

Court precedent thesis 105/2007. Approved by the FirstChamberof the Supreme Court of Justice of the Nation, in session dated June 27, 2007.

[22] Article 1463: “If an application for setting-aside or suspension of an award has been made to a judge of the country in which, or under the law of which, that award was made, the judge to whom recognition or enforcement is requested may, if he considers it proper, adjourn his decision and may also, on the application of the party claiming recognition or enforcement of the award, order the other party to provide sufficient security.

Recognition and enforcement proceedings shall be conducted in accordance with the provisions of Article 360 of the Federal Code of Civil Procedure. The decision shall be subject to no appeal.”

[23] Article 1457: “An arbitral award may be set aside by the competent judge only if:

I.The party making the application furnishes proof that:

a)A party to the arbitration agreement was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under Mexican law;

b)The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;

c)The award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration. However, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or

d)The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Title from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Title; or

II.The judge finds that, under Mexican law, the subject-matter of the dispute is not capable of settlement by arbitration, or the award is in conflict with the public policy.

to arbitration, or that the award is contrary to public order.”