Dispute Resolution In Mexico
(Article appeared in the 1998 North American Trade Guide)
All Rights Reserved
International business disputes are a fact of life -- they happen, the parties' best intentions to the contrary notwithstanding! Parties to an international business transaction can find themselves embroiled in an international business dispute when one party is dissatisfied with a product that has been purchased from the other party or when a product that has been purchased from the other party fails to live up to its warranty or causes harm to the buyer or the buyer's customers. Alternatively, parties involved in an international business transaction can find themselves forced to deal with an international business dispute when one party fails to pay the other, despite the fact that such party has taken delivery of a purchased product and refuses to return it to the seller or when one party has given the other party exclusive rights to sell its products in a specific geographic region and the other party fails to perform in accordance with prescribed expectations.
Confronted with the reality of an international business dispute, the parties involved in an international business transaction generally find the dispute resolution process less troublesome to launch when dispute resolution procedures have been the subject of an agreement made between the parties prior to the execution of an international business transaction. Absent such agreement, however, a party that desires to initiate a claim against the other is forced to make a unilateral determination of the most appropriate dispute resolution process to follow, given the party's objectives in launching the dispute and given the reality of the facts which underlie the dispute and the provisions of the legal system of the countries where the disputing parties are domiciled.
In the case of a dispute between a U.S. exporter and a Mexican importer, wherein, for example, the U.S. exporter seeks to obtain payment from the Mexican importer for products delivered to and accepted by the Mexican importer, the dispute resolution options are fairly limited.
The U.S. exporter can attempt to sue the Mexican importer in a U.S. court, but unless the Mexican importer has a presence or any physical assets in the U.S., any judgment obtained by the U.S. exporter against the Mexican importer would be virtually meaningless. This is because Mexico does not have any treaties with the U.S. regarding the enforcement in Mexico of U.S. court judgments. Mexico does, however, appreciate the need for international cooperation and might agree to enforce a U.S. court judgment, if such judgment is formally recognized in Mexico by competent judicial authority. Such recognition is likely to be accorded only when the following prerequisites apply:
1. the defendant in the action was given personal service of process in accordance with the procedural rules of Mexico and had the opportunity to defend himself;
2. the judge or tribunal, which rendered the judgment for which recognition and enforcement are being sought, exercised proper jurisdiction in rendering the judgment;
3. the legal issues considered by the U.S. court are not issues that are exclusively governed by Mexican domestic laws;
4. the cause of action in the case heard by the U.S. court is not the subject matter of a litigation currently pending between the same parties in a Mexican court;
5. the judgment for which recognition and enforcement are being sought does not violate or contradict matters of internal public policy or order in Mexico;
6. the judge or tribunal, which rendered the judgment for which recognition and enforcement are being sought, exercised proper jurisdiction in rendering the judgment;
7. the judgment for which recognition and enforcement are being sought qualifies as a final judgment according to the law of the country where it was rendered, i.e. a decision on which no ordinary legal recourse remains available to the losing party;
8. the judgment for which recognition and enforcement are being sought is properly authenticated, i.e. it observes all necessary external formalities required of a judicial resolution or award under the laws of the U.S.; and
9. the court requesting recognition and enforcement of its judgment indicates that it would be willing to act in a reciprocal manner in recognizing and enforcing a Mexican resolution, if so requested.
Since it is far from certain that a U.S. court judgment will be recognized and enforced by competent judicial authority in Mexico, a U.S. exporter who desires to initiate a claim against a Mexican importer may opt instead to launch the dispute in a Mexican court. This alternative, however, also has some drawbacks. First, the Mexican legal system appears to make available only very few summary remedies for giving plaintiffs immediate relief pending resolution of a dispute. Second, the Mexican court system appears to offer defendants many possibilities to delay court proceeding at little effective cost to the defendant but at great associated expense to the plaintiff.
Another dispute resolution alternative that is available to a U.S. exporter who desires to initiate a claim against a Mexican importer is arbitration in Mexico. Arbitration as an alternative to litigation is being encouraged in Mexico under NAFTA which provides for the use of arbitration panels to resolve NAFTA-related disputes initiated by the governments of Canada, Mexico and the U.S.. These NAFTA-prescribed arbitration panels are not intended, however, to resolve disputes between private parties. The framework for the arbitration of private disputes in Mexico exists and is being steadily expanded. Nonetheless, the arbitration of private disputes in Mexico is a relatively new dispute resolution alternative in Mexico which is still not yet well established or widely used. Furthermore, a U.S. exporter can not simply opt to use arbitration in Mexico to resolve an international business dispute and must instead obtain agreement from the Mexican importer to submit to arbitration. This is often not an easy task, as it is generally very difficult to obtain any agreement between the parties after a dispute erupts. Consequently, it is always best for U.S. exporters to address arbitration as a potential dispute resolution procedure in advance, i.e. prior to the execution of the intended international business transaction. Addressing dispute resolution procedures in advance gives U.S. exporters the greatest chance to control the dispute resolution process. In addition to obtaining the importer's pre-dispute agreement with regard to arbitration or some other dispute resolution procedure as the procedure to be applied in the event of a dispute, an advance agreement on dispute resolution practices also enables the parties to provide for private dispute resolution.
Agreements on private dispute resolution should clearly prescribe the parties' rights, obligations and potential liabilities and indicate time-frames for dispute resolution. Private dispute resolution is practiced in Mexico and is often the dispute resolution procedure of choice. U.S. exporters should bear this preference in mind and plan pro-actively for dispute resolution with their Mexican importers.