As has been widely reported, Mexico recently adopted a constitutional amendment to overhaul its judiciary—most notably requiring popular elections for judges at all levels of the Mexican court system. Observers have widely voiced concerns that the reform threatens to politicize and destabilize the judiciary and undermine judicial independence. The most important of these changes will begin to take effect in 2025.

If your company engages in any trade or investment in Mexico, you should immediately assess the potential impact of the Mexican judicial reform on your business and take measures to mitigate the risks. You may be exposed to the Mexican judicial system either as the forum to resolve legal disputes under your contracts with your Mexican business partners or as the forum to resolve disputes regarding governmental actions taken against your investments in Mexico, such as your Mexican subsidiaries, operations, or contracts.

The good news is that, with careful advanced planning, you can avoid the Mexican courts in many circumstances. You can seek to have any contractual disputes with your Mexican business partners submitted to international arbitration. You can also arrange for access to international arbitration to resolve any disputes with the Mexican government. Womble Bond Dickinson’s International Disputes lawyers, in collaboration with our Mexican partners, are ready to advise on the necessary steps.

The Mexican Judicial Reform

The Mexican judicial reform makes major changes to the judiciary. Some of the most important changes are the following:

• Judges will be elected by popular vote to the Mexican Supreme Court (Suprema Corte de Justicia de la Nación), Circuit Courts, and District Courts, as well as others. The initial election will take place in 2025 for about half of judges, including all Supreme Court justices, with a further election in 2027 for the remaining judges.
• All judges will be subject to disciplinary proceedings before a popularly elected Tribunal of Judicial Discipline, which will have the power to impose sanctions on judges up to and including removal from office. The decisions of the Tribunal of Judicial Discipline are not subject to appeal.
• The Mexican judiciary will be prohibited from issuing general injunctions against laws and regulations in response to challenges to their constitutionality. 
• The number of justices on the Mexican Supreme Court will be reduced to nine—from the current 11 justices.

Prominent observers—including at high levels of the U.S. government—have warned that the judicial reform threatens to politicize the entire Mexican court system. As the U.S. Ambassador to Mexico emphasized in a public statement, the reform “will threaten the historic trade relationship we have built, which relies on investors’ confidence in Mexico’s legal framework” and “[d]irect elections would also make it easier for cartels and other bad actors to take advantage of politically motivated and inexperienced judges.”

The Mexican judicial reform creates direct risk for foreign business in Mexico. As Morgan Stanley reported, “[w]e downgrade Mexico to UW [underweight) following the Judicial reform proposal the Executive sent to Congress” because “[w]e believe replacing the judicial system should increase risk, Mexico's risk premia and limit capex.”

Trade with Mexican Partners

Just because you do business with Mexican partners does not mean you have to be subject to the Mexican courts. It is straightforward to arrange for other means to resolve legal disputes. A clause inserted into your contracts can ensure that any legal disputes are resolved in a neutral forum outside of Mexico, such as through international arbitration. Depending on your relationships with your Mexican partners, it may even be possible to amend existing contracts to include such clauses.

International businesses commonly opt for international arbitration to resolve disputes. International arbitration is a legally binding form of dispute resolution that is both neutral and private. The parties to the arbitration are able to select their own decisionmakers (called arbitrators) from a range of legal experts, who are not connected to the government of either party. The decisions of those arbitrators are readily enforceable before domestic courts around the world.

Accessing international arbitration requires advanced planning: your contracts need to include an appropriate arbitration clause. This is a short provision that commits all parties to the contract to resolve any legal disputes through international arbitration. Arbitration clauses are frequently included in cross-border contracts specifically to ensure that disputes are not resolved before the domestic courts. When a contract contains such a clause, the domestic courts (including those of Mexico) are legally required to refer any dispute to international arbitration.

Foreign Investments in Mexico

If your business has investments—including contracts, subsidiaries, operations, or facilities—in Mexico, the problem is different. The Mexican government might take harmful measures—such as legislation, regulation, executive actions, or court decisions—against your investments even if you have no contract with the government. If it weren’t for the judicial reform, it often would make sense to challenge such measures through administrative or constitutional actions before the Mexican courts.

Here too, with advanced planning, there are alternatives to the Mexican courts. A network of international treaties protects foreign investors against unfair governmental interference with their investments. If the Mexican government takes harmful measures against your investment, you may commence international arbitration and seek monetary damages for any injury you have suffered. In effect, international arbitration provides you with the equivalent of an administrative or constitutional challenge to the government’s actions—but one that is resolved outside of the Mexican court system. The resulting decisions are, as for all international arbitration, readily enforceable before courts worldwide.

However, having access to this international investment protection and international arbitration often requires careful advanced planning. The exact protection available—or its availability at all—depends on the legal structures you use to hold your investments in Mexico. The good news is that it may be possible to adjust these holding structures to ensure that your Mexican investments have international legal protection.