On June 1, Mexico held its first-ever national election to appoint judges from the lowest levels in the judicial hierarchy to the very highest, including the Mexican Supreme Court. In total, the 7,700 judges elected through this process will replace previously appointed judges and will take office on September 1.

The election had a low turnout with only 13% of the eligible voters participating, a record low for electoral processes in Latin America.[1] This brings into question the purported rationale for the election advanced by the previous administration in promotion of democracy and exacerbates the concerns of critics of the reform that the election will result in the ruling party promoting its own candidates with limited competition. Further, there will be no assurance that the election process will produce and install the most qualified judges and will most likely produce less qualified judges. Additionally, in a country with rampant involvement of the criminal cartels in all aspects of the economy and the political process, candidates with criminal ties (or that are willing to take bribes) can be expected to gain access to the judicial system and bring the entire system into disrepute. Indeed, one of the successful judicial candidates is the lawyer for drug kingpin El Chapo Guzman who was convicted and incarcerated in the United States.

The only other example of a country electing all of its judges is Bolivia. The Bolivian experience has been widely viewed as negative, and the shift to popular elections in Mexico is also expected to have far-reaching negative implications for the reliability and predictability of judicial outcomes.

It is therefore understandable that businesses operating in Mexico have begun developing strategies to avoid getting drawn into the Mexican judicial system, and should proactively take steps to ensure that their disputes are dealt with under systems that provide predictability and impartial resolution of commercial disputes by qualified decision makers. Arbitration, particularly when seated in the United States, provides one such viable and effective alternative.

Key Legal Implications for Businesses

The new judicial system introduces several risks for businesses operating in or with Mexican counterparties:

• Decreased Reliability in Commercial Disputes: Elected judges may lack experience in complex commercial matters, increasing the unpredictability of court decisions.
• Potential for Bias: There is a heightened risk that elected judges may favor domestic parties or be susceptible to political and financial pressures or incentives.
• Uncertainty in Enforcement: The overall reliability of Mexican courts as neutral forums for dispute resolution is now in question.

Given these risks, businesses should carefully consider alternatives to litigation in Mexican courts when structuring cross-border agreements.

Arbitration as a Strategic Alternative

Arbitration offers a robust and reliable alternative for resolving commercial disputes involving Mexican parties. Key advantages include:

• Party Autonomy: Parties can select arbitrators with specific expertise in commercial law and choose the seat, language, and procedural rules for the arbitration.
• Enforceability: Arbitral awards issued in countries that are signatories to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) — including the United States — are broadly enforceable in other signatory countries, with only limited defenses available to resist enforcement.
• Judicial Support: US courts have a strong track record of respecting arbitration agreements and awards, intervening only on narrow grounds.

Key Takeaways

• Include Arbitration Clauses: Businesses should ensure that their contracts with Mexican counterparties contain clear and comprehensive arbitration provisions. These clauses should specify among other things the seat of arbitration, the administrator of the arbitration, the governing law, the language of proceedings, and the number of arbitrators (New York is popular because of its excellent arbitration facilities and easy access to experienced arbitrators. Miami is also widely regarded for international arbitration involving Latin America-related disputes. Los Angeles and San Francisco are emerging as destinations for arbitration proceedings.).
• Consider International Venues: In addition to US locations, parties may consider other common arbitration centers such as Canada, Colombia, or Chile.
• Review Existing Agreements: Companies with existing contracts governed by Mexican law or subject to Mexican courts should review and, where possible, renegotiate dispute resolution provisions in light of the new judicial landscape.

Parties should also be careful to understand jurisdictional limits. For example, if both parties are Mexican entities, US courts may lack personal jurisdiction to enforce arbitral awards or jurisdiction in federal court to decide matters relating to enforcing arbitration absent carefully crafted agreements invoking, for example, New York laws on choice of law and venue for disputes between entirely non-New York parties. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) has been signed by 172 countries, including the United States and Mexico, and Mexico (so far) has a pro-enforcement reputation. Awards rendered and recognized by the courts of a country where arbitration takes place are routinely and summarily enforced in most New York Convention countries. Thus, assets pursued in enforcement of an arbitral award that are located in Mexico will be subject to the jurisdiction of Mexican courts to recognize the foreign award, but it is anticipated that recognition of foreign awards will in most cases not be affected by the judicial reforms, although it will remain to be seen if there are any changes as a result of it.