The Role of Arbitration in Judicial Reform

Part 2: What types of cases are arbitrable?

Executive Summary:

• Radical Transformation of the Judicial System: On September 15, 2024, a reform that drastically redefines Mexico's judicial system was published in the Federal Official Gazette. This reform, which amends the Political Constitution of the United Mexican States and several key laws, profoundly alters the structure and functioning of the Judiciary. The magnitude of these changes has raised concerns about the independence and effectiveness of the judicial system, creating a climate of uncertainty for litigants and investors.
• Arbitration as a Strategic and Reliable Alternative: Amidst this transformation and emerging challenges, arbitration is presented as a robust and reliable solution for conflict resolution. However, it is important to clarify that, although arbitration has been promoted as a universal solution for all types of disputes, not all cases are arbitrable. It is crucial that the requirements for arbitrability are met and that all parties involved have given their consent to undergo this process. Arbitration offers an efficient way to resolve conflicts in the new judicial context, provided that these principles are respected.

On September 15, 2024, the President of Mexico published the reform that radically transforms the judicial system in the Federal Official Gazette. This reform, which was tumultuously approved by the Congress of the Union and the majority of state legislatures, amends the Political Constitution of the United Mexican States and several key laws, redefining the organization and functioning of the Judiciary.

The magnitude of these changes raises serious concerns about the independence and effectiveness of the judicial system. As a result, litigants and investors are worried about how these modifications will impact access to justice and trust in the judiciary, creating an environment of uncertainty that requires for effective solutions.

In my previous article in this Newsletter, I addressed the role of arbitration as an alternative mechanism for conflict resolution. In the current context, arbitration is presented as a reliable tool that offers an efficient solution to handle disputes that could become complicated due to changes in the judicial system.

However, it is crucial to highlight that arbitration is not a universal solution applicable to all types of conflicts. Although some voices promote arbitration as a viable alternative for any dispute, this view does not always align with practical reality. Arbitration has limitations and not all matters are suitable to be resolved by this mechanism, a consideration that is sometimes overlooked in discussions about its scope and application.

For a case to be resolved through arbitration, it is necessary that the parties involved have agreed to submit to this mechanism, either from the beginning of the contractual relationship, at a later time, or even after the conflict has arisen. The willingness of all parties is essential. Therefore, it is highly recommended to establish arbitration as a method of dispute resolution from the beginning, as this can prevent future complications and ensure an efficient resolution in the event of a conflict.

In short, for a case to be arbitrable, all parties must have consented to arbitration. An arbitrator's decisions are binding, based on the principle of law. pacta sunt servanda[1], and no one can be forced to submit to arbitration without their consent. However, it is important to note that once accepted, the parties are committed and obliged to follow the arbitration procedure.

Additionally, there are matters that cannot be the subject of an arbitration procedure, since their resolution is reserved exclusively for state jurisdiction. In Mexico, there are no uniform rules on which matters are arbitrable. The general rule is that, if the rights are freely available, the matter is arbitrable.

According to the doctrine and criteria of the Judicial Branch of the Federation, the following factors must be considered to determine arbitrability: (i) the subject matter must not be excluded by law; (ii) must be freely available rights; (iii) must not affect the public interest; and (iv) must not involve third party rights.

In accordance with the points mentioned above, by way of example, some matters that are not arbitrable in our legal system include labor disputes, family law, alimony, parental authority, marriage, guardianship and custody of minors, conflicts related to the civil status of persons, disputes related to criminal liability or crimes, tax law, insolvency and bankruptcy proceedings, among others. These areas are reserved for state jurisdiction due to their complex nature and the need to safeguard fundamental rights and principles.

In conclusion, arbitration is presented as a relevant and powerful alternative to the reform of the Judiciary. Given that the reform introduces significant changes that could affect the independence and quality of the judicial system, arbitration offers an effective and reliable solution. However, it is essential to ensure that the requirements of arbitrability are met and that the parties have expressed their consent to resolve their disputes through arbitration.

I reiterate that, for arbitration to succeed, it is necessary for the parties and their legal counsel to adapt their strategies to the new judicial environment. For arbitration to be truly effective, it must be established from the outset or, at least, preemptively agreed for future disputes. Furthermore, the effectiveness of arbitration requires that arbitrators maintain impartiality and independence and that the parties commit to respect and comply with arbitral awards, regardless of the outcome, as long as a correct arbitration procedure has been followed.

If these principles are followed, arbitration can minimize the need to resort to state courts, ensuring that disputes are resolved impartially, expertly and efficiently.

[1] “Pact is served” It is a fundamental principle of law that establishes that contracts and agreements between parties must be respected and executed according to the agreed terms.