2nd Conference: Panel Discussion: Arbitration of Commercial Disputes in Mexico & the U.S.

Reproduced for the InterAm Database with permission of the

United States-Mexico Law Institute, Inc.

University of New Mexico School of Law

Albuquerque, New Mexico 97131-1431

tel: (505) 277-7825

fax: (505) 277-0068

The United States-Mexico Law Institute, Inc. is a non-profit corporation organized under the

laws of the State of New Mexico, U.S.A.

ARBITRATION OF COMMERCIAL DISPUTES IN MEXICO AND THE UNITED STATES: A
PANEL DISCUSSION

Professor Michael W. Gordon [FNa]
Moderator

Lic. Sergio Garcia-Rodriguez [FNaa]
Lic. Jose Luis Siqueiros [FNaaa]

Copyright (c) 1994 by the United States-Mexico Law Journal; Michael W. Gordon,
Sergio Garcia-Rodriguez, and Jose Luis Siqueiros

THE HYPOTHETICAL PROBLEM
Using the same facts as discussed in the first session on the enforcement of
foreign judgments, consider that in the contract for sale of insulation there
was the following clause:
This agreement shall be subject to arbitration.

QUESTIONS FOR DISCUSSION

A. Arbitration
1. An arbitration clause is essentially a unique kind of forum selection
clause. Forum selection clauses which designate a particular court are usually
upheld. Do arbitration clauses differ?
2. Is this provision adequate? If not, what would you recommend be included
if you represent National? If you represent Jalapa?
3. Were a location to be included, which location would you prefer and why?
4. Assuming your preferred location to be acceptable to the other side, under
what rules do you wish the arbitration to take place?
5. The UNCITRAL rules for commercial arbitration have existed since 1976.
Their most notable use was as a basis for the Iran-U.S. Claims Tribunal. Have
any of you ever used them?
6. What law will apply if the rules do not address the issue?
7. Would a court in your country uphold the above brief provision as a valid
forum selection clause and stay or dismiss the matter?
*112 8. If the provision had included a choice of law clause, would it be
followed? No choice of law having been included, what law would be chosen?
a. Law of place of arbitration.
b. Conflict of laws rules of place of arbitration used to determine
applicable law.
c. Arbitrators attempt to determine the expectations of the parties.
d. Some form of lex mercatoria or international law of merchants, i.e.,
rules not based on the law of one nation.
e. Achieve a fair and just conclusion without the application of any
specific rules of law.
9. How would the arbitrators be selected? Defer to the rules adopted or
include names or selection processes in the arbitration clause?
a. If a party fails to appoint an arbitrator as provided, will the court
appoint an arbitrator?
10. Considering the process of the actual arbitration, is it reasonable to
suggest that where the arbitration is held, and who the arbitrations are, will
affect such procedures as the importance of documents versus oral arguments,
the extent of cross examination, the amount of discovery, and the participation
of the arbitrators in questioning witnesses?
11. Would a court in your nation allow interim measures such as
attachment, recognizing that arbitrators do not have the authority to grant
such measures?
12. Could a court, upon application by the losing party, set aside the
arbitral award before enforcement is commenced? How would jurisdiction be
obtained over the foreign party who had received the award?
13. What disputes would be subject to arbitration under the above clause?
All disputes or only certain specified disputes? If the latter, what would not
be included?
In the suit by National against Jalapa for defamation, could the parties
agree to arbitrate the issue of defamation?
Could the parties agree to arbitrate in currency in which any award must be
rendered? Would this be a public law issue because it relates to the
limitations in the Mexican Monetary Law which requires judgments to be rendered
in Mexican pesos?
What if either government imposed exchange controls because of balance of
payments problems. Could the applicability of the exchange control laws be a
subject of arbitration?
The United States Supreme Court, in the Scherk and Mitsubishi decisions,
allowed arbitration provisions to prevail in international transactions, in
cases involving securities and antitrust, where notwithstanding that earlier
decisions involving solely domestic disputes rejected arbitration provisions as
inappropriate. How might Mexican courts approach these issues of
arbitrability?
Were arbitration to be conducted in Mexico but under United States law to
include consideration of antitrust issues, should the Mexican arbitrators be
able to award treble damages as provided for in U.S. antitrust law? Would they
be likely to even if they were allowed to?
*113 14. What would a court of your nation do if one of the parties simply
fails to proceed with arbitration?
15. Arbitration clauses negotiated between persons experienced in
international business, such as those in the Scherk and Mitsubishi, tend to be
upheld. What about arbitration clauses in form contracts where the arbitration
clause is not the subject of bargaining? Would it make any difference whether
the contract was among merchants or involved a consumer as one party?
16. If one party is a government, does an agreement to arbitrate constitute a
waiver of the defense of sovereign immunity?

B. Enforcement of Arbitral Awards
1. Is enforcement of an arbitration award more easily accomplished in your
country than enforcement of a judicial judgment?
2. What are the principal sources of law in your country for enforcement of
arbitral awards?
Do you have any comments on the NAFTA proposals regarding arbitration? What
needs to be done if NAFTA is enacted?
3. Both the United States and Mexico are parties to the Inter-American
Arbitration Convention, as well as the United Nations Convention on Recognition
and Enforcement of Arbitral Awards (New York Convention).
4. There have been quite different interpretations of what constitutes an
agreement to arbitrate under the New York convention Article II(2). In a draft
proposed by the Netherlands, confirmation in writing "without contestation by
the other party" was suggested, but Article II(2) as adopted seems based on an
exchange and agreement. How would a court treat a clause providing for
arbitration in a letter of confirmation of a contract?
5. One defense to enforcement (Article V(2)(b)) is the illusive concept
of violations of public policy. The United States seems to take the view that
the Convention drafters intended to encourage courts to adopt a very narrow
definition of public policy, the words of one United States circuit court case
being "where enforcement would violate the forum state's most basic notions of
morality and justice." Is there any indication in Mexican law how public
policy is to be interpreted?
6. What is your nation's view of the meaning of non-arbitrability, a defense
to enforcement in Article V(2)(a)?
Is arbitration burdened by the potential broadness of interpretation of this
provision by courts attempting to protect its citizens in such areas as
termination of distributorships, security transactions, antitrust laws, etc?
Is there a distinction between domestic and international transactions as in
the United States Scherk and Mitsubishi decisions?
How would a court deal with enforcement where national foreign policy
interest were involved (i.e., would the court be concerned that the foreign
arbitrators might have different political loyalties)?
7. Article V(1)(b) provides a defense of being "unable to present his case."
This seems to allow an unsuccessful party to argue that if the procedure of
arbitration provides less opportunity (such as discovery, *114 obtaining
witnesses) "to present his case" than a judicial action would permit, the
decree should not be enforced. What is the meaning of this defense? Does not
agreeing to arbitrate include foregoing formal judicial procedural rules?
8. What if domestic law (true of Swiss law) required two signatures to bind
parties to arbitration. The New York Convention states only that the agreement
be in writing and signed by both parties. Would a court refer to the
Convention or domestic law, the latter on the ground that domestic law would
prevail to determine whether there was an agreement to arbitrate?

THE DISCUSSION
Professor Michael Gordon: The hypothetical is the same that we used in Part
I, except for a provision that says: "This agreement shall be subject to
arbitration." Is this provision adequate?
Lic. Jose Luis Siqueiros: It is adequate. In fact, it is very much used,
particularly in the case of international contracts. My advice to any legal
counsel or private companies entering into international arrangements in
Mexico, or anywhere in the world, would be to include an arbitration agreement
if possible.
Lic. Sergio Garcia-Rodriguez: I think the proposed clause is adequate in
terms of enforceability, in terms of reflecting the parties' desire to
arbitrate. However, I would not stop there. I think that an arbitration
clause is an opportunity to determine a whole set of agreements regarding the
applicable rules of decision and choice of law. I would caution any
practitioner to think about other issues that should be included in this clause
in the agreement. In fact, I think there is a lot of ambiguity to what might
be subject to arbitration here. For example, there are questions regarding
defamation that may be an issue that should be subject to arbitration under the
general arbitration clause. A lot of questions arise regarding what is and
what is not subject to arbitration. I think that it is still common to see
something like this, in part, because the parties and counsel for the parties
leave the arbitration clause to one of the last matters to be negotiated and
agreed upon. By the time the clause is considered, the parties are not really
thinking about all the implications of what should be covered by the clause.
In fact, I have heard remarks like: "Well, we will do it in Cancun, or if the
dispute is in the United States, we will do it in Hawaii." The arbitration
clause is not taken all that seriously, at least not as seriously as other
provisions in the contract like price and delivery dates. At the same time,
the time at which one discusses dispute resolution, one tends to hear a lot of
off-the-cuff remarks about legal systems. My firm does a lot of business with
Asian clients and we hear about the expense associated with anything related to
dispute resolution in the United States, not just litigation. I just read an
article about an arbitration between Advanced Micro Devices and Intel in San
Francisco. [FN1] The arbitration stretched over five years--from 1987 to 1992,
*115 involved 45,000 pages of reporter's transcripts, and thousands of pages
of documents. This type of process is outrageous, turning into a multi-million
dollar dispute resolution procedure. In Mexico, I also hear a lot about
costs. Attorneys in Mexico are reluctant to subject their clients to
arbitration in the United States when it is just as expensive, if not more so,
as litigation in some instances. On the other hand, I have heard from Asian
clients about problems that they have encountered in the legal system in
Mexico. The problems arise not only in the context of litigation, but also in
arbitration.
In framing an arbitration agreement, counsel has the opportunity to get
beyond the stereotypes of legal systems and dispute resolution mechanisms, and
the pitfalls in each of them, to provide for a dispute settlement measure
appropriate for the parties and the particular nature of the transaction. The
parties' best interests would probably not be served by framing the arbitration
agreement in such generalized terms as are proposed in the hypothetical. If
the parties want to frame the clause as broadly as possible, they might be
better served with something that is more indicative of their intent. The Asia
Pacific Model Clause is the broadest possible clause that comes to mind. It
provides for arbitration of any controversial claim arising out of or relating
to a contract, or breach of the contract. This type of general clause would be
appropriate in this situation only if the United States party considered and
thought about defamation and whether defamation is something the company does
not want to arbitrate because they want to maintain the right to a jury trial.
Prof. Michael Gordon: We should not forget that the parties could go to
arbitration without having any arbitration clause at all. The parties could
simply decide to arbitrate after their dispute arose. In this case, however,
the hypothetical provision provides that once we do go to arbitration, we will
to have to raise the questions to be presented shortly. Those questions could
be addressed at the time of the agreement. One of the questions that certainly
should be raised is what location one would prefer for an arbitration as an
American or as a Mexican, and what choices are available?
Lic. Siqueiros: The location where the arbitral procedures would take place
is very important for two reasons. First, the supplementary or procedural law,
to be applicable in arbitration will be the domestic, local law of the place
where arbitration is being held. It is very desirable to choose a place that
has modern, updated arbitration laws. I am very happy to state that Mexico has
just recently adopted and incorporated into its law the Commercial Code the
United Nations Commission on International Trade Law (UNCITRAL) on commercial
arbitration. [FN2] Secondly, if the losing party in the final award has
property in the place where the arbitration was held, then the winning party
would have a *116 better chance to enforce the actual award. For instance,
any city in Mexico would be appropriate. Mexico has ratified the United
Nations Convention on the Recognition and Enforcement of Foreign Arbitral
Awards, [FN3] the Inter-American Convention on Foreign Arbitral Awards, [FN4]
and the Montevideo Convention on Enforcement of Foreign Arbitral Awards and
Judicial Judgments. [FN5] Mexico also has very modern arbitration laws. Thus,
if the losing party does not comply with a binding arbitral award so that the
winning party has to go to the courts of the place where the losing party is
domiciled to enforce it, this affords the winning party a much better chance to
obtain enforcement.
Prof. Gordon: Few things are more important than assuring that an
arbitral award will be enforced. Even if an appropriate location is specified
with what seem to be fair rules and fair arbitrators, it does not do much good
if the enforcing agency does not deem the location to provide a fair and proper
arbitral forum. Besides Mexico, what other locations might you choose, and how
do you feel about the proliferation of states and cities creating their own
arbitration centers, for example, Miami?
Lic. Siqueiros: First, I want to make an important distinction. There are
two kinds of international arbitration. There is so-called ad hoc arbitration
in which the proceedings are not being administered by any center, such as an
association or chamber of commerce. Alternatively, there may be arbitration in
which the procedures are supervised, controlled and approved by one of these
centers. The centers for commercial arbitration include: The International
Chamber of Commerce in Paris, specifically, the Court of Arbitration; The
American Arbitration Association (AAA) which has 54 districts that may apply
the International Arbitration Rules adopted in 1991; and the Inter-American
Commission of Commercial Arbitration (IACCA, or in Spanish, CIAC), which has
offices in Washington, and which is primarily concerned with disputes in this
hemisphere. The IACCA actually operates through the National Sections. For
instance, the National Section of Mexico is the National Chamber of Commerce
(CANACO). Much depends on the amount in dispute and on the origin of the
parties. Each one of these centers has its own rules which do not differ
substantially. They follow the pattern of the Uniform Procedural Law for
Arbitration, approved by the United Nations in 1976. [FN6]
Prof. Gordon: If you were representing a Texas company in our hypothetical,
would Paris be appropriate for an arbitration, or would you prefer somewhere in
the United States using international rules?
Lic. Garcia-Rodriguez: Paris sounds inappropriate. I think the costs
associated with arbitrating in Paris would not justify the arbitration.
*117 There is a proliferation of state arbitration sites in the United
States. One that is fast developing as a major site is Hawaii. It is
considered by many Asian clients as a neutral location, as the next best thing
to arbitrating in Japan or Singapore, or another Asian country because it is
geographically convenient. This is a very positive development in the United
States. I think that when one is choosing a site the implications of the site
can be minimized by the choice of law and by the rules that are decided upon to
govern the dispute. If the AAA International Commercial Arbitration or the ICC
rules are adopted in the arbitration clause, the applicability of the internal
rules of the site that has been chosen are minimized.
Prof. Gordon: That is an interesting comment about Hawaii and the Far East.
Do you see a parallel with Miami and South America?
Lic. Siqueiros: Hawaii, after all, is just one of the sections of the
AAA. You have to be practical. You have to not only look at the
technicalities, but also at the cost of transporting witnesses and experts and
the residence of the arbitrators. Miami is becoming a favorite spot because it
is a port of entry for South American countries. Every traveller, every
executive, every legal counsel from South America will come to Miami. Miami
would be an ideal site for the arbitration of international contract disputes.
Lic. Garcia-Rodriguez: One important consideration when thinking about which
rules to adopt for the arbitration clause is the role of the arbitrators. The
ICC arbitrators have a tendency to micro manage. They want to be involved with
every step of the process. This style has implications as to the award
itself. The ICC has to review or approve any award made by an arbitrator under
the ICC rules. Furthermore, the ICC will only apply its own rules. Therefore,
if you have chosen the ICC, you must use the ICC rules.
Prof. Gordon: In our hypothetical provision, we have not said anything about
what law could be chosen. It has been noted that there are a number of
alternatives. If an arbitral panel has been formed but the governing law has
not already been selected, what will the governing law be--the law of the place
of the arbitration? Would the arbitrators or a local court use the conflict of
laws rules of the place of arbitration to determine the applicable law? Would
the arbitrators or a local court attempt to determine the law based upon the
expectations of the parties? Would there be some kind of lex mercatoria or
international law, not necessarily based on the law of one nation? Would the
arbitrators choose some fair and just conclusion (ex aequo et bono) without the
application of any specific rules of law? What do you think would happen in
the United States and Mexico?
Lic. Siqueiros: First, let us understand the principle that the choice of
law in arbitration is always left to the autonomy of the parties. Thus, the
arbitral panel or a local court will only have a chance to select the governing
law in case the selection was not made by the parties. Only in those cases
would the local court of the place of arbitration have any opportunity to
participate. Furthermore, the local court will not usually *118 participate
in arbitration cases because the arbitrators themselves usually have the power
to determine the law applicable to the merits. If the parties have not chosen
the substantive law, the rules which are governing the arbitration will tell
the arbitrators what to do. For example, if they are following the
International Chamber of Commerce Paris rules, Article 13 will tell them to
look at the conflict of laws rules of the place of arbitration, which will
presumably guide them as to the proper law. The Mexican arbitration law, which
is modeled after the UNCITRAL [FN7] has an even more modern, updated
provision. It says that if the parties were silent in the original
transaction, the arbitrators will apply the law which, in their own criteria,
will be the proper law taking into account the elements involved in the
particular transaction. In other words, it leaves a good range of alternatives
for the arbitrators to choose. The arbitrators will take into account the
place where the contract was signed, the language in which it was written, the
place where the negotiation of a contract took place, the country or countries
where the contract is going to take effect, and the nationality of the
parties. Taking all those contract factors into account, the parties will be
able to make up their minds as to which substantive law governs the dispute.
Lic. Garcia-Rodriguez: The answer to the question will depend on what
the legal issue is, or at what stage of the proceedings the question is
raised. If the parties have not chosen any law as the governing law of the
agreement, and the issue is the validity of the arbitration agreement itself,
the procedure to be followed, or the enforcement of the award will come from
the law of the site. If the law of the site does not address the particular
question that is at issue, then apply the conflict of laws rules from a court
in that particular jurisdiction. If that does not answer the question, then
the arbitrators should go to the rules, if any, that the parties have adopted.
If the ICC rules have been adopted, then Article 13 would apply, or could
apply. The arbitrators may interpret this to mean that they can look at
jurisdictional factors such as which site has the most contacts or the most
interest in the particular dispute.
Prof. Gordon: Because we can talk about the types of decisions arbitrators
will make, we must first know how the arbitrators will be selected. We are
given an opportunity to select the arbitrators or, I assume, we could defer to
the rules of an arbitration location. It concerns me that if three arbitrators
are necessary, one is appointed by each of the disputing parties and the third
one is then appointed to really do the job. Is there a better way? How would
you suggest we select these arbitrators?
Lic. Siqueiros: You are raising a sensitive point because we have, as
Mexicans, a different mentality from the American arbitration process. In
United States domestic arbitration, arbitrators take the side of the party that
appointed them. They actually become a second legal counsel. *119 In the
rest of the world, in order to be an arbitrator, you have to be neutral. You
are sent a letter, for instance in ICC arbitration, requiring you to swear and
sign, that you are independent, i.e., that you have no connections, no
relationship, no interest at all in the case, and only when such an affirmation
of independence has been received and approved, are you appointed an
arbitrator. The other party, at any time, knowing that you were previously
counsel to the first party, or that you are related to the first party's
family, may challenge you. The important issue in international arbitration,
is that any arbitrator, whether party-appointed or not, must be completely
neutral and independent.
Prof. Gordon: I am intrigued with the Canada-United States Free Trade
Agreement in light of your comments. Only representatives from each side--
Canada and the United States--sit on the dispute panels. I wonder if having a
third party on an arbitration panel allows either side to feel that they can be
closely related to the interests of their particular party. The Canadian-
United States panelists know there is no third party to resolve the dispute.
There is evidence that the Americans who have been on the Canadian-United
States panels have been truly independent and neutral. Does having a third
party who is neutral allow the other two panel members to feel less neutral in
the arbitration process?
Lic. Siqueiros: There was an intelligent and ingenious response to
that particular concern in Chapter XX of NAFTA. [FN8] There are several
chapters in NAFTA that have to do with arbitration or, rather, the mechanism of
dispute settlement. Chapter XI, for instance, concerns arbitration of disputes
between an investor and the host state. [FN9] Chapter XIX deals with
settlement of disputes among the contracting parties involving the imposition
of anti-dumping and countervailing duties. [FN10] Chapter XX is the general,
generic chapter on resolution of disputes involving additional problems that
arise under NAFTA. [FN11] If a dispute has been referred to the Free Trade
Commission of NAFTA and is not resolved within 30 days, a party to the dispute
can request establishment of an arbitral panel. They will consist of five
members selected from a roster of experienced experts in the field of law,
trade or other matters covered under the Agreement. The first to be elected to
the arbitral panel is the chairman. If the disputing parties cannot agree, the
chairman is selected by lot. Next, each party selects two arbitrators by so-
called reverse selection. The United States government selects two arbitrators
from a Mexican roster, and the Mexican government selects two arbitrators from
a United States roster. This process is considered reverse selection; it was
written into the agreement in order to guarantee the independence of the
arbitral panels. Mexican and American experts, having been chosen by
*120 governments to which they have no obligation, will be completely
independent, free and unbiased.
Lic. Garcia-Rodriguez: The reverse selection process is similar to the AAA's
suggestions regarding the selection process of arbitrators. Each party submits
a list of arbitrators, and on that list are also those individuals who are
unacceptable as arbitrators. An officer of the AAA chooses from the list three
arbitrators. Another difference between the AAA and the ICC arbitration
selection process is that the AAA does permit selection of party-appointed,
party-biased arbitrators (but only in the case of arbitration which is not
subject to the AAA international arbitration rules). Party-nominated
arbitrators, under the domestic arbitration rules, may consult with the
parties, at least prior to the time that the tribunal is formed. The
arbitrator may even consult with the party on how the third, neutral,
arbitrator shall be selected.
Prof. Gordon: Is it reasonable for us to suggest that where the arbitration
is held, and who the arbitrators are, will affect such matters as the
importance of documents versus oral arguments, the extent of cross-examination,
the amount of discovery permitted, and the participation of the arbitrators in
questioning witnesses, all, of course, within the framework of the rules?
Lic. Siqueiros: Yes. Having been an arbitrator quite a few times, I have
observed that there are frequently problems when one of the counsel is an
American lawyer. American lawyers always seek discovery and sometimes this is
clearly a fishing expedition. Arbitration is a flexible, informal way to
settle disputes. In Mexico, arbitration is privatization of justice. We are
trying to do things without formal restraints. We may sit in a hotel room or a
legal counsel's office and try to be as flexible as possible. As you know, the
arbitration panel does not have authority to subpoena witnesses. Thus if a
litigious American counsel wants to call senior officers of a corporate
opposing party before the arbitration panel, and they do not want to come, he
may ask the arbitral tribunal to request a court, on behalf of the tribunal, to
subpoena those officers to appear before the arbitration panel. Alternatively,
the American counsel may seek private, extremely confidential documents that
sometimes are kept classified and ask that they be exhibited in the arbitration
proceedings. Such discovery is perfectly acceptable in judicial proceedings,
but when you are in an arbitration procedure, the context is different.
Arbitrators try to make matters more simple and to adopt flexible rules of
procedure. For instance, in the case of witnesses, sometimes an arbitrator may
allow a witness to be cross-examined by the other party and re-examined by his
own counsel. All of this is based on the consensus of the two parties. If
they do not demand a cross-examination, an affidavit probably will be
sufficient. It is always a matter of mutual consent.
Prof. Gordon: Is it acceptable to an American counsel for the
arbitration proceeding to be fashioned so as to prohibit fishing expeditions
and insure the silence of counsel at the hearing?
Lic. Garcia-Rodriguez: It would be desirable to take care of this problem in
the arbitration clause itself. The arbitration clause could specify the
*121 type of discovery that will be available. Certain procedures that
appear to be fishing expeditions could be excluded. Oftentimes, even the
search for identifying documents seems to be burdensome to non-U.S. parties.
Nonetheless, the parties can, in the arbitration clause, control the discretion
of the arbitrators to choose what discovery procedures may be appropriate.
Prof. Gordon: Of course, selecting the site of arbitration could help, by
selecting a site in an area that traditionally is not going to accept fishing
expeditions, such as Paris versus New York.
Lic. Garcia-Rodriguez: Absolutely. If you are representing a company like
our hypothetical National you should maintain your right to get the documents
of the hypothetical Jalapa and to identify and question their executives by
putting these rights in the agreement. A typical clause could provide that:
"Discovery shall consist of identifying witnesses, and cross-examining
witnesses, and identifying all pertinent documents."
Prof. Gordon: While all this is going on, are we worried about assets being
moved out of the jurisdiction? After all, this is arbitration and not a
court. Is there any way of getting interim measures imposed upon the United
States or Mexico by way of attachment in order to prevent the removal of
assets?
Lic. Siqueiros: Yes, there are several stages within the arbitral procedure
where provisional measures or interim measures could be taken. Let me just
remind you that arbitrators do not have the power to enforce their own
decisions, and if any interim measure is requested by the parties then that
measure request is allowed. This policy is found in the new Mexican
legislation, [FN12] but you will always have to go to court unless the parties
agree otherwise. In the case of perishable commodities that may be destroyed
if they are not put into a freezer, the parties may agree in some way to
protect them. The winning party may also try to take interim measures before
the final award is enforced if it appears likely that the charged party may
expend all of its assets or flee. In any case, the party seeking protection
must go to court.
Lic. Garcia-Rodriguez: In the United States, the New York Convention [FN13]
does not expressly address the question of interim relief. Therefore, this
issue revolves around how a United States court will interpret Congressional
silence. Traditionally, interim relief has been obtained in the United States
by demonstrating that the relief provides the only way to obtain a meaningful
award because the assets in the dispute are movable or are about to leave the
country. Generally, one does not seek interim relief because it goes against
the concept of arbitration; to avoid litigation and going to court to ask for
relief.
Prof. Gordon: The issue of defamation in our hypothetical case is
different than a commercial damages contract case. Could the issue of
defamation go to arbitration, assuming the parties want it arbitrated?
*122 Lic. Siqueiros: No. Defamation in certain instances may be a
crime. In other jurisdictions, it may be a tort or wrong providing the basis
for a civil action and a claim for proper compensation. But, at least in
Mexico, a claim of defamation will not be arbitrable.
Prof. Gordon: In that case, I suppose it would be important to choose a site
for arbitration where defamation would be an arbitrable issue. Suppose that
the parties chose a country where defamation is not a crime, but is a civil
wrong and monetary remedies are available. If an arbitral award of $100,000
were entered, and enforcement of the arbitral award in Mexico were attempted,
would Mexico enforce that award?
Lic. Siqueiros: No. One advantage of arbitration is that the arbitration
agreement is severable. Different issues arising under the contract may be
separated from other issues. If one of the disputes arising out of the
contract is a claim for slander against one of the parties, the arbitrators may
only arbitrate those contractual commercial issues of the disputes. Anything
to do with slander, libel or defamation must go to court. Once in court, a
party may request the proper relief, what we call in Mexico, "moral damages,"
or indemnization of a monetary nature.
Lic. Garcia-Rodriguez: What if the parties agreed to arbitrate the issue of
defamation and chose New York law to govern the dispute. Assume further that
they chose, while unlikely, the site to be Mexico. What would the Mexican
arbitrators, or the arbitrators in Mexico do in that situation? Could they
apply New York defamation law to the issue?
Lic. Siqueiros: First, we should not forget that there are two parties to
the hypothetical dispute. The defendant, who is being sued for defamation will
refute the jurisdiction of the arbitration and competence of the arbitrators.
One power granted to arbitrators that is found in most of the rules of
arbitration, and in the Mexican new law, is what the Austrians and Germans call
the Kompetenz-Kompetenz; the power of arbitrators to define their own
adjudication. In the case of defamation, arbitrators would say that they have
no jurisdiction to decide such a matter.
Prof. Gordon: What if the parties had stated that all matters related to a
contract are subject to arbitration, and that either the Mexican or U.S.
government imposed exchange controls to prevent the movement of the money out
of the country. Is this a matter subject to arbitration?
Lic. Siqueiros: Yes. This type of matter is governed by monetary law. If
the contract has stipulated that payment be in a foreign currency--dollars,
yen, deutschmarks, Spanish pesetas--the party that loses has to pay in that
currency, but with the proviso that under Mexican monetary law he may pay the
equivalent amount in pesos.
Prof. Gordon: If the arbitration were to be conducted in Mexico, but
under United States law, and in particular antitrust law, would the Mexican
arbitrators be able to award treble damages, as provided for in the United
States?
Lic. Siqueiros: No. United States law may be applied, but only within the
context of what we consider Mexican public policy. Therefore, treble
*123 damages under RICO, [FN14] antitrust laws such as the Sherman Act,
[FN15] and other punitive damages are merely concepts and are nonexistent laws
in Mexico. Awarding treble damages would violate the fundamental local policy
towards damages. Instead, we should revert to what we call mandatory law.
[FN16] In Mexico, there is a very great affinity for mandatory law and public
policy. Moreover, autonomy of the parties is fine and will be binding in
Mexican courts and on arbitrators insofar as the autonomy does not violate
mandatory rules.
Lic. Garcia-Rodriguez: That is a very interesting response because in
Mitsubishi, [FN17] the United States Supreme Court held that there is no reason
to believe that arbitrators in Japan can not apply U.S. antitrust laws properly
and, therefore, claims under the antitrust laws of the United States are,
indeed, arbitrable. United States antitrust laws are not mandatory law that
requires severance from the arbitration. And you are suggesting that, in
Mexico, there is no way that these types of claims can be arbitrated.
Lic. Siqueiros: We should not forget that the arbitrators cannot go beyond
the legal framework in which they are acting: their mandate by the parties.
This is to be included in what we call the terms of reference. The terms of
reference are made at the beginning of the arbitral procedure which is the time
when the arbitrators and the parties consider if one of the issues to be
determined by the tribunal is the payment of treble damages. This is also the
time, if the arbitration is being conducted in Mexico, that the local counsel
for the party affected by the possible punishment will raise the issue of
damages. If the claimant party is an American company and the defendant party
is a subsidiary of another American company, both of which are conscious of
their responsibilities and liabilities under the antitrust laws, they can
probably empower the arbitrators to decide that issue. The problem will be
that the party that loses may not comply voluntarily with the award. In order
to enforce the damage award, the winning party must seek a court order what we
call the exequatur by the local court. The losing party will raise the issue
that the treble damages, punitive damages, do not exist in this particular
situation because they are contrary to public policy.
Prof. Gordon: Arbitration is supposedly a consensual arrangement and, in our
hypothetical, it seems that both the parties agreed to the brief provision for
arbitration. As arbitration is used more, however, we find arbitration clauses
being used as a standard or adhesion contract provision where one of the
parties has little choice but to accept arbitration. This seems to conflict
with the idea that arbitration is a consensual arrangement. *124 Would the
treatment of parties and matters found in an arbitration proceeding be
different from what we might find in a judicial proceeding?
Lic. Siqueiros: If a transnational company such as McDonald's sells a
franchise to operate a restaurant in Mexico, the franchise owners and
McDonald's are not going to discuss the terms. McDonald's dictates its
standard contract to the franchisee. There should, however, always be a
balance of power in a negotiation otherwise the arbitrators (or the court)
would decide that the arbitration clause was not properly negotiated and
discussed.
Lic. Garcia-Rodriguez: Under United States law, a party must bear a heavy
burden to avoid enforcement of a forum selection clause. This is especially
true after Carnival Cruise Line, [FN18] where the Court enforced a boiler plate
forum selection clause on a passenger's ticket. It is unlikely that a court in
the United States will not uphold a forum selection clause based solely on the
fact that the clause was not freely negotiated between the parties. This is a
powerful reaffirmation that the United States Supreme Court will impose a heavy
burden to upset any kind of a forum selection clause, whether or not it is
found in an arbitration clause.
Prof. Gordon: In Mexico, is enforcement of an arbitration award more easily
accomplished than enforcement of a judicial judgment?
Lic. Siqueiros: Enforcement of an arbitral award is ten times faster and
cheaper. I am probably a little biased in favor of arbitration. Mexico does
not have a treaty for the enforcement of foreign judgments, with the exception
of Spain. Spain and Mexico have a bilateral Treaty for the Recognition and
Enforcement of Judgments and Arbitral Awards in Civil and Commercial Matters.
We are also members of the Montevideo Treaty and Montevideo Convention for the
Recognition and Execution of Civil Judgments, Money Judgments and Arbitral
Awards of 1979. [FN19] The United States is not party to this treaty or to any
other bilateral or multilateral treaty for the enforcement of foreign
judgments. On the other hand, Mexico and the United States participated and
are parties to the New York and the Pan American Conventions. [FN20] Mexico
has a very modern internal law on commercial arbitration, and NAFTA allows
Mexico to continue to apply its laws related to arbitration. [FN21]
Arbitration is the chosen mechanism for the settlement of disputes under NAFTA
and the Treaty encourages the ratification of the two conventions mentioned
above. Canada is only a party to the New York Convention. If you would like
to enforce an arbitral award in Mexico, I would be happy to do it in less than
three months. Give me a money judgment rendered by a United States court and I
may not be able to enforce that judgment in ten years.
*125 Lic. Garcia-Rodriguez: Under United States law, enforcement of an
arbitral award also is much easier than enforcing a judicial judgment. It is a
question of federal law. The Federal Arbitration Act [FN22] has codified the
New York Convention and the Pan American Convention. Although States have
adopted their own arbitration statutes, the Federal Arbitration Act preempts
any state statute that is contrary to the terms of the Act. Therefore, it is
not necessary to rely on state law to enforce an arbitral award unless the
parties have designated a state arbitration act as the law that will govern.

QUESTIONS AND COMMENTS
QUESTION, Frederick Hill, Los Angeles: As practitioners in
California, we often represent United States companies and Asian companies that
contract with Mexican companies. Based on your discussion, it seems that we
could have a case arbitrated by the AAA in the United States and receive a
judgment that would probably be enforced in Mexico. As counsel representing
clients that contract with Mexican companies in which the assets of the Mexican
company are mostly in Mexico, would you recommend an arbitration clause under
AAA rules such as the type that you discussed, or an arbitration clause with
Mexico as the site and according to Mexican arbitration rules?
ANSWER, Lic. Siqueiros: There is some technical confusion raised by your
question. If you are choosing the AAA rules, those rules prevail wherever the
arbitration takes place, either in Mexico or the United States and they will
govern the entire procedure. Your only option is to the substantive law in the
case. If you negotiated by mutual consent that the substantive law of the case
will be arbitrated under California law, then California law governs,
regardless of the place of arbitration. When drafting your arbitration clause
it is important to follow the model clause inserted in the Rules of
International Commercial Arbitration. [FN23] The AAA consists of the normal
commercial arbitration rules as well as special rules for construction and
labor contracts. In you case, follow the International Rules for Commercial
Arbitration and add, if possible, a clause for the selection of arbitrators,
the number of arbitrators, the place of arbitration, the applicable substantive
law as to the merits, and the non-applicability of such law to any subjects
that you want excluded. Also include a provision that does not allow the final
award to be appealed, so that if one of the parties refuses to arbitrate, you
can go ahead with the arbitration after giving proper notice. The arbitral
award will be enforced even if you obtain a judgment in default.
QUESTION, Jack Burton, Santa Fe: You mentioned the UNCITRAL. In the United
States there are about half a dozen or so states that have *126 adopted that
model law. Some of them feel that the UNCITRAL rules provide additional
procedures that would be helpful in the international context even though, as
you correctly state, the federal law is going to preempt them to the extent of
any conflict. I would be interested in the opinion of the panelists about this
movement to adopt the model law by the states.
ANSWER, Lic. Garcia-Rodriguez: It is a very positive development because the
UNCITRAL model law was adopted with the participation of Third World
countries. If there is a dispute between a United States company and a company
in the Third World, like Mexico, Colombia, or Chile, UNCITRAL rules provide a
good model for ad hoc arbitration.
ANSWER, Lic. Siqueiros: We should be careful with our terminology because
there are two types of UNCITRAL arbitration rules. The 1976 UNCITRAL rules
concern procedure only. The 1985 model law, which Mexico adopted and
incorporated is the model law that contains both substantive and procedural
law. Florida, Texas, California, Connecticut, and Oregon, have tried to
improve their image as good sites for arbitration by adopting the 1989 model
law. In international cases, however, the Federal Arbitration Act prevails.
ANSWER, Prof. Gordon: It may well be that in the attempt to improve
the states' image, we have created a race to want to be the site. Fortunately,
I suppose, there is an enforcement mechanism developing to provide for a
control system.
QUESTION, Mr. Burton: Perhaps I was unclear. My question went to the
adoption by the states of the model law, not the rules. Do you feel that it is
important that those of us who have not adopted the model law go out and do so?
ANSWER, Lic. Siqueiros: It will improve the image of the country's
arbitration laws, which is the case in Canada. There are ten provinces and two
territories in Canada that have adopted the model law. Likewise, Mexico, Peru,
Singapore, Australia, and New Zealand have also adopted the law.
QUESTION: We represent a lot of companies who own franchises, and a lot of
companies who distribute products in Mexico. We always include rather detailed
arbitration clauses in our contracts. Usually, opposing counsel in other
countries questions the arbitration clause. We have been puzzled, however, in
our contract negotiations with Mexico because Mexican counsel is always in full
agreement with our documents that include an arbitration clause. In fact, in
one case, opposing counsel called and told us to include an arbitration clause,
the location of the arbitration in the United States and the law that should
apply in the arbitration process. This made our job a lot easier. After
listening to the panel this morning, I think I am beginning to understand why I
had such an interaction with the Mexican opposing counsel. One of the reasons
we like arbitration is because it could be a faster and cheaper way of handling
business disputes. In the area of international business we need certainty and
rapid resolution of disputes. My question concerns amparo. Is it possible
that after a party gets an arbitration award, whether here or in
*127 Mexico, the losing party could seek an amparo, thereby avoiding
enforcement forever?
ANSWER, Lic. Siqueiros: According to the new legislation, all the winning
party has to do to enforce an arbitration award is to take it to the proper
Mexican court and demonstrate that none of the grounds for non-enforcement
under the New York Convention applied to the case. [FN24] The statute says
that the decision given by the court to enforce an award will not be
appealable. Thus, the only possibility is that the losing party may invoke
amparo. Amparo is not frivolous, nor is it an easy remedy or injunction to
obtain. You have to prove first to the district judge and then to the court of
appeals that there is a constitutional issue involved in the dispute. For
instance, that the defendant was never given proper notice of the arbitration
proceedings, that he had no due process of law, or that issues such as those
arising under Articles 14 and 16 of the Mexican Constitution violated his
rights. [FN25] If the losing party can not prove one of these claims then
amparo will not apply and the defendant will most likely be fined by the court.
QUESTION, John Leibman, Los Angeles: If the objective of the United
States party is specific relief, for example, recovery of certain assets that
had been provided to the other party pursuant to a commercial contract, would
you still recommend arbitration, or would it be simpler to go to a Mexican
court in the first instance to obtain the specific relief that I have
described?
ANSWER, Lic. Siqueiros: Assuming that we are talking about an arbitration
award and not a court judgment, arbitration is much simpler. There are very
few ways to stop an arbitration award from being enforced; one can set it
aside because the award was null and void, or the award was fraudulently
obtained, or one of the arbitrators was corrupt. These grounds are described,
of course, in the Mexican legislation and in the New York Convention. If the
arbitral award was not set aside, it is conclusive; it is res judicata. The
only chance that the opposing party has in Mexico, or elsewhere in a country
which is a signatory of the New York Convention, is to use any of the very
restricted defenses in Article 5 of the New York Convention.

FNa. Chesterfield Smith Professor of Law, University of Florida College of
Law; Of Counsel, Ogarrio y Diaz, Mexico City; Editor (with Folsom and
Spanogle), INTERNATIONAL BUSINESS TRANSACTION (1991); Editor, DOING BUSINESS
IN MEXICO (4 vols.) (1993). B.S. and J.D., University of Connecticut; M.A.,
Trinity College, Ireland; Dipl. de Droit Compare, Strasbourg, France;
Visiting Professor, London School of Economics, 1992; Maestria en Derecho,
Mexico; Graduate Resident, University of Iberoamericana, Mexico, 1978-79;
admitted to Connecticut Bar, 1963.

FNaa. Heller, Ehrman, White & McAuliffe, San Francisco, California; Fulbright
Teaching Fellow, Facultad de Derecho, Universidad de Oaxaca, Mexico, 1993;
A.B., Stanford University; J.D., University of California, Berkeley; admitted
to California bar, 1986.

FNaaa. Of Counsel, Barrera, Siqueiros y Torres Landa, S.C., Mexico City; Co-
author, CONFLICT OF LAWS: MEXICO AND THE UNITED STATES (1968); President,
Inter-American Bar Association, 1984-85; Mexican Delegate to the Private
International Law Conference. Licenciado en Derecho, Universidad Nacional
Autonoma de Mexico; LL.M., Harvard Law School; admitted to Mexican bar, 1947.

FN1. Don Clark, Behind the Great Chip Feud, SAN FRANCISCO CHRON., Feb. 26,
1992, at B1.

FN2. Adopted by the United Nations Commission on International Trade Law at the
close of the XVIIIth Session in Vienna, June 21, 1985.

FN3. United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, June 10, 1958, 21 U.S.T. 2518, 330 U.N.T.S. 38 [hereinafter
the New York Convention]. The New York Convention has been implemented in the
United States in 9 U.S.C. ss 201-208 (1988).

FN4. Commonly referred to as the "Pan American Convention," see 21 U.N.T.S. 45.

FN5. OAS/Ser.A/28(SEPF) No. 51, Montevideo, Uruguay, 1979.

FN6. United Nations Comm'n on Int'l Trade Law, Arbitration Rules, U.N. GAOR,
9th Sess., Supp. No. 17, U.N.Doc. A/31/1/7 (1976) [hereinafter UNCITRAL
Arbitration Rules].

FN7. See 5 Cod.Com. tit. 4, arts. 1415-1416 (1993) (Mex.), as amended by Act of
July 22, 1993 [hereinafter Mexican Arbitration Law].

FN8. North American Free Trade Agreement Dec. 17, 1992, U.S.-Can.-Mex.,
H.R.Doc. No. 103-159, ch. XX, arts. 2001-2022 (effective Jan. 1, 1994)
[hereinafter NAFTA].

FN9. Id. ch. XI, s B.

FN10. Id. ch. XIX, arts. 1901-1911.

FN11. Id. art. 2004.

FN12. Mexican Arbitration Law, supra note 7, art. 1425.

FN13. The New York Convention, supra note 3.

FN14. Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. s
1962 (1988).

FN15. Commerce and Trade Monopolies and Combinations in Restraint of Trade Act
(Sherman Act), 15 U.S.C. s 1 (1988).

FN16. "Mandatory laws," or lois de peliez, are rules which, while not actually
being ordre publique, are still imperative, such as exchange controls and
antitrust laws. They have to be applied by the local court.

FN17. Mitsubishi Motor Corp. v. Soler Chrysler Plymouth, 473 U.S. 614
(1985).

FN18. Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1981).

FN19. Supra note 5.

FN20. Supra notes 3, 4.

FN21. NAFTA encourages the settlement of private disputes arising out of the
Treaty by commercial arbitration, urging the three partners to ratify or accede
to the New York and Pan American Conventions. NAFTA, supra note 8, art. 2022.

FN22. United States Arbitration Act, 9 U.S.C.S. s 1-2-8 (Law.Co-op 1987 & 1993
Supp.).

FN23. AMERICAN ARBITRATION ASS'N, INT'L ARBITRATION RULES (1991) reprinted in
ANDREAS F. LOWENFELD, INTERNATIONAL LITIGATION AND ARBITRATION, SELECTED
TREATIES, STATUTES AND RULES (1993).

FN24. Articles 1461, 1462 and 1463 of the Mexican Arbitration Law, supra note
7, follow almost verbatim arts. 35 and 36 of the UNCITRAL Arbitration Rules,
supra note 6, and arts. 5 and 6 of the New York Convention, supra note 3.

FN25. These provisions guarantee to Mexican citizens due notice and due process
of law. MEX. CONST. arts. 14, 16.