Law and regulation of force majeure in Mexico

Yes, force majeure is referred to in the Federal Civil Code, Commercial Code, Administrative Law and in other legislation at the Federal Level. For certain matters, force majeure is governed by local law or the corresponding Local Civil Code.  

Force Majeure is comprised of two different terms, namely force majeure (fuerza mayor) and Acts of God/unforeseen circumstances (caso fortuito). Except for certain legal technicalities, both terms imply the same effects and consequences, i.e., both require fulfilment of the same test and provide an exemption of liability should an event of default occur as a consequence of such event.

Statutorily speaking, there are several references to force majeure but there is no uniform definition.

However, Mexican courts have mentioned in several non-binding precedents that a force majeure event is understood to be a situation that is beyond a party’s control, prevention or foreseeability. The principal legal effect of force majeure events is the exclusion of liability if one party is unable to fulfil its obligations vis-à-vis the other party. Possible exemptions include not paying interest or damages, avoiding termination of an agreement or obtaining an extension of a deadline.

In practice, transactions involving concessions or public law contracts tend to include more rigorous force majeure clauses to avoid uncertainties caused by the lack of statutory definition.

The Federal Civil Code refers to force majeure in the following articles:

• 1045: a force majeure event does not extinguish the right of usufruct.
• 1847: a penalty cannot be applied if the liable person could not comply with an obligation due to force majeure.
• 2017: regarding the obligation to give, transfer or return something, in case of force majeure, the obligation cannot be enforced and the owner suffers the loss.
• 2111: no person shall be liable in a force majeure except when such person has contributed to it, when it has expressly assumed such liability, or when the law provides otherwise.
• 2431: if due to force majeure, a lessee is fully impeded from using the rented property, there is no obligation to pay the rent as long as the lessee is impeded. If it last more than two months, the lessee can rescind the lease agreement.
• 2483: a lease agreement can be terminated finish due to complete loss or destruction of the property caused by force majeure.

There are other mentions of force majeure, but no definition, in the Federal Civil Code and Federal Commercial Code which apply to specific scenarios.

Mexican law is based on a theory of free will of the parties. Therefore, parties are not obligated to include force majeure clauses nor does the law prescribe how they should be drafted (subject to general contracting rules detailed below).

The content of the agreements and clauses is up to the will of the parties, as long as it is not contrary to the public interest or third parties’ rights. Commercial law is practically free of these limitations, although in areas where the law assumes the existence of a “weak” party such as consumer protection and retail banking, there are fairness parameters to be considered. 

Mexican jurisprudence indicates that force majeure events include acts by humans (e.g. war or terrorist attacks), acts of nature (e.g. fire, floods or earthquakes) or acts by governmental authorities, provided such acts were not caused by the contracting party claiming force majeure.

In accordance with the jurisprudence and criteria provided by the Mexican Supreme Court of Justice (“SCJN”) a force majeure event has to meet the following characteristics:

• Render fulfilment of the obligation impossible;
• It must be outwith the party(s) control;
• It must be unpredictable; and
• Even if the event was anticipated, it must be unavoidable.

Generally, a judge will consider whether a different party in the same situation would also be prevented from complying with the obligation.

Mexican law does not difference between B2B and B2C for the purposes of force majeure, unless the force majeure clause breaches the Federal Consumer Protection Law and its related regulations or other provisions governing B2C transactions.

There is no difference. According to Mexican law, judges will in the first instance consider what was agreed between the parties either in a contract or in general T&C’s, subject to the basic principles on contracting outlined above. Including a force majeure clause will make clear that the parties contemplated these possible eventualities at the time of contracting and judges are likely to follow these intentions. Application of force majeure clauses is considered on a case-by-case basis.

In the absence of force majeure clauses, a party may rely on statutory rights to invoke a force majeure event and must satisfy the four-part test detailed above.

Although the specific facts of the case may require adjustments and more detailed or robust provisions, the following is an example we have previously used in an electricity contract:

a)    None of the Parties shall be liable to the other for noncompliance with its obligations under this Contract if such noncompliance is caused by an Act of God or Force Majeure Event, provided that such Party diligently undertook all the actions necessary to remedy the situation or, if applicable, reduce the severity of the Act of God or Force Majeure Event. The obligations of the Party shall be suspended or reduced to the extent and for the period in which they are affected by the corresponding Act of God or Force Majeure Event. 

b)    An Act of God or Force Majeure Event shall include, but not be limited to, the following events or circumstances:

1. War, armed or unarmed conflict, revolution or any other related situation;
2. Fire, explosion, storms, tornados, floods, radiation or earthquakes;
3. Any other event beyond the control of the Parties that makes it impossible for either Party to comply, either wholly or in part, with its obligations under this Contract, including any substantial modification to Applicable Law;
4. A delay attributable to noncompliance by any Government Authority;
5. Accidental damage or loss of a Power Plant, either total or partial;
6. Blockade, embargo, or other trade restriction;
7. The discovery of fossils, antiquities, vestiges or human remains whose discovery may give rise to any order from the Government Authority to suspend the activities of the Lessor in relation to the Power Plant; or
8. A general, national or local strike, whether legal or illegal, as well as any similar event, provided that it affects the construction or operation of the Power Plant or the operation of any of the Parties.

c)    The Party affected by an Act of God or Force Majeure Event shall notify the other Party in writing within a maximum period of 48 hours, whenever possible, of the details and justification of said Act of God or Force Majeure Event, as well as the duration that this event will last. If the notification is not made within the aforementioned period, Act of God or Force Majeure may only be claimed from the date on which the corresponding notification has been made.

d)    The Party that has requested the recognition of the existence of an Act of God or Force Majeure Event shall notify the other within 48 (forty-eight) hours following the date on which the Act of God or Force Majeure Event or its effects have ceased, with the purpose of resuming fulfilment of its obligations derived from this Contract.

We have not yet implemented a “corona future proof” clause. Nevertheless, prior to this pandemic we included, in some agreements, draft Act of God or Force Majeure Event clauses similar to those shown above. These clauses considered epidemics as qualifying events, with possible application during a pandemic such as COVID-19.

Under the Mexico City Civil Code, parties may be able to invoke the rebus sic stantibus (things thus standing) principle (Article 1796). Where unforeseeable extraordinary national events occur, resulting in a party’s obligations becoming more onerous than originally contemplated under the contract, the party can try to restore balance in the obligations.

In such circumstances, the affected party can request modification of the contract (provided it is still in force) within 30 days of such events occurring. If the parties cannot agree within 30 days of a modification request, the requesting party can seek ruling from a judge, who will decide on a case-by-case basis whether to intervene and modify or annul the contract.

As the pandemic hit Mexico, the SCJN published an official notice declaring that the Coronavirus, or COVID-19, was to be considered a force majeure event for the purposes of the SCJN’s activities. Whilst this is not a general ruling applicable to commercial contracts, it set an important precedent in the context of the current circumstances.

Similarly, the Federal Government and several of its functions published legally binding notices referring to COVID-19 as a force majeure event. This includes the National Hydrocarbons Commission, who announced measures in August intended to reduce the impact of the pandemic on the oil & gas industry. Similarly to the SCJN announcement, these did not automatically apply to commercial contracts. When the pandemic began, many companies attempted to invoke force majeure clauses in an attempt to renegotiate their obligations. These processes are still underway, and it will take several months before a conclusion is reached.