Arbitrability and its application in Mexico

Arbitrability refers to the capacity of a particular dispute or matter to be resolved through arbitration rather than being submitted to judicial courts. In general terms, it constitutes a criterion that defines the scope within which disputes may be referred to a private dispute resolution mechanism. Arbitrability therefore functions as an initial filter to determine whether arbitration is a legally valid means of resolving a specific dispute.

From a functional perspective, Arbitrability operates as an objective prerequisite of arbitration, since without it the arbitration agreement cannot be effective. Where a dispute is considered non-arbitrable, the arbitration agreement is legally ineffective in compelling the parties to submit to that mechanism and, should arbitral proceedings take place, their outcome would lack binding legal effect.

The purpose of Arbitrability is to ensure that only matters involving disposable rights are submitted to arbitration, namely those rights over which the parties have the legal freedom to dispose, waive, settle or submit to alternative dispute resolution mechanisms. In most legal systems, including the Mexican legal system, disposable rights are primarily identified with rights of a private or proprietary nature.

Arbitrability also seeks to preserve the coherence of the legal system by preventing disputes involving public interests or matters reserved to state jurisdiction from being transferred to private proceedings. In this regard, a matter will be non-arbitrable where the legal framework expressly prohibits arbitration, where it is linked to powers exclusively vested in the State, or where its very nature requires the intervention of judicial or administrative authorities to safeguard collective interests.

Pursuant to Article 1416 of the Mexican Commercial Code, disputes that have arisen or may arise between the parties in connection with a contractual or non-contractual legal relationship may be submitted to arbitration, provided that such relationship is commercial in nature or has a commercial character. This provision reflects the adoption of the UNCITRAL Model Law framework, which allows for a broad interpretation of matters capable of being referred to arbitration in the commercial sphere.

Arbitration in Mexico is regarded as a private dispute resolution mechanism, meaning that its availability depends on the dispute maintaining a strictly private character. To the extent that a matter involves third parties, affects collective interests or is directly related to the exercise of governmental functions, arbitration ceases to be available. Consequently, the boundaries of Arbitrability are linked to the nature of the applicable substantive right.

In practice, the general rule is that all disputes that are not expressly excluded, that do not concern matters of public policy and that do not affect the rights of third parties may be submitted to arbitration. This means that most disposable rights of an economic or proprietary nature may be arbitrated in Mexico. This approach is consistent with the development of international commercial arbitration, which favours party autonomy and the effectiveness of arbitration agreements.

1. Public policy and its role as a limitation
   In Mexico, public policy is understood as the body of institutions, principles and fundamental rules that structure and preserve the legal, economic and social functioning of the State. Its purpose is to protect values that are essential to society and to ensure that certain interests cannot be altered through private agreements or the application of foreign law.
   Public policy is not limited to rules of public law; there are also matters of private law that are regarded as matters of public policy, such as family institutions, kinship, marriage, parentage and certain rules relating to civil status. The reason is that these institutions fulfil a structural role in social organisation and therefore cannot be governed exclusively by private autonomy.
   As a limitation on Arbitrability, public policy prevents otherwise valid legal acts from producing effects where they contravene essential principles of the legal system. In the field of arbitration, this means that certain areas are excluded from arbitration, either because of their nature or because the legislature has considered it indispensable to keep them within state jurisdiction. Consequently, Arbitrability must always be analysed in the light of the public policy of the place where the arbitration agreement or arbitral award is intended to be enforced.
2. Third-party rights
   The restriction relating to “third-party rights” should be understood as the prohibition against submitting to arbitration disputes that seek to examine or directly determine rights belonging to persons who are not parties to the arbitration agreement. It does not mean that the existence of third parties unconnected with the dispute renders the matter non-arbitrable; rather, this only occurs where their substantive rights would form the subject matter of the proceedings.
3. Matters expressly deemed non-arbitrable
   Most non-arbitrable matters in Mexico fall within public law. However, there are additional express prohibitions. For example, Article 615 of the Civil Procedure Code of Mexico City provides that the following matters are not arbitrable:
   1. The right to receive maintenance;
   2. Divorce proceedings, except in matters relating to the division of assets or other financial disputes;
   3. Actions seeking the annulment of marriage;
   4. Matters relating to the civil status of individuals, except for the pecuniary rights arising from legally established parentage.

Likewise, other matters traditionally regarded as non-arbitrable include criminal law, tax law and administrative law, although in the latter area alternative dispute resolution mechanisms are increasingly being introduced in various legal frameworks.

In civil matters, certain disputes may be referred to arbitration subject to restrictions, such as matters administered by guardians on behalf of legally incapacitated persons, provided judicial authorisation has been obtained, or matters administered by executors of estates, who require the unanimous consent of the heirs 1 .

In Mexico, the content and scope of Arbitrability are determined on a case-by-case basis, as they depend on the applicable substantive law and, in some instances, on the relevant local legislation. Consequently, there is no uniform answer as to which matters may be submitted to arbitration.

This gives rise to particular tensions in international arbitrations, especially where the parties are from different countries, the seat of arbitration does not coincide with the parties’ country of origin, the award must be enforced in one or more different countries, or the assets are dispersed across multiple jurisdictions.

In such scenarios, up to six relevant legal systems may come into play:

1. The law applicable to the contract;
2. The law applicable to the arbitration agreement;
3. The law of the seat of arbitration (lex arbitri);
4. The law of the country where recognition or enforcement is sought;
5. The law of the parties’ country of origin;
6. The law of the country where the assets are located.

This raises the question of whether it is sufficient for only one of these legal systems to regard the matter as non-arbitrable in order to declare the arbitration agreement invalid or to refuse enforcement of the award.

At present, several doctrinal and judicial approaches coexist, including:

1. That Arbitrability should be determined in accordance with the law of the forum of the court hearing the issue.
2. That a combined analysis should be undertaken of both the law of the judicial forum and the law applicable to the arbitration agreement.
3. That Arbitrability should be presumed, and that only clear evidence of non-arbitrability advanced by the party opposing the arbitration or the enforcement of the award can invalidate the agreement  2

In the Mexican context, Arbitrability constitutes an element that determines the scope of arbitration as a private dispute resolution mechanism. The legal framework establishes limitations derived from public policy, the protection of third-party rights and the State’s exclusive authority over certain matters. Consequently, the availability of arbitration depends on the nature of the substantive right involved and on whether that right is disposable under the applicable legal system.

The analysis of Arbitrability is inherently case-specific and may vary depending on the legal system that is relevant to the arbitration agreement or the proceedings. In disputes involving cross-border elements, the determination of Arbitrability may involve several legal systems, including the law applicable to the contract, the law governing the arbitration agreement, the law of the arbitral seat and the law of the country where recognition or enforcement of the award is sought. This requires identifying how each of those systems regulates the matter and the criteria it applies to determine Arbitrability.

The coexistence of different approaches gives rise to situations in which it is necessary to examine carefully the interaction between the applicable legal systems, as well as the potential effects that such interaction may have on the effectiveness of both the arbitration agreement and the arbitral award.