May 6, 2020

Arbitration and Alternative Mechanisms as Dispute Resolution Tools During COVID-19

Holland & Knight Alert
Carlos Vejar | Josafat Paredes | Juan Pablo Moyano | Laura Yvonne Zielinski

Due to the COVID-19 pandemic, since March 18, 2020, activities from the different jurisdictional bodies in Mexico have been suspended. This suspension has been extended so far until June 1, 2020.1

Consequently, a likely short-term scenario for Mexican judges is that of delays in the administration of judicial proceedings. For instance, cases where an evidentiary proceeding was pending will need to be rescheduled without having any certainty of when they might be able to take place.

The suspension of pending judicial proceedings will also impact new litigations. Currently it is not possible to submit new claims,2 so future disputes will first have to wait until the judicial authorities reinitiate their activities, and at that time will wait further for their turn. In addition to this, the adverse effects caused by COVID-19 on the economy, such as unemployment, disruption of supply chains, lack of liquidity, and funding and cancellation of projects, undoubtedly will contribute to the proliferation of disputes in different fields.3

With this situation in mind, it is worthwhile to consider the options and possibilities that Alternative Dispute Resolution (ADR) mechanisms can offer to help parties achieve a quicker solution to potential disputes.

First, it will always be advisable for the parties to try to find a solution of the dispute between them through negotiation. For example, if due to the adverse health emergency-economic scenario, both contracting parties are expected to experience difficulties in performing their respective contractual obligations, the best solution would undoubtedly be to find a common agreement and thus avoid litigation altogether.4 Such a process can be maximized with the assistance of a third party who facilitates and/or proposes solutions to the parties so that they can solve their dispute (e.g., mediation or conciliation — particularly when the parties intend to maintain their commercial relationship despite the existence of the conflict. It is also possible to resort to an expert determination process when the dispute deals with technical issues).5 On the other hand, if the conflict cannot be solved by the parties, then arbitration can be the appropriate mechanism, since it confers powers and responsibility to a third, impartial and independent party for solving the dispute through a final and binding decision.

The advantages and benefits that these mechanisms usually offer to their users are maximized in these extraordinary times; among other features of these mechanisms, it is worth considering the following:

  • ADRs are recognized and supported in Mexican legislation, thus guarantying their legal certainty to the parties.6
  • They are highly flexible, in the sense that where it is necessary, the parties are allowed to execute all proceedings through electronic means, including even the possibility of holding virtual hearings. Due to COVID-19 restrictions, this flexibility is not just an advantage but it could be considered as the only option for conducting the proceedings in the short term.
  • Their resolution time frames are generally much shorter than those of the local courts.
  • Since the parties decide who and how third parties will contribute or participate in solving the dispute, it is possible to choose highly prepared individuals, so that the controversy will be solved by specialized professionals chosen with regard to the dispute in question.
  • Arbitration awards can be executed in practically any country in the world with greater ease than a judicial judgment.
  • If agreed by the parties, well-structured ADR proceedings guarantee confidentiality of the issues discussed in the dispute and its results.
  • ADRs are not subject to the current suspension orders issued to the judiciary due to the health emergency. This means that it is currently possible to initiate a negotiation, mediation, arbitration or other mechanism.

Arbitration and other ADRs are particularly attractive for international commercial contracts, where the involved parties tend to look for greater neutrality in the resolution of their disputes, avoiding the risk of appearing before the courts of the country of the counterpart or having to litigate in a foreign language. Even the risk of being unable to enforce judgments easily in case of findings that could be considered to violate a local rule (for example, the payment of certain interest rates) can be circumvented.7

ADRs are contractual mechanisms that can only be implemented when there is an agreement between the parties. However, if there is no previous agreement, parties have the option to agree on mediation or arbitration at any moment, even after a dispute has arisen. 

It is true that it would seem unlikely that the parties involved in a conflict will be able to reach an agreement in selecting an ADR (for instance, under the assumption that it is expected that a respondent would present opposition in order to delay the proceedings as well as not to give in the opposing party's position). Yet, there are cases where the quick and efficient resolution of the dispute constitutes a common interest of both parties; for those latter cases, ADR is an excellent option.8

Arbitration and other ADRs are tailor-made solutions that can be of great utility to solve disputes during the pandemic. Nonetheless, such mechanisms must be adjusted to the specific necessities of the parties and to the requirements and necessities of each case. To achieve this, the selection of a well-prepared and experienced legal team is crucial. An incorrectly drafted dispute resolution agreement will cause additional unnecessary problems, as will adopting arbitration or other ADRs without pondering the benefits that local courts could provide for specific contracts or transactions. Ultimately, ADRs are tools that, when used properly, can be very useful but, like any other tool, it is necessary to know how to use them.

The Holland & Knight Mexico City office has a team that is experienced and sophisticated in planning and conducting arbitration proceedings and other ADRs. For more information, feel free to contact the authors.

Notes

1 At least regarding the Mexican Supreme Court, the jurisdictional bodies from the Federal Judicial Power, the Federal Administrative Justice Tribunal and the Judicial Power of Mexico City.

2 Subject to the exceptions for cases involving emergency situations, in terms of the instructions determined by the Judicial Power.

3 See "What COVID-19 means for Latin American arbitration," Global Arbitration Review, April 29, 2020.

4 See Holland & Knight's previous alert, "Considerations for International Commercial Contracts Affected by the COVID-19 Crisis in Mexico," April 3, 2020.

5 The concept of ADR is not a limited one. There are many modalities and new methods with increasing recognition such as: facilitation, "dispute boards," "mini trial," etc.

6 Recognized in Article 17 of Mexican Constitution; additionally, Mexico is a State Party to the New York Convention.

7 For a more detailed guide about the advantages and the operation of arbitration and other ADRs, see for example publications such those of the Centro de Comercio Internacional.

8 Foster James, "Why "lit to arb" should be welcomed to avoid pandemic delays," Global Arbitration Review, April 28, 2020.

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the author of this alert for timely advice.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.


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