International arbitration and investment in Mexico: from reactive conflict to strategic preparedness

However, experience shows that what really makes the difference in an arbitration is not decided when the arbitration begins, but long before that. In practice, the most effective — and best-managed — arbitrations are those that were planned, directly or indirectly, from the moment the legal relationship was established.

I. Arbitration as part of the investment strategy.

It is difficult today to think of a major project – particularly in the energy, infrastructure, telecommunications, financial or manufacturing sectors – that does not envisage arbitration as a possible means of resolving disputes.

There is a simple reason for this: commercial and investment relationships are becoming increasingly complex, involve larger sums of money and tend to extend over long periods of time. In this context, the parties seek mechanisms that allow them to resolve disputes through specialised, flexible procedures tailored to the specific characteristics of each business.

In this context, the question is no longer whether or not to resort to arbitration. The correct question is how to prepare so that, when the time comes, arbitration works in the company’s favour.

II. Arbitration does not begin with the request for arbitration.

Although the arbitration proceedings formally commence with the submission of the request for arbitration, many of the factors that ultimately have a decisive influence on the outcome of a dispute often originate much earlier, during the negotiation, performance and course of the legal relationship between the parties.

This can be seen in seemingly simple matters. For example, a poorly drafted arbitration clause can give rise to disputes over the administering body, the number of arbitrators or even the scope of the disputes that may be submitted to arbitration. What initially appeared to be a contractual detail may become the first dispute between the parties, leading to weeks of procedural debate, additional costs and delays that prevent the parties from focusing their efforts on resolving the underlying dispute.

Something similar occurs with the documentation of the contractual relationship. In long-term projects, it is common for important decisions to be taken via emails, minutes, change orders or informal exchanges between operational teams. When a dispute arises years later, these documents often become the main source of evidence to substantiate instructions, contractual amendments, breaches or even waivers of certain rights.

It is also common for initial disagreements between the parties to be dealt with exclusively from a commercial or operational perspective, without considering the implications they might have in the event of a dispute. The manner in which a claim is responded to, a reservation of rights is documented, a contractual amendment is accepted or pre-arbitration negotiations are conducted can prove decisive when, at a later stage, an arbitral tribunal reconstructs the facts and analyses the parties’ conduct.

Even in contracts that provide for a tiered dispute resolution process — such as negotiation or mediation — it is common for significant procedural disputes to arise when one of the parties initiates arbitration without having properly exhausted the preceding stages. In certain cases, these issues can consume considerable time and resources before the arbitral tribunal even gets round to analysing the substance of the dispute.

Arbitration practice shows that many proceedings are not determined solely by the legal arguments put forward once arbitration has commenced, but by decisions taken months or even years before the dispute arose. The way in which an arbitration clause is negotiated, the performance of a contract is documented, or initial disagreements between the parties are handled may ultimately have as significant an impact as the arguments subsequently presented before the arbitral tribunal.

III. Control in arbitration: it is built, not assumed.

One of the main attractions of international arbitration is the possibility of offering the parties a greater degree of control over how a dispute will be resolved. Unlike other mechanisms, the parties can agree on such key aspects as the seat of arbitration, the language of the proceedings, the administering institution or the profile of those who will sit on the arbitral tribunal.

That control, however, does not arise automatically when the dispute emerges: it is built through decisions taken well in advance and which require careful consideration.

The choice of a particular seat of arbitration, for example, can have significant implications regarding interim measures, the setting aside of awards or enforcement. Similarly, the selection of specific arbitration rules can influence the taking of evidence, the duration of the proceedings or the costs associated with them.

Therefore, discussing control in arbitration involves much more than simply choosing a forum or an institution. It requires an understanding of how all the elements of the legal relationship interact and how each of these decisions may impact a potential dispute.

When such preparation is in place, arbitration ceases to be a reaction to conflict and becomes a tool that enables the risks inherent in complex projects and long-term commercial relationships to be managed more efficiently.

IV. The role of the arbitration adviser: anticipating scenarios and building a case.

In recent years, the role of the lawyer specialising in arbitration has evolved significantly. Their involvement no longer necessarily begins when a formal dispute arises, but at much earlier stages, when there is still scope to structure decisions and build a legal position.

In many cases, the decisions that ultimately prove relevant in an arbitration dispute are taken by business, operations or finance departments whilst there is as yet no visible conflict. The way in which a contractual amendment is documented, a response to a breach is given, an extension is granted, a reservation of rights is made, or a change to the scope of a project is recorded can have significant consequences years later, when those very same facts are analysed by an arbitral tribunal.

For this reason, specialist support often extends to aspects that go beyond the arbitration proceedings themselves. Reviewing arbitration clauses before a contract is signed, selecting appropriate dispute resolution mechanisms for cross-border transactions, documenting potentially contentious events, the preservation of relevant evidence, or the devising of strategies to address emerging disagreements are examples of decisions that can significantly strengthen a company’s position in the event of a dispute.

Viewed in this light, arbitration advice is not limited to conducting proceedings once a dispute has arisen. It also helps the company to be better prepared should a dispute materialise.

V. Conclusion.

In practice, many companies turn to lawyers specialising in arbitration and dispute resolution once a dispute has already arisen. However, a company’s position in the event of a potential dispute usually begins to take shape much earlier, during the negotiation, execution and course of its contractual relationships.

Prevention, in this context, does not mean avoiding conflict or foregoing defence mechanisms. It means strengthening the company’s legal position from the outset, broadening its capacity to respond to adverse scenarios, and significantly increasing its chances of success should a dispute arise.

Ultimately, the most robust arbitration cases are rarely the sole result of a sound procedural strategy adopted once the dispute has arisen. They are often the result of sound decisions taken much earlier, when there was still scope to build a solid legal position.

ECIJA Mexico’s Dispute Resolution, Litigation and Arbitration Practice supports its clients from the negotiation and drafting of arbitration clauses right through to the management of complex disputes. If you would like to review the arbitration provisions in your contracts or ongoing projects, we would be happy to assist you.