The In-House Perspective on ADR in Mexico

In October 2019, JAMS and the Arbitration Center of Mexico (CAM) jointly organized an academic event at the InterContinental Presidente Mexico City. The event, titled “Arbitration and Mediation: Conflict Management Tools for Companies in Times of Change,” was conceived by both institutions to further the conversation regarding the use of alternative dispute resolution (ADR) methods by legal directors and in-house counsel in Mexico. With this goal, the organizers invited two legal directors of transnational companies in Mexico to participate: Viviana Castro from Orbia (formerly Mexichem) and Edgar Martínez from Japan Tobacco International. They both have extensive experience in the practice of ADR. I served as a moderator with Sylvia Sámano, secretary general of CAM, to explore how ADR can be leveraged to help alleviate conflict.

Fernando Navarro speaks on applications of ADR for in-house counsel in Mexico.

The role of ADR for in-house counsel

The first topic in the discussion related to the relevance of ADR for in-house counsel. Castro and Martínez referred to the role that legal departments play in P&L: “We are considered a cost,” they said, as opposed to the commercial areas, which generate revenue. Companies are naturally averse to litigation. Therefore, the goal of the legal department is to protect the business while keeping costs within budget. That means seeking to solve problems in the most efficient way possible. The speakers agreed that this paves the way for the use of ADR. As Martinez stated, in-house counsel should have a "palette of options” to solve any issue facing the company.

In addition, they made it clear that they are usually responsible for drafting jurisdiction and dispute resolution clauses in contracts, except for the most complex transactions, where external advisors are involved from the beginning. Decisions regarding how to handle conflicts are usually made by legal departments.

The different ADR and multi-step clauses

Both Castro and Martínez highlighted the importance of creating a stage that fosters the consensual resolution of disputes, whether through negotiation or mediation. They recommend using multi-step clauses to avoid contentiousness. The goal is to reduce the intensity of the controversy and find the best option at the lowest possible cost. It is important to make sure that multi-step clauses are simple and clear, and that decision-makers are active participants in the process.

Both of the speakers felt that mediation still has to overcome some obstacles before it becomes a frequently used tool by companies in Mexico, even when they recognize their potential. Better preparation and access to more mediators can help tackle those obstacles, according to the presenters.

The case for arbitration

Among other things, Castro and Martínez cited specialization and efficiency as the major advantages of arbitration and the reasons why their companies selected it as a dispute resolution method.

When deciding whether or not a dispute is suited for arbitration, there are several elements to consider, such as the company’s location, its business and its size.

They also mentioned that proposing arbitration can convey seriousness and good faith to the other party.

About the content of clauses

Castro and Martínez cautioned against “reinventing the wheel," in that using the model clauses of ADR institutions is usually the best option. This avoids the creation of extraneous clauses that can complicate the process.

The involvement of in-house counsel once the dispute arises

When asked about their roles in the execution of ADR, Castro and Martínez mentioned that in terms of mediation, they work directly with the commercial and/or directive areas. In the case of arbitration, as a general rule, they enlist outside counsel who specialize in arbitration, but they still closely monitor the arbitration. They also mentioned that the role of in-house counsel in arbitration is to explain the intricacies of the business to outside counsel, which is essential.

In that regard, they mentioned that the arbitrator selection is paramount, and they are fully involved in the selection process. Selecting arbitrators with the most experience and the best reputations can usually guarantee successful arbitrations, but there is a new generation of up-and-coming arbitrators who are good choices as well.

The time for ADR in Mexico

Castro and Martínez advanced two positive elements of arbitration in Mexico: (1) that arbitration legislation in Mexico is very solid, and (2) that the judiciary does a good job when it engages in arbitration. These elements, combined with the vast and growing experience of law firms and arbitrators in domestic and international proceedings, suggest the acceptance and adoption of arbitration in Mexico will increase.

They commented that there is a myth, which is becoming less common that sees arbitration as posing a risk of litigating twice.

Additionally, they were emphatic about the value of promoting mediation as a useful and efficient method to resolve both domestic and global matters.

The key takeaway is that opening a dialogue about ADR is a start, but an emphasis on training will help broaden the spectrum of dispute resolution methods, which will benefit all organizations.

Lic. Fernando Navarro Sánchez, LL.M. is JAMS Representative for Latin America. He also works as a JAMS neutral in both English and Spanish. He is based in Mexico City.