Due process violations or arbitral error? The Mexican Supreme Court’s perspective

Fernando Orrantia Dworak
GreenbergTraurig, Mexico City
orrantiaf@gtlaw.com

It is generally said that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the ‘New York Convention’) and the UN Commission on International Trade Law’s Model Law on International Commercial Arbitration (the ‘UNCITRAL Model Law’) do not allow for awards to be set aside due to errors of law or fact leading to an erroneous decision on the merits of the dispute. Such a statement is frequently tested by parties seeking to set aside an award due to errors of law or fact on grounds of excess of power or violation of public policy. Less frequently, claims to set aside an award related to arbitral error will be grounded in violations of arbitral due process. One of these claimsrecently reached the Mexican Supreme Court. The question before the Supreme Court was where to draw the line between violations of arbitral due process and errors in application of the law or assessment of the evidence. It was clear that the Supreme Court addressed the issue with a clear intent to draw a sharp line, but it still left some blurry edges.

The case was the Amparo Directo en Revision 7790/2019, resolved on 5 August 5 2020, by the first chamber of the Supreme Court and published in December 2022.[1] The Supreme Court’s opinion was proposed by Justice Norma Lucía Piña Hernández, and the decision was adopted unanimously by the chamber’s five members. This is one of just a few cases related to commercial arbitration resolved by the Supreme Court after the amendment to the Mexican Constitution in 2008 which elevated to constitutional level the right to resolve disputes through alternative dispute mechanisms. The 2008 constitutional amendment reinforced Mexico’s statutory regulation of commercial arbitration, contained in its Commerce Code (Código de Comercio), which follows the New York Convention and the UNCITRAL Model Law.

The alleged violations to arbitral due process

The case resolved by the Supreme Court originated from an International Centre for Dispute Resolution commercial arbitration finalised in 2013, in which three arbitrators issued an award in favour of the respondent in the arbitration. The claimant in the arbitration sought to have the award set aside by a Federal District Court in Mexico City, alleging that the arbitrators: (i) applied different standards to assess the witness and documentary evidence presented by each party in the arbitration, and (ii) failed to consider in the award certain arguments and evidence presented by claimant. The petitioner presented its allegations as violations of the requirements that the parties shall be treated with equality and afforded a full opportunity to present their respective cases, contained in Article 1434 of the Commerce Code, which corresponds to Article 18 of the Model Law, and Article 1457(I)(b) of the aforementioned Code, which provides as grounds for setting aside an award that a party was unable to present his case, provision which corresponds to Article V(1)(b) of the New York Convention and to Article 34(2)(ii) of the Model Law. The district judge agreed with the petitioner and declared the award void, resolving that (i) the application of differentiated standards for assessing each party’s evidence was inconsistent with due process principles which require arbitrators to evaluate the evidence impartially and with the same standards, and (ii) the failure to consider certain arguments and evidence in the award also breached due process principles as such omissions were equivalent to the affected party not being able to present its case.

The respondent in the arbitration filed an amparo (protection) action, which was resolved by the Fourteenth Collegiate Court in Civil Matters of the First Circuit. The Circuit Court revoked the decision of the district judge, concluding that the district judge had erred in its interpretation of arbitral due process principles, considering that such principles are referred to the exercise of the right of defence during the substantiation of the arbitration procedure, but not to the decision of the merits of the case in the award. The Circuit Court specified that arbitral due process requirements regarding equal treatment and full opportunity to present a case apply to the conduct of the arbitration procedure, but do not concern the assessment by the arbitral tribunal of the evidence or the parties’ arguments, at the time of issuing the award.

The limits of arbitral due process as defined by the Supreme Court

The claimant in the arbitration appealed from the Circuit Court’s decision to the First Chamber of the Supreme Court, which confirmed the decision. The Supreme Court first noted that the due process protections provided in the Mexican Constitution, applicable to judicial authorities, are designed to allow the parties to fully exercise their rights, during the procedural stages prior to the resolution of the dispute but are inapplicable to the act of deciding the dispute. The duty of the state courts to decide a dispute correctly and in accordance with the law, the Supreme Court indicated, is guaranteed through a diverse fundamental right, which is the right to juridical security which requires any government or judicial authority to act in accordance with applicable law. On this point, the Supreme Court explained that judicial due process principles are not directly involved when a party alleges grievances as to what has been decided in the judgment, or how the facts, evidence and arguments were examined in such judgment, as such considerations refer to the conformity of the decision on the merits with applicable law, not due process requirements.

Having set the difference between judicial due process requirements and the right to juridical security applicable to state courts, the Supreme Court raised the question of whether the control parameters emanating from constitutional due process protections, applicable to state courts, may be extended with the same characterisation or in analogous terms, to commercial arbitration. Based on its own precedents, the Supreme Court held that commercial arbitration is not governed by the principles applicable to state courts, and the content and scope of arbitral procedural requirements are to be found in the particular and separate rules applicable to arbitration. However, the separation of judicial and arbitral principles is not absolute, the Supreme Court admitted, as arbitral due process principles may be construed following the Supreme Court’s corpus of precedent regarding due process requirements applicable to state courts, when it may be necessary to ascertain the content and scope of arbitral principles, and only to the extent that said interpretation is compatible with the nature and purposes of arbitration.

In search of the content of arbitral due process, the First Chamber of the Supreme Court referred to Article V of the New York Convention and Articles 18 and 34(2)(a)(ii) of the UNCITRAL Model Law as the relevant instruments to define the contents of arbitral due process requirements provided in the Commerce Code, finding that such requirements have an intention, content and a scope which are referred to the conduct and substantiation of the arbitration procedure, serving as procedural safeguards to ensure the parties are afforded equal treatment and the full opportunity to present their respective cases and assert their rights before an award is issued, in a manner analogous to the core due process principles that the Supreme Court has laid down for state courts, which also apply during the process prior to the resolution of the dispute. The Supreme Court reached such conclusion based on three reasons: (i) the sedes materiae of the rules in question, which are located in the section of the Commerce Code and the Model Law corresponding to the substantiation of arbitration proceedings; (ii) the instrumental nature of the right to be heard and the equal treatment requirement; and (iii) the opinion of legal commentators which configure the rights to be heard and to equal treatment as a procedural guarantee applicable during the substantiation of the arbitration proceedings and their infringement as a procedural defect which may cause the award to be set aside.

Having defined the arbitral due process principles contained in the Commerce Code as safeguards to be applied during the substantiation of the arbitration proceedings, directly related to the exercise by the parties of their rights prior to the issuance of the award, the Supreme Court addressed the petitioner’s claim to set aside the award based on the grounds that it had been prevented from presenting its case and that it had not been afforded equal treatment. The Court considered that such grounds for setting aside referred to procedural violations which prevented the full exercise of a party’ rights in the implementation of the arbitration proceedings, and only to the extent that the decision in the award is directly related to an issue in which one of the parties should have been given an opportunity to present its case during the proceedings. The Court made it clear that the grounds for setting aside the award invoked by petitioner were not related to the manner in which discretion was exercised to assess the evidence and arguments in the award, and that arbitral due process principles are not affected per se by the omission attributable to the arbitrators to consider a particular evidentiary element, or the failure to consider a particular argument or not having done so exhaustively, which were the deficiencies alleged by the petitioner.

The petitioner also argued that the absence in commercial arbitration of appeal or review mechanisms justified a heightened judicial review of awards, requiring the extension of due process protections to the issuance of the award, to verify that the parties’ rights to be heard and to equal treatment were not curtailed by the arbitrators’ decision of the dispute. The Court rejected this line of argumentation.

Where the limits of arbitral due process become blurred

Notwithstanding its conclusions, the Court noted that it considers possible that an award may give rise to a violation that is directly linked to the exercise of full defence in the proceedings, offering three examples: (i) cases of extra petita, when the award introduces claims not made by party and the other party was unable to present a defence; (ii) cases in which the arbitrators refer to facts or arguments which were not presented by the parties and are clearly outside the parties’ definition of the dispute; and (iii) where evidence was considered in the award but a party was not made aware of such evidence during the proceedings. Any such defects, the Court explained, although materialised not in the arbitral proceedings but at the moment of issuing the award, may be capable of invalidating the award, because it refers to a matter in respect of which, during the proceedings, the affected the party was unable to fully assert its rights, opening the door for judicial review of the award due to non-compliance with arbitral due process requirements.

At the end of its judgment, the Court did not ignore the question of whether there is any remedy at all for an award issued with errors of law or fact. The Court reiterated that an expansive interpretation of arbitral due process protections to include the duty of the arbitrators to evaluate properly and fully evidence and arguments was inadmissible as it would disrupt the autonomy of arbitration as a system of conflict resolution. However, the Court did offer the idea that a ‘serious and exorbitant violation’ committed by the arbitral tribunal in examining the substance of the dispute may justify setting aside an award, not on due process grounds, but instead by reason of the violation of public policy that such error would entail. As the appeal presented to the Court was limited to due process grounds, the Court did not go further on this hypothesis.