Construction Arbitration: Mexico

1. Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?

Mexico

The Mexican legal system follows the civil law tradition. Mexico is also a federal system, where both the federal and the state governments have lawmaking power.

At the federal level, only duly enacted written statutes and decrees, as well as duly ratified international treaties, are valid and effective in Mexico. Additionally, subject to certain rules, court precedents can be binding. Federal law regulates the areas permitted by article 73 of the Constitution, which include the agrarian sector, national waters, aeronautics, commercial law, labour law, energy, oil and gas, and national security.

Federal statutes are enacted by Congress and decrees are issued by the President of the Republic. Once a congressional statute has been promulgated by the President, they are published in the Official Federal Gazette (Diario Oficial de la Federación). Statutes become effective on the date stated in the publication or three days after publication if no specific date is set.

States have the authority to enact laws regarding all matters not expressly reserved for the federal government including civil and criminal law in their territory.

There are also many areas where federal and state jurisdiction overlap, such as public health.

General principles of private law in Mexico are mostly contained in the Federal Civil Code (FCC) enacted in 1928 and the Commerce Code enacted in 1889. In the context of arbitration, Mexico adopted the UNCITRAL Model Law in 1993 with few amendments. It is contained in articles 1415 to 1480 of the Federal Commerce Code.

In certain limited circumstances, laws in Mexico can be passed with retroactive effects, as long as such effects run to the benefit of individuals. For example, a person who is serving a criminal sentence may be released if the crime of which he or she was found guilty is later abolished. However, in the sphere of private law, retroactivity is very uncommon. The terms of the parties’ relationship are governed by their contract and by the law in force at the time of the agreement, with few mandatory rules being imposed by law.

2. What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?

Mexico

The general rules on contract formation apply to construction contracts. These rules are contained in the FCC, and provide that a contract will be formed when there is (i) consent of the contracting parties (ii) regarding a lawful object (generally, the thing that the parties agree to exchange or the conduct that a party agrees to perform or abstain from doing) (FCC, article 1794).

Preparatory agreements are governed by the provisions of the “promise contract” pursuant to which the parties promise to enter into a contract with certain characteristics. These contracts can be unilateral (ie, optional for one of the parties) or bilateral (ie, binding for both).

3. Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?

Mexico

Under Mexican law, parties are generally free to choose the governing law, the law of the arbitration agreement, the seat of the arbitration, the arbitral rules, the qualifications required to act as arbitrator, and the language of the contract and the arbitration.

However, parties may not waive or contract out of (i) rules of public order or public policy, or (ii) express arbitrability restrictions. One example of these public order restrictions can be found in article 21 of the Hydrocarbons Law, which mandates that arbitration pertaining to an oil and gas exploration and extraction contract must be governed by Mexican Federal Law, carried out in Spanish, and the parties cannot grant the tribunal ex aequo et bono powers.

Parties to a commercial contract are also generally free to stipulate that foreign law will govern, and courts must recognise these choice-of-law clauses unless (i) the parties to the agreement thereby “artificially” evade fundamental principles of Mexican law, or (ii) the foreign law provisions or the results of their application are contrary to fundamental public policy principles or institutions in Mexico (FCC, article 15).

4. How might terms be implied into construction contracts? What terms might be implied?

Mexico

If a contract is silent on a specific matter, terms may be implied by application of the default rules in the Civil Code. For example, if the parties do not specify when the price is to be paid, the price must be paid upon delivery of the work (FCC, article 2625).

Moreover, some terms are implied by operation of law absent an agreement to the contrary (see FCC, article 1839), such as the liability of the contractor regarding hidden defects (vicios ocultos) (FCC, articles 2142 and 2144), or the right of the parties to offset debts (FCC, articles 2185 to 2205).

In the construction space specifically, general administrative regulations may impose mandatory terms to a construction contract. These regulations cover issues such as specific safety requirements for storage and transportation of gas, oil, and other substances. For example, in a construction contract for a gas/oil storage facility, a regulation may require cylinders containing the mix of calibration gases (MCG) to be stored vertically at the site where they will be used, in an enclosed, thermally controlled space above the MCG dew point temperature indicated on the certificate (see Resolution No. RES/776/2015, section 18.3).

Further, Mexican law gives priority to text in the interpretation of contracts when the terms are clear and unambiguous. In the presence of an ambiguity in the text, rules of interpretation that look both inside the four corners of the contract (textual context) and outside it (including the parties’ conduct in performing the contract and the customs and practices of the country) can be relied on in interpretation.

5. When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?

Mexico

In Mexico, it is customary for third-party certifiers (known as supervisors) to supervise construction contracts on behalf of the owner. These third-party supervisors have a duty to act impartially. Contractor lawsuits directly against the supervisor are uncommon because there is generally no contractual relationship between them.

6. If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?

Mexico

In public contracts, the contractor is entitled to receive an extension in the same proportion as the delay if the delay is caused by the owner (Public Works and Related Services Law, article 52). In cases where there are two concurrent events that cause delay, the affected party must prove concurrency to excuse its own breach and thereby seek a time extension.

In private contracts, on the other hand, there is no specific rule. The parties may agree on liquidated damages in the case of culpable delay (FCC, article 1840).

7. How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?

Mexico

Mexican law has no specific rules regarding “disruption” to the contractor. However, under the general principle known as the exceptio non adimpleti contractus (ie, a party accused of breach can raise the counterparty’s own breach as a defence), the contractor would likely need to show that the performance of its obligation depended upon the performance of the owner’s obligations (in other words, that the contractor’s performance is impossible without the owner’s performance). Conversely, the contractor may invoke the owner’s breach as a defence for its own breach or delay, if any.

As for the quantification of the loss, the affected party is responsible for quantifying the loss. The loss (either present or future) must be proven to be a direct and immediate consequence of the breach to be recoverable (see FCC, article 2110).

8. How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?

Mexico

Under Mexican law, a contractor in a lump-sum contract is not entitled to a price increase, (FCC, articles 2626-2627). Further, the contractor is generally liable for completing the works on schedule, but the law permits it to allege, based upon expert evidence, that it has done so in “sufficient” time (FCC, article 2629). If the contractor shows that the owner breached the contract in not granting a properly due extension, the contractor may pursue a claim for damages.

9. What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?

Mexico

Mexican law attributes the same legal effects to both force majeure (fuerza mayor) and acts of God (caso fortuito). Both involve unpredictable or, if predictable, inevitable events, in the sense that they are beyond the reasonable control of the parties.

Any force majeure event gives rise to relief, unless (i) the parties expressly agree otherwise, (ii) the affected party has contributed to or caused the force majeure event, or (iii) otherwise provided by law (FCC, article 2111).

For the affected party to claim force majeure, the event must render performance impossible. The standard of impossibility is high and requires a showing that it is no longer factually or legally possible to fulfil the contract (FCC, article 1828). It is not necessary that the event have a permanent effect to be considered force majeure. Similarly, where the circumstances in which an agreement was executed change significantly, causing a disproportionate imbalance between the parties, the affected party may seek to revisit the terms or otherwise obtain redress for the harm caused by the change pursuant to the doctrine of rebus sic stantibus.

Relief for force majeure is also available where only some obligations are affected. As noted, these rules can be excluded or modified by agreement of the parties.

10. When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?

Mexico

The general rule under Mexican contractual law is that an obligation must be performed regardless of changing circumstances. This rule applies specifically in lump-sum construction contracts (see FCC articles 2626-2629).

In practice, when a contractor is entitled to relief against a construction contract becoming unduly expensive depends on the type of contract and the facts of the case. For example, no one is obligated to perform an impossible obligation (FCC, article 1943). However, Mexican courts have held that it is not enough for the performance of the contract to simply be more expensive or difficult than expected. A showing of impossibility is required. Under the doctrine of rebus sic stantibus, a party may also seek to revisit the terms of a contract when the circumstances under which it was entered into have changed significantly.

11. When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?

Mexico

As a general matter, no one is obligated to the impossible (FCC, article 1943). Accordingly, an obligation ceases to exist if the impossibility to perform is proven, unless the impossibility is due to the fault of the contractor itself, in which case the owner may be entitled to relief (FCC, article 1997).

12. How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example, making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?

Mexico

The default rule is that in a lump-sum contract, the contractor is liable for defects related to the soil conditions, unless the location was selected by the owner and the contractor has expressly made known its observations on the problematic soil conditions (FCC, article 2634). Contractual provisions that confirm the assumption of these and other unforeseeable or uncontrollable risks by the contractor are common. For example, lump-sum contracts can also include clauses passing risks to the contractor that the local communities adjacent to a project oppose the construction (usually in areas with high social conflict), or that materials do not arrive in time. Without evidence of fraud or wilful misconduct, Mexican law will not protect the contractor if he agreed to such a provision. The parties are also free to agree to similar provisions passing the risk of errors in owner-provided documents.

13. When must the contractor warn the employer of an error in a design provided by the employer?

Mexico

Parties must comply with contracts in good faith. Accordingly, while there is no rule specifying a moment at which an error must be communicated, a contractor must warn the employer as soon as reasonably possible.

14. Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?

Mexico

Mexican law recognises a general good faith duty (FCC, article 1796).

• The level of owner intervention is determined by the terms of the contract. As noted above, a contractor may have good faith duties to inform the owner of errors in design or other events impacting the works.
• Parties may not unilaterally terminate or suspend a contract based on a good faith breach. An affected party may seek the suspension or termination of the contract, or to revisit its terms, if certain conditions are met (eg, if the performance of the contract becomes impossible, or if changes in circumstances render fulfilment too burdensome).
• Where the parties agree to liquidated damages for delay, the employer may claim such sums pursuant to the terms of the contract, which commonly require a prior favourable resolution of a dispute by a dispute board. The contract may also require the contractor to provide other collection mechanisms such as standby letters of credit. However, the owner may not collect on these guarantees where doing so would be contrary to the duty of good faith, for example, where doing so would be considered fraud or an abuse of rights.

15. How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?

Mexico

The parties are generally free to agree to contractual provisions that bar claims if they are not validly notified within a certain period.

Absent any agreement, the Commerce Code and FCC provide for different statute of limitation periods, depending on the nature of the claim and the claimed right. These statute of limitation periods can only be “interrupted” by bringing a claim before a judicial court (FCC, article 1168, Commerce Code articles 1043–1047).

16. What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?

Mexico

In bilateral contracts, a party may suspend performance where the counterparty is in breach (FCC, article 1949). The parties’ agreement can modulate the application of article 1949.

For construction contracts, delivery of the work is ordinarily scheduled in staggered construction milestones. This structure allows the parties to define specific remedies and penalties for the case of failure to attain each of the milestones.

17. May the employer exercise an express power to omit work, or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?

Mexico

Yes. If the contractor has fully paid, the owner may opt to continue the work through a third party (FCC, article 2637).

18. What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?

Mexico

Under Mexican law, a non-breaching party may terminate a contract if the other party is in material breach, with damages. The parties can agree to modulate the conditions for and effects of termination.

In practice, the materiality of a breach would ordinarily depend on the effect that the breach has in the construction schedule. Thus, a breach that causes critical delay may amount to a material breach.

The parties may agree to allow the owner to partially terminate the contract or unilaterally remove some work from the contractor’s scope. More commonly, in the event it becomes necessary, the parties will modify the critical path or scope of work in order for the employer to carry out certain parts of the work itself (either directly or through another contractor).

19. If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?

Mexico

Under Mexican law, any material breach entitles the non-breaching party to seek termination of the agreement, with damages. Some agreements may impose a “cure period,” during which the breaching party may cure the breach. In those cases, a party can only terminate if the obligations remain unfulfilled after the cure period. In some cases, breaches cannot be cured and a party may terminate the contract without granting the cure period.

In the event of termination, the employer is entitled to seek damages, including direct damages and lost profits. Direct damages are those that reduce the non-breaching party's assets due to the breach, whereas lost profits compensate for future loss of income. The parties customarily agree that the contractor will provide a standby letter of credit to guarantee performance of its obligations.

20. What limits apply to exercising termination rights?

Mexico

There is no general rule regarding limitations on termination in the event of breach. As a practical matter, most contracts tend to allow cure periods to allow the contractor to cure any breach within a certain period of time after the notification of the existence of the breach.

21. Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?

Mexico

The parts of the work that are paid for are presumed approved and accepted by the owner, except for advance payments (FFC, article 2631).

In practice, construction contracts typically provide that the contractor will provide the owner with “substantial completion” and “final completion” certificates. If the employer agrees that the works are substantially or finally completed, the certificate is accepted.

22. Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?

Mexico

Acceptance of the work may bar a subsequent complaint against the contractor unless the defect is hidden. In practice, the parties generally agree to a defect liability period (DLP) through which the contractor is liable for defective works, regardless of the owner’s approval or acceptance of the work. The DLP is usually proportional to the life of the work (eg, if a wind power plant’s life is 20 years, the DLP would be of five years).

While under the law, acceptance takes place in a lump-sum contract upon payment for any part of the work, the parties may regulate it in the contract. In practice, acceptance is constituted by the substantial completion and final completion certificates, in conjunction with taking over the work. In that case, the employer may still bring a claim during the DLP, if so provided under the contract.

23. To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?

Mexico

The general rule in Mexico is that liquidated damages serve as a contractual penalty pre-quantifying the damages in any given case, and are therefore an exclusive remedy (FCC, article 1840). Limitations to liquidated damages include the fact that they cannot exceed the value of the main obligation (FCC article 1843) and the non-breaching party must choose between specific performance or liquidated damages (Commerce Code article 88 and FCC article 1949).

 A clause is null if it purports to exclude liability for wilful misconduct. (FCC, article 2106).

24. If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?

Mexico

Mexican law does recognise a general duty of good faith, including the duty not to exercise one’s rights abusively. An employer seeking to recover liquidated damages on a delay it caused could be considered an abuse of rights.

25. When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?

Mexico

A court or arbitral tribunal will award less than the liquidated damages specified if the liquidated damages exceed the value of the transaction. A court or arbitral tribunal could also adjust the amount payable under the liquidated damages clause if the obligation was partially satisfied.

26. When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?

Mexico

A court or arbitral tribunal generally will not award more than the liquidated damages specified in a contract. This is because liquidated damages are considered an exclusive remedy, and punitive damages are generally not recognised under Mexican law (see FCC, article 1840). However, courts and tribunals may award more than the liquidated damages agreed when there is a wilful breach, and the actual damages exceed the liquidated damages (FCC article 2106).

27. How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?

Mexico

According to Mexican law, monetary compensation includes both damages and lost profits, as long as they are a direct and immediate consequence of the breach and can be proved with reasonable certainty.

If the parties do not set a cap, there is no limit to lost profits, assuming causation is proved. Lost profits do not have to be foreseeable when the parties enter into the contract (FCC, article 2110).

28. If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?

Mexico

A non-compliant party is generally liable for remedying the breach even if the remediation cost is disproportionate to the obligation (eg, in the event of failure in the generators’ blades in a wind farm, the contractor would be liable for both repairing the affected blades and for the damages suffered by the employer as a result of breaching its obligations to third parties due to the defective blades).

In practice, parties usually agree to a cap on liability. However, parties cannot waive the liability arising from wilful misconduct.

Parties are entitled to agree on a stricter regime in the contract, provided that the liquidated damages are not higher than the whole value of the contract. While some contracts sometimes provide punitive damages, Mexican law does not recognise this type of damages as a generally available remedy. Such clauses are therefore generally not enforceable under Mexican law.

29. If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?

Mexico

The general rule is that the contractor is not liable for defects after the DNP. However, if the defect is hidden and it was impossible to detect it during the DNP, the contractor may still be liable for it after the DNP, depending on the facts.

30. What is the effect of a construction contract excluding liability for “indirect or consequential loss”?

Mexico

As a matter of Mexican law, there is no indirect or consequential liability. However, a party can voluntarily assume liability for indirect or consequential losses in the contract.

31. Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?

Mexico

Parties to a construction contract are generally free to exclude or limit any liability unless there is a statutory exception (FCC, article 2117). A contract that states that an exclusion of liability applies notwithstanding wilful misconduct will be considered null (FCC, article 2106).

32. What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?

Mexico

While liens are not commonly agreed in construction contracts in Mexico, the parties may agree to grant the contractor the right to suspend the work if the owner does not pay.

33. How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?

Mexico

The parties are free to agree to any provisions regarding conditional payment, as long as the occurrence of the condition does not depend solely on the will of the debtor (FCC, article 1944).

34. May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?

Mexico

The contractor is responsible for the work of others it employs for the works (FCC, article 2642), so clauses in subcontracts in which the subcontractor agrees to hold the contractor harmless before the employer are common.

Parties to a commercial contract are also generally free to stipulate that foreign law will govern, and courts must recognise these choice-of-law clauses unless (i) the parties to the agreement thereby “artificially” evade fundamental Mexican law principles, or (ii) the foreign law provisions or the results of their application are contrary to fundamental public policy in Mexico (FCC, article 15).

35. May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?

Mexico

Because a contractor is generally responsible to the owner for the work of those it employs to conduct the works (FCC, article 2642), the employer will ordinarily have recourse against the contractor for defects or breaches caused by a subcontractor. The seat of the arbitration has no impact in this regard.

36. May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?

Mexico

Third parties may have rights under construction (or any type of) contracts (FCC, articles 1868 et seq).

Clauses providing that the ultimate owner (parent company) of the employer can bring claims against the contractor are common, considering that many owners are often special purpose vehicles (SPVs) created specifically for the relevant project and the parent of such SPV is the entity that would ultimately benefit from the work. Absent such a clause, the non-party parent of the employer may not generally bring claims under the contract.

37. How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?

Mexico

In general terms, a non-signatory may be joined as a respondent to the claim procedure under certain conditions. Many contractors are SPVs created specifically for a project. If the contract has an arbitration clause, it is common to include provisions extending the arbitration agreements to related parties.

Absent such a clause, claims against non-signatories are generally not allowed unless they can be shown to have implicitly agreed to the contract, or by invocation of alter ego or other veil-piercing theories.

38. What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?

Mexico

The general prescription period for commercial claims under Mexican law is 10 years (Commerce Code, article 1047). The rules for when the time to bring a claim begins to run differ. For example, in some instances the time will begin to run from the date the breach is known, while in other cases the time will begin to run when the obligation was due or when the contract is terminated.

For private contracts, the default statutory time limit to bring a claim for hidden defects is generally six months.

Rules for decennial liability are a matter of state law. In the civil code for Mexico City, for example, decennial liability applies to defects, flaws and incorrect performance pursuant to article 2634.

39. What laws apply that cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

Mexico

Certain general administrative provisions for specific industries (such as the energy and hydrocarbons industries) cannot be contracted out of. These mandatory provisions usually refer to security and technical provisions (eg, the design, installation and operation of registration equipment using orifice plate must comply with the official norms of the industry). Similarly, liability for wilful misconduct cannot be waived or contracted out of (FCC, article 2106).

An example of a FIDIC Silver Book 1999 provision that would not operate (as it would be a choice of law clause providing for the application of a law other than Mexican law) is a contract for the construction of a hydrocarbon extraction platform to laws distinct from Mexican laws or having the arbitration in a language other than Spanish.

40. What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

Mexico

The application of Mexican public order laws cannot be excluded.

Public order laws are scattered throughout the Mexican legal system and there is no consolidated and exhaustive catalogue. However, is it likely that provisions of this nature would appear in constitutionally regulated matters (eg, hydrocarbons, mines, restricted zones for the acquisition of land by foreigners, in rem rights, etc).

41. For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?

Mexico

Interim relief is generally available from both arbitral tribunals and from courts in aid of arbitration under Mexican law (Commerce Code, articles 1433, 1425, 1479). The nature and scope of these measures is subject, in each case, to the tribunal’s and court’s discretion (Commerce Code, articles 1433, 1478).

42. Does your jurisdiction have courts or judges specialising in construction and arbitration?

Mexico

No, there are no specialist courts or judges for construction or arbitration disputes in Mexico.

43. What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?

Mexico

Construction disputes are typically heard in local civil or commercial courts. Whether their decisions are published depends on which court the case is brought in.

Arbitral awards are enforceable in local and federal courts in Mexico (Commerce Code article 1461). The Commerce Code establishes a procedure for enforcing arbitral awards in Mexican courts.

Supreme Court decisions are binding on lower courts when they are backed by the vote of eight of the 11 justices acting en banc or four of the five justices acting in chambers of the Supreme Court. Circuit Court decisions confirmed five times bind lower courts. Circuit splits decided by the Supreme Court or Judicial Circuits en banc (Plenos Regionales) are binding for lower courts.

44. In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?

Mexico

Article 17 of the Mexican Constitution establishes the principle that judges must issue their rulings in an impartial manner. In civil cases, the general rule is that the parties (not the judge) are responsible for gathering evidence and presenting it to the court. However, the judge may request the production of evidence ex officio if he or she has views on the issues that have not been put to them by the parties, subject to certain limitations.

45. If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?

Mexico

If a contractor initiates an arbitration pursuant to an arbitration agreement, the employer will generally not be able to bring a parallel proceeding in a domestic court, unless he can show that the arbitration agreement is null and void, inoperative, or incapable of being performed (Commerce Code, article 1424). This rule applies regardless of whether the dispute has yet to pass through preconditions to arbitration.

46. If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?

Mexico

A contractor may request interim measures from either the arbitral tribunal or from a Mexican court. Mexican courts have jurisdiction to issue interim measures both before the tribunal has been constituted and during the arbitration (Commerce Code, article 1425). If a party seeks interim relief from a foreign court, a contractor will not lose its right to arbitrate; however, this may prompt the other party to seek an order to compel arbitration from a Mexican court.

47. In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?

Mexico

Party-appointed experts are used. The tribunal also has the power to appoint experts to clarify or help explain contradictory reports from party-appointed experts (Commerce Code, article 1442). There is no specific rule regarding who party-appointed experts owe their duties to, but experts may apply internationally accepted ethics rules or industry-specific ethics guidelines such as the ethics code of the Mexican association of civil engineers.

48. Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer).

Mexico

In Mexico, when a contract is entered into between a private party and the state (also known as a public contract), the Public Works and Related Services Law establishes the standards and minimum elements that these contracts must meet.

The particulars of public procurement rules in Mexico vary by state. However, article 134 of the Mexican Constitution establishes public open bidding as the prevailing type of procurement procedure in Mexico. Other public procurement methods can be used in exceptional cases (such as for public health reasons).

In public contracts, the public entity’s right to terminate the contract is excluded from the matters that can be submitted to arbitration (Public Works and Related Services Law, article 98). For example, in Commisa v Pemex, a Mexican court vacated an arbitration award that had found against Mexican state-owned entity Pemex on the basis that Pemex had breached the contract with Commisa when terminating it by “administrative recission”, which the court found was not arbitrable.

49. If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?

Mexico

There are no specific rules regarding sealed offers under Mexican law. Recently, due to the new ICC Rules, sealed offers are becoming increasingly common. It is reasonable to expect that the rules governing these offers in ICC arbitration will become common practice in contracts governed by Mexican law.

50. Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?

Mexico

There is no specific attorney-client privilege under Mexican law. There is, therefore, no “without prejudice” privilege. Parties are free to agree to non-disclosure and confidentiality agreements to govern settlement discussions.

51. Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?

Mexico

There is no specific attorney-client privilege under Mexican law. However, laws and rules regulating legal professionals generally require them to maintain the confidences of their clients. These general professional secrecy obligations apply to both in-house counsel and private practitioners.

52. What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?

Mexico

Mexican law lays down different requirements depending on the type of guarantee. Joint liability cannot be implied, as it may only be established by law or express agreement of the parties (FCC, article 1988). While the law does not require express consent to be given in writing, in practice, joint liability is usually granted in writing in order to avoid disputes relating to enforceability issues.

53. Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?

Mexico

Under Mexican law, the liability of a guarantor, either acting as joint obligor or as guarantor, will be limited to the principal’s liability in the underlying contract.

The most common form of guarantors are joint obligors (which are liable for the whole amount for which the principal is liable), and standby letters of credit.

The type of guarantee to be provided by the principal will depend on its financial position. For example, if the principal is an SPV with limited assets, it is likely that its parent company will execute the contract as joint obligor, whereas a party with sufficient financial wherewithal would ordinarily provide a standby letter of credit.

54. Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?

Mexico

A guarantor will be fully liable if it executed the agreement as joint obligor. If a bond is issued, the parties are free to modulate the order in which the bond is to be executed (beneficio de orden y excusión), meaning that the issuer of the bond cannot be compelled to pay as long as the debtor has sufficient assets to cover the debt.

The wording of the guarantee will affect the position.

55. If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.

Mexico

If the on-demand bond does not fall within the arbitration clause of the contract, then the call may be challenged in Mexican courts under various theories, including as a breach of contract, an abuse of rights, a tort or “illicit act” (FCC, article 1910), or as unjust enrichment (FCC, article 1882).

56. If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts that the employer is entitled to (such as sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?

Mexico

In Mexican courts, the call could be restrained if the contractor shows that the employer does not have an entitlement in principle.

57. Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?

Mexico

No.