New bill disregards general principles of mediation - International Law Office

International Law Office

Arbitration - Mexico

New bill disregards general principles of mediation

July 28 2011

Objective
Mediation pursuant to the bill
Comment



In May 2011 the Law for the Protection and Promotion of Fair Business Practices was introduced to the legislative body. The bill contains a chapter that disregards the general principles of mediation.

Objective

The bill aims to promote equal conditions for interaction between small suppliers or traders and mass merchandisers, as well as interaction between any kind of traders and their suppliers.

The main objectives of the bill are to prevent abuse by mass merchandisers and the disappearance of small farmers, producers and suppliers due to inequitable market conditions and unfair commercial practices.

The bill also introduces a special body known as the Council for Fair Business Practices, an arm of the Ministry of Economy, whose main objective is to protect and promote fair commercial practices between economic agents.

Mediation pursuant to the bill

The bill includes a chapter on mediation and arbitration for the resolution of disputes between traders.

According to the bill, mediation can be initiated when the council receives notification of a breach by an agent, provided that the agent has given (or gives) its consent to settle disputes via mediation.

The council will then notify the agents involved in the dispute of the date and place of an initial meeting, in which the parties may reach an immediate agreement. If no agreement is reached in the initial meeting, and should the parties agree to continue with the mediation, a mediator will be appointed.

If the counterparty of the agent that filed the claim refuses to participate in the initial meeting, the council will conclude that such counterparty has been involved in unfair business practices and will automatically initiate an investigation and may impose a penalty.

The bill contains provisions on non-compliance with a mediation agreement and refusal to participate in the initial meeting. In such cases the council may impose a penalty for engaging in prohibited conduct of up to 3% of the agent's total income for each day of default. Moreover, if the agent continues to engage in unfair business practices, the council can impose a fine of up to 8% of total income. The council may also permanently shut down the agent's business.

If the parties do not reach an agreement regarding mediation, the council will advise the parties on the relevant judicial procedures available to resolve the dispute.

The bill states that if the claim is settled through arbitration, the arbitral award shall be notified to the agents and to the council. The award shall be confidential, but the council is entitled to follow up its enforcement. If any party does not comply with the arbitral award, the council will initiate an investigation.

Comment

The bill contains many deficiencies and contradicts other regulations, and many of its provisions may be considered as unconstitutional.

Regarding mediation, the penalty imposed on parties for not participating in the initial meeting is against the main principle of mediation: the will of the parties. Mediation is, by definition, a voluntary procedure. Thus, it is inconsistent that the decision not to participate in an initial meeting is penalised. It is contradictory that a decision not to settle the dispute through alternative dispute resolution process is considered an unfair commercial practice. Moreover, it is unconstitutional to penalise an agent for wanting to settle a dispute through a judicial procedure.

Moreover, it is contrary to the nature of mediation - and indeed all alternative dispute resolution procedures - to impose a fine for not settling the dispute through such procedure. For example, if the agent does not comply with the council's requirements regarding mediation within 34 days, the fine imposed may equal 100% of the agent's income. This is irrational.

Further, if the council considers that the agent is repeatedly engaging in prohibited conduct, the council may impose a fine of 8% of the agent's total income. It is not clear whether this fine will be added to the initial fine or how to determine whether an agent has reoffended in its conduct. Will an agent be considered a repeat offender if it misses two initial meetings?

In addition, the notification of the arbitral award to the council (which is not controversial) is not possible pursuant to the rules of several arbitration institutions, such as the International Chamber of Commerce. Arbitration procedures must be conducted according to the rules of the corresponding arbitral institution.

Finally, if arbitration is an alternative to the investigative administrative procedure, it is incomprehensible that the council should initiate an investigation due to non-compliance with the arbitral award. In this case the council will again analyse the content of the dispute and may reach a different conclusion from the arbitrator; this breaches the non bis in idem principle (ie, that no legal action can be instituted twice for the same cause of action) as well as the Constitution, and undermines legal certainty.

For further information on this topic please contact Luis Alberto Aziz Checa or Rebeca Sanchez Perez at SAI Law & Economics by telephone (+5255 59 85 6618), fax (+5255 59 85 6628) or email (laa@sai.com.mx or rsp@sai.com.mx).


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