Under Mexican commercial regulations, contracting parties have traditionally been free to determine in their corresponding agreement the jurisdiction in which disputes must be resolved. However, a new binding precedent from the Supreme Court challenges this traditional approach with regard to banking adhesion contracts.
In a nutshell, 'adhesion contracts' are non-negotiable banking contracts which:
- are offered by financial or commercial institutions; and
- must be accepted 'as is' by customers seeking to buy banking or loan services.
On 12 April 2019 a First Chamber of the Supreme Court decision was published in the Mexican Judiciary Newspaper in order to clear up the confusion which had arisen from two conflicting judicial precedents.
The first of these conflicting precedents was delivered by the Second Collegiate Court of the Auxiliary Centre for the 11th Region of Coatzacoalcos, Veracruz. This precedent privileged consumer protection over contractual jurisdiction covenants. It established that, under the constitutional right for effective judicial protection, any litigation could be resolved in a jurisdiction of the consumer's choosing – regardless of whether a jurisdiction clause had been established in the applicable adhesion contract – provided that the bank's domicile was in the same jurisdiction and the contract had been signed there.
The second conflicting precedent was delivered by the First Collegiate Court of Civil Matters for the Fourth Circuit. This precedent aligned with the traditional legal approach, under which:
- a covenant under which contracting parties expressly waive their jurisdiction should prevail; and,
- contracting parties should therefore submit to the agreed court.
To resolve the conflict, the first chamber's resolution privileged consumer protection over contractual jurisdiction covenants. The relevant points in the excerpt are as follows:
- Contracting parties may waive or agree the jurisdiction in which a dispute must be resolved by way of an express covenant.
- To effectively waive a jurisdiction foreseen by law, parties must exercise their free will. Notably, free will is not entirely present in an adhesion contract, as many clauses are, by nature, non-negotiable.
- Therefore, parties to an adhesion contract cannot waive the agreed jurisdiction in favour of a jurisdiction which is different from the consumer's usual place of residence, as this may:
- cause the consumer to incur unnecessary representation expenses in order to have a proper defence; or
- render the consumer defencelessness.
- Financial institutions offer their services on a nationwide basis and not within a specific demarcation. Thus, consumers should not be forced – through non-negotiable adhesion contracts – to incur extraordinary costs in order to gain effective access to justice.
- Where the parties to an adhesion contract agree an express covenant submitting disputes to a jurisdiction other than the consumer's usual place of residence, these will be ineffective to the extent that the financial institution has sufficient infrastructure or representation capacity to exercise its right to a defence.
The Supreme Court's precedent is a good example of how Mexico is advancing its consumer protection regulations. The precedent is binding for all Mexican courts (except the Supreme Court).
Since this trend of increased consumer protection is expected to continue, similar precedents that eliminate or reduce abusive practices, as categorised by the courts, are likely be handed down in the near future.
Therefore, financial institutions should take special care when designing adhesion contracts in order to avoid establishing clauses that the courts may declare null.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
