Special report: Arbitration
Rise in dispute resolution work in Mexico anticipated
following cancellation of $14bn airport project
Investors concerned that incoming government may put up obstacles to existing and future
investment, but concerns may be assuaged by manner in which new government treats contractors
There could be sharp rise in dispute
resolution work for lawyers in Mexico
in the coming months after the new
government of President Andrés
Manuel López Obrador took office on
1 December. The new administration
has already caused concern among
investors with the decision, following
a public consultation, to cancel the
project to build the capital city’s new
airport, a $14 billion ‘mega project’ that
is already underway.
“The cancellation of the project for
the construction of the new airport,
one of the three largest airport
infrastructure projects in the world,
has unleashed a period of uncertainty
among companies due to the imminent
cancellation of the related public
contracts,” says Claus von Wobeser,
founding partner at Von Webeser y
Sierra. “We don’t know if there will
be disputes regarding the contracts
awarded for the airport’s construction,
but it is a very complex issue,” he adds.
“The decision to cancel the airport
project has been taken, but legally there
are various ways the contracts can be
terminated, but we don’t yet know
how that will happen,” Von Wobeser
says. “The contracts might be modified
so that works can be undertaken at
the alternative airport site of Santa
Lucía, but it is not yet clear in what
way,” he explains in reference to López
Obrador’s proposal to expand the
nearby Santa Lucía military base.
The incoming government is
expected to either pay compensation
to contractors for the cancellation of
their contracts, or offer new contracts
for works related to the alternative
airport plan. However, nothing can
be assured until formal legal action is
taken by the incoming government,
Von Wobeser says, and only then will
affected companies be able to analyse
their legal options. In addition to
infrastructure, energy is another sector
which generates many arbitration
cases (related to both commercial and
investment disputes) in Latin America.
This trend is expected to continue,
particularly as López Obrador
announced during his campaign that he
will review all the contracts awarded
to date in Mexico’s oil and gas auctions
to determine whether or not there was
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corruption involved.
“We are in agreement with that
decision, as one of his main campaign
pledges was to tackle corruption,
and that is very important,” Von
Wobeser says. “I don’t think there
was corruption in the oil and gas
rounds, the hydrocarbons commission
(CNH) did an impeccable job, but we’ll
have to wait and see. There is a lot of
speculation, and while it is likely there
will be disputes, there may also be
settlements between the parties before
they resort to arbitration.”
Claus von Wobeser
Investor concern
Von Wobeser says that there is
concern among investors about
whether the incoming government
will be an obstacle to existing and
future investment, but adds that their
concerns may possibly be assuaged
by the way the new government treats
the contractors involved in the airport
project, and whether it sufficiently
compensates those affected. “Nobody
wants a fight, everybody will want
to reach an agreement with the
government,” he says. “But we have to
see how the government acts. It could
be a very negative signal to investors. It
is a cause for concern.”
Another factor that may lead to more
arbitration in Mexico is the fact that
contracts between the private sector
and state-owned companies, such as
Pemex, and state utility CFE contain
arbitration clauses. However there
are few contracts with such clauses
in relation to the airport project, Von
Wobeser says. “The government draws
up the contracts and includes an
arbitration clause because they know
that foreign investors prefer to engage
in arbitration rather than having to
resort to the Mexican legal system,” he
adds.
In addition, arbitration is often
necessary because, particularly in large-
scale infrastructure projects, there are
often many parties involved. Mexico
is currently engaged in a natural gas
pipeline expansion programme, and
with the energy reform having ushered
in private investment into the oil and
gas and electric power sectors, a further
increase in the number of arbitration
cases is anticipated.
December 2018 • THE LATIN AMERICAN LAWYER • 27