In a recent international investment dispute, B-Mex, LLC v. Mexico, a majority tribunal upheld jurisdiction over many claims made by US investors against the Mexican government and awarded the investors some of their interim legal costs. The partial award lays a foundation for understanding consent and waiver for international arbitration under the North American Free Trade Agreement (NAFTA).
Background
The claimants, American investors in Mexican gaming companies, allege that Mexico's government illegally closed the local companies' gaming facilities and otherwise interfered with their operations in a discriminatory manner. The claimants argue that Mexico breached NAFTA Articles 1102 (National Treatment), 1103 (Most-Favored Nation Treatment), 1105 (Minimum Standard of Treatment) and 1110 (Expropriation and Compensation). The claimants also allege that the Mexican government "may have unlawfully intervened" in judicial proceedings "by threatening certain judges."
The Tribunal's Decision
The three-person panel included Prof. Gary Born (United States, appointed by the claimants), Prof. Raúl Vinuesa (Argentina, appointed by Mexico) and Dr. Gaëtan Verhoosel (Belgium, appointed by the secretary-general of the International Centre for the Settlement of Investment Disputes after the two parties failed to agree on a presiding arbitrator). Because the parties agreed to adjudicate jurisdiction before the merits stage, the tribunal decided, among other issues, two key preliminary questions in the partial award:
1. The scope of NAFTA Article 1121's consent provisions: Mexico argued that the claimants' acceptance in the request of Mexico's arbitration offer and their grants of powers of attorney to their counsel did not satisfy the requirement because they did not expressly state consent under the relevant article and they were not separate writings.
2. The meaning of NAFTA Article 1119's requirement that a "disputing investor... deliver to the disputing Party written notice of its intention to submit a claim to arbitration at least 90 days before the claim is submitted...": Mexico's position was that failure to deliver notice and wait at least 90 days voided some claimants' claims.
The Tribunal's Conclusions
The tribunal largely sided with the US claimants. Most of the questions were resolved in favor of the claimants 2-1, with Prof. Vinuesa partially dissenting.
The tribunal disagreed with Mexico's contention that consent to arbitration requires a formal recitation of consent language. The tribunal found that nothing in NAFTA "precludes investors from acting through duly authorized legal counsel," as the claimants did here. The panel also rejected Mexico's argument that a "verbatim recitation" of the NAFTA language was necessary. Additionally, the tribunal agreed with the claimants that a separate writing affirming consent to arbitration was not necessary, as Mexico had argued. The panel additionally agreed with previous decisions that found that even if a separate writing had been required, failure to do so would not have affected the panel's jurisdiction because it would have been a curable admissibility issue.
Regarding the 90-day notice requirement, Mexico had argued that failure of some additional claimants to give such notice rendered the claims inadmissible or otherwise warranted dismissal. After analyzing the relevant NAFTA language and finding that the panel had jurisdiction, the panel found that the claims were admissible because Mexico was sufficiently on notice regarding the extent of the dispute.
Additionally, the panel awarded the claimants $1.4 million in interim legal costs. This is unusual because investor-state panels usually defer cost awards until after they issue final awards. However, the claimants won only a portion of their costs. The tribunal noted that the claimants' costs were almost 600 percent higher than Mexico's, despite the fact that the two teams "displayed the same level of professional competence, effectiveness, integrity and courtesy." The tribunal instead awarded costs after looking at the claimants' reasonable legal fees (calculated as twice Mexico's legal costs) and deducting 50 percent on the basis that Mexico was successful on some claims and raised "not frivolous" objections.
Takeaways
The partial tribunal award expands investors' opportunities to consent to arbitration. Because consent is the basis for a tribunal's jurisdiction, B-Mex showed that jurisdictional issues may be decided on non-technical grounds and rely on intent rather than more formal procedures or "magic words." Additionally, the decision may change arbitration parties' approaches on legal costs awards. Post B-Mex, parties may be more focused on winning interim legal costs awards at preliminary stages even though the decision awarded only a small portion of the claimants' stated legal costs.
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