Issue #
April 2015

Listen to this issue

The CCN Mexico Report™ is now available in audio format. Listen to the podcast and follow us on Spotify or wherever you get your podcasts.

Recent Legal Opinion - Relative Nullity in Mexican Contract Law

April 7, 2015

Recently, the Second Circuit Court of Appeals of the Auxiliary Center of the Fifth Region approved non-bindinglegal opinion number (V Región) 2o. 7 C (10a), titled: "Relative Nullity of the Contract. A seller who learns thatthe purchaser did not have legal capacity to enter into a contract lacks standing to bring a claim if the selleraccepted the execution of such and received a benefit, in accordance with the principle of contractual good faith.”In this legal opinion, the court found that a plaintiff who intends to file a claim alleging that the person withwhom he/she entered into a contract lacked the legal capacity to do so in an attempt to obtain relative nullity ofthe respective contract, when he/she received a benefit from such contract at the respective moment, lacksstanding to bring such a claim. The foregoing is consistent with the principle of contractual good faith recognizedin Mexico’s Federal Civil Code, which provides that once a contract is perfected, the parties are bound not onlyby the obligations expressly undertaken therein, but also by those legal consequences which given their naturearise in accordance with good faith, custom or law, and whose validity and performance cannot be left to thediscretion of one of the contracting parties. Therefore, a person may not demand the relative nullity of a contractthat he/she entered into and accepted at the time of contracting, believing such to be valid, when he/she receiveda benefit for years, also applying the provision of the same Code which provides that the legal incapacity of oneof the parties may not be invoked by the other to his/her own advantage.

Challenging and Suspending Acts and Decisions by Mexican Energy Regulatory Agencies

April 7, 2015

Article 27 of the Coordinated Energy Regulatory Agencies Law (LORCME) establishes that the general rules,acts and omissions of the National Hydrocarbons Commission (CNH) and of the Energy Regulatory Commission(CRE) may be challenged only through means of an appeals process known as an indirect amparo lawsuit.However, Article 22 of such law establishes the authority of both agencies to hear appeals filed against their ownacts and decisions. This incongruity reveals an instance of oversight by the Mexican executive branch andCongress, the solution to which will eventually have to be addressed by the courts.Before the LORCME took effect in August 2014, the CRE Law allowed parties to file an administrative motionfor reconsideration against decisions of the CRE, to be resolved in accordance with Title Six of the FederalAdministrative Procedure Law (LFPA). On the other hand, the CNH Law did not establish a special procedure,such as a motion for reconsideration. Therefore, the administrative remedy available with respect to the CNH wasthe administrative appeal available under the LFPA. Both appeals had to be filed before the very authority thatoriginally issued the act or decision.In order to challenge the decisions by the CNH and the CRE regarding those appeals, individuals could file anaction for judicial review of an administrative law decision before the Federal Tax and Administrative Law Court(TFJFA), and eventually, an amparo lawsuit before the federal judiciary. As a result, litigation against the CNHand the CRE, as against other Mexican administrative authorities, could be prolonged for several years, incontravention of prompt and expeditious justice as guaranteed by the Mexican Constitution.For now, the decisions issued by the CRE reiterate that the only means of appeal with respect to such decisions isan indirect amparo lawsuit, making it clear that the motion for reconsideration established by the prior law is nolonger available.Even more troublesome is another rule established in Article 27 of the LORCME, according to which the generalrules, acts and omissions of the CNH and the CRE are not subject to suspension. Only in cases where fines areimposed will such be suspended until the pending amparo lawsuit is resolved.A suspension allows the stay of enforcement of the respective decision while the matter is being resolved onappeal. The suspension prevents the definitive imposition of a negative effect on the appellant while the appealprocess is underway. The Constitution provides that in order to suspend the acts that are appealed in an amparolawsuit, judges must analyze the proper application of law to such acts versus the public interest at stake, andbalance such considerations. The Amparo Law specifies cases where it is considered that the public interest mustprevail during the legal process. For example, the public interest must prevail when the use or exploitation ofpublic property referred to in Article 27 of the Constitution would be impeded or obstructed. However, even inthose cases, the jurisdictional authority may make an exception and grant the suspension.With respect to the LORCME, the Federal Congress eliminated the possibility for federal judges to evaluate thepublic interest at stake in the acts and decisions issued by energy regulatory agencies, which is blatantlyunconstitutional. The question is whether all cases involving the suspension of a decision by energy regulatoryagencies would pose a threat to the public interest. For example: Is there a prevailing public interest in providingthat in no event should a decision approving the fees that a hydrocarbons transport permit holder may charge forrendering services be suspended? Must a decision ordering the intervention of a company in the hydrocarbons orelectricity sectors be enforceable throughout the course of the appellate process?It is understood that the intent was to ensure the stability of energy regulation against frivolous or excessivechallenges. However, the result is that ongoing businesses can be ruined by what may be arbitrary rulings thatwill remain in effect, in a best case scenario, until a favorable judgment on the merits has been granted.The litmus test for Article 27 of the LORCME will take place for the first time when a party requests asuspension in an amparo lawsuit, the presiding judge denies such, and a motion for review is filed before thecompetent Mexican Federal Collegiate Circuit Court. Alternatively, a district judge could choose not to apply therule in question and grant the suspension under the new protective paradigm of Mexico’s constitutional system.The paradox Mexico faces is that distrust of the judicial system may affect the certainty in the rule of law forparties in the energy sector. There is no doubt that in light of the jurisdictional confusion that could occur givencurrent laws, the Executive Branch and Congress should reconsider this provision.