Some companies with cross-border businesses still assume that by choosing foreign laws to govern agreements that have effects in Mexico, they will obtain greater legal certainty.
This is because they assume that a Mexican judge will apply the agreement literally when the validity or scope of any of its clauses is challenged.
However, that assumption in practice can cause headaches for parties to an agreement. Mexican courts may reinterpret, limit, or even annul contract clauses when they deem that such clauses contravene public order, legality, or contractual freedom. This approach has been endorsed by the Supreme Court of Justice of Mexico.
A judicial decision published recently reinforces this same idea from another perspective.
A collegiate court denied evidentiary weight to a private agreement entered into abroad that a company presented in response to a request from the Mexican tax authority. [1]
The reason: the document lacked a definite date and therefore did not meet the formal requirements imposed by applicable Mexican civil law.
Both the Supreme Court’s decision and that of the collegiate court share a common characteristic: the choice of foreign law does not, by itself, guarantee that a Mexican judge or authority will recognize the validity or evidentiary force of an agreement or of any of its clauses if it does not comply with the law of the country where it is intended to have effect.
Therefore, the risk for the parties to an agreement lies not in negotiating and drafting agreements that appear robust under foreign laws, but in failing to anticipate the scenarios or circumstances in which a Mexican judge or authority might question their validity, enforceability, or evidentiary value.
The important thing for companies involved in cross-border agreements with effects in Mexico will be to draft agreements that, even if governed in whole or in part by foreign laws (which Mexican law does allow), can withstand a genuine challenge to their validity or enforcement in the country.
[1] Decision with digital number: 2031684
