The Arbitral Tribunal’s power to reduce usurious interests under the ICC Arbitration Rules and Mexican Law

DAVID OBEY AMENT GUEMEZ¹

SUMMARY: I. Introduction. II. Reduction of usurious interests under Mexican Law. III. Article 42 of the ICC Rules. IV. The Arbitral Tribunal’s power to reduce usurious interests. V. Conclusion

Abstract. Mexican judicial precedents have determined that judges have the constitutional duty to ex officio reduce interests to non-usurious rates, to prevent a violation to the human right to property. Accordingly, Mexican judges are compelled to deny the enforcement of arbitral awards ordering the payment of usurious interests. This article proposes that arbitral tribunals are empowered to reduce usurious interests pursuant the International Chamber of Commerce (ICC) Arbitration Rules (ICC Rules) when the award is to be enforced in Mexico, even absent an express duty to do so under Mexican law.

Keywords: Usurious interest, human rights, arbitral tribunals, arbitral awards, ICC Rules.

Resumen: Los precedentes judiciales mexicanos han determinado que los jueces tienen el deber constitucional de reducir ex officio los intereses a tasas no usurarias, para evitar una violación al derecho humano a la propiedad. En consecuencia, los jueces mexicanos están obligados a negar la ejecución de los laudos arbitrales que ordenen el pago de intereses usurarios. Este artículo tiene como propuesta que los tribunales arbitrales estén facultados para reducir los intereses usurarios, de acuerdo con el Reglamento de Arbitraje de la Cámara de Comercio Internacional (CCI) cuando el laudo deba ser ejecutado en México, aun y cuando no exista un deber expreso de hacerlo bajo la ley mexicana.

Palabras clave: Interés usurario, derechos humanos, tribunales arbitrales, laudos arbitrales, reglamento de la CCI.

I ] Introduction

Mexican judicial precedents have determined that judges have the constitutional duty to ex officio reduce interests to non-usurious rates, to prevent a violation to the human right to property. Accordingly, Mexican judges are compelled to deny the enforcement of arbitral awards ordering the payment of usurious interests.

Thus, the following question arises in the Mexican arbitral forum: should arbitral tribunals reduce interests to a non-usurious rate, even when such duty is not imposed on them by the Constitution but on the judges? If so, what would be the legal basis for this reduction? Must they do so ex officio?

This article proposes that arbitral tribunals are empowered to reduce these interests pursuant the International Chamber of Commerce (ICC) Arbitration Rules (ICC Rules) when the award is to be enforced in Mexico, even absent an express duty to do so under Mexican law. It does so by (i) first explaining the judges’ duty to reduce usurious interests as developed by the Mexican federal judicial precedents. (ii) It then explains the scope and applicability of Article 42 of the ICC Rules. (iii) Finally, it explains how Article 42 of the ICC Rules would compel an arbitral tribunal to reduce interests to a non-usurious rate when the award is to be enforced in Mexico.

1. Reduction of usurious interests under Mexican Law

Under Article 1 of the Mexican Constitution, every government authority has the duty to protect and guarantee human rights. An amparo claim is available to any person who suffers a violation of his or her human rights by a Mexican authority, including judges.²

Various judicial precedents issued by Mexican federal courts have determined that judges have an obligation to ex officio reduce interests to a non-usurious rate, regardless if they were contractually agreed by the parties.³ Primarily, this seeks to prevent a violation of human rights of man by man,⁴ pursuant to Article 21(3) of the American Convention on Human Rights.⁵

When this reduction is not made by the judge when ruling on a case – even absent a request from a party–, the damaged party is entitled to file an amparo claim against the judge’s decision, to correct this alleged violation of human rights.

Accordingly, when dealing with an arbitral award that orders the payment of usurious interests, the Mexican judge has a duty to deny its recognition and enforcement to prevent a violation of the losing party’s human rights. This finds its legal basis in Article 1462, section II, of the Mexican Commerce Code, pursuant to which judges must deny the recognition and enforcement of an arbitral award – regardless of the country where it was issued – when said recognition or enforcement is contrary to public order. This is a duty that must be complied ex officio by the judges.

Under Article 1457, section II, of the Commerce Code, a Mexican judge can even declare an arbitral award null and void when it is contrary to public order, provided a party requests its nullity.

As explained by a Mexican Collegiate Circuit Court, an agreement on usurious interests is contrary to public order provisions, namely the human right to property.⁶ Thus, an arbitral award that orders the payment of usurious interests has high probabilities of not being enforced by Mexican courts and could even be annulled by the request of one of the parties.

2. Article 42 of the ICC Rules

Among other things, the ICC Rules empower the arbitral tribunal to decide on various matters at its own discretion. This discretionary power has two bases.

Article 22(2) of the ICC Rules allows the tribunal to adopt any procedural measures it deems appropriate to ensure the correct and efficient conduction of the proceeding.

Under Article 42, the arbitral tribunal shall act in the spirit of the Rules and shall make every effort to make sure that the award is enforceable at law. This provision is unclear as to what the arbitral tribunal is able to do to ensure the enforceability of the award. The Secretariat’s Guide to ICC Arbitration limits the scope of Article 42 by stating that this provision does not impose a best-efforts obligation on the arbitral tribunal. Instead, this provision is limited to their actions in all matters not expressly provided for in the Rules.⁷ As an example of this, an arbitral tribunal does not have a duty to ensure the enforcement of the award it renders by going beyond the arbitration proceedings, such as appearing before court to defend its enforceability.

This essay proposes that this provision also empowers the arbitral tribunal to make certain merit-based decisions and not just procedural. In other words, Article 42 of the ICC Rules must not be construed so as to understand that the arbitral tribunal’s freedom to make decisions is limited to procedural matters. The fact that Article 22(2) envisages the tribunal’s discretion to make procedural adjustments supports this view. If the power to make discretionary procedural decisions is already envisioned in Article 22(2), then what would be the purpose of Article 42?

Namely, what this provision does is empower an arbitral tribunal to make decisions on the merits of the case for the sake of the enforcement of the award.

Furthermore, it cannot be argued that the purpose of Article 42 must refer to procedural matters because the ICC Rules are exclusively procedural rules. The ICC Rules are not alien to provisions regarding the merits of a dispute. For example, Article 6 sets the ICC Court’s assessment standard on the validity of the arbitration clause, to determine if an arbitration can be initiated. Also, Article 21(2) allows the arbitral tribunal to take into account the provisions of the contract and relevant trade usages between the parties to rule on the merits.

Thus, Article 42 can be construed so as to empower the arbitral tribunal to make a decision on the merits of the dispute to ensure that the arbitral award will be enforced.

3. The arbitral tribunal’s power to reduce usurious interests

As the Secretariat’s Guide to ICC Arbitration explains it, Article 42 of the ICC Rules is helpful in developing practices to deal with novel problems or new trends in arbitration.⁸ Arbitrators have a responsibility to preserve the reputation of arbitration by ensuring the enforceability of the awards they render.⁹ This is because rendering an enforceable arbitral award is considered the raison d'être of international arbitration.¹⁰

The denial to enforce arbitral awards ordering the payment of usurious interest in Mexico could be considered as one of those novel problems in arbitration that falls within the scope of Article 42.

As explained above, if an arbitral tribunal orders the payment of usurious interests, Mexican courts would probably deny the enforcement of the corresponding award for being in breach of public order. They could even declare its annulment. Therefore, rendering an award with usurious interests could result in a breach of Article 42 of the ICC Rules.

Article 42 contains an implicit duty of the arbitral tribunal to (i) take into consideration the law of the probable place of enforcement, to the extent possible and on the basis of the facts of the case,¹¹ and (ii) raise issues of public policy when they appear to be relevant to the enforceability of the award.¹² As such, pursuant to this provision, arbitral tribunals are empowered to reduce usurious interests when the award is to be enforced in Mexico.

To be clear, this power does not arise from a Constitutional duty to protect human rights. While there are cases in which private individuals or entities are considered authorities that can violate human rights, this does not include arbitral tribunals.¹³ Therefore, arbitral tribunals are not bound by Article 1 of the Mexican Constitution. That is, (i) arbitral tribunals are not bound to respect the human rights of the parties in an arbitration, and as consequence, (ii) there is no express provision under Mexican law compelling arbitral tribunals to reduce usurious interests.

Nevertheless, arbitral tribunals are bound by the arbitration agreement. This agreement is the source of their jurisdiction. Thus, the power of the arbitral tribunal originates directly from the will of the parties. The parties chose to solve their disputes through an arbitration conducted under the ICC Rules. As such, they also chose to empower the arbitral tribunal to do whatever is necessary to ensure the enforceability of the award. Therefore, it could not be argued that applying Article 42 of the ICC Rules in the way proposed in this article would be tantamount to a breach of the arbitration agreement.

This means that, contrary to a Mexican judge’s duty, the arbitral tribunal’s power to reduce usurious interests is not ex officio. Instead, it is subject to the parties making a claim requesting the reduction. Assuming otherwise would mean going against the arbitration agreement. Arbitral tribunals are prevented from doing so, as this can even be considered as grounds for denying the recognition and enforcement of their awards under Mexican law.¹⁴ Accordingly, an ICC arbitral tribunal determined the following in ICC case No. 10623:

In particular, it is clear from arbitral case law that the obligation to make every effort to render an enforceable award does not oblige an arbitral tribunal to render awards that are fundamentally unfair or otherwise improper. An arbitral tribunal should not go so far as to frustrate the arbitration agreement itself in the interests of ensuring enforceability. Such an outcome would be, to say the least, a paradox.¹⁵

This is in line with Article 42 of the ICC Rules, which limits the powers of the arbitral tribunal to matters not expressly provided for in the Rules.

Therefore, any decision by the arbitral tribunal to reduce interests it deems usurious on the basis of a claim from a party cannot considered an ex aequo et bono ruling, nor an ultra petita ruling. In fact, failing to listen and rule on a claim of reduction of usurious interests would be in breach of the arbitration agreement, thus leading to a denial of recognition and enforcement of the award.

In addition, and as explained above, Mexican judicial precedents have acknowledged that reducing usurious interests is in accordance with Mexican law. While arbitral tribunals are not compelled by a Constitutional duty to prevent human rights violations of man by man, the fact that a tribunal is preventing such violation from occurring will rarely result in an admonishment from a Mexican judge. In other words, even if for some reason the Mexican judge reviewed and attempted to make a value judgement on the merits of the dispute (which is prevented from doing)¹⁶, it still would not find that the tribunal’s decision to reduce usurious interests is contrary to Mexican law, nor would the judge be against the tribunal’s decision to respect human rights.

IV ] Conclusion

Article 42 of the ICC Rules empowers the arbitral tribunal to raise issues of public policy when they appear to be relevant to the enforceability of the award. When the award is to be enforced in Mexico, Article 42 allows an arbitral tribunal to reduce interests to a non-usurious rate, (i) provided such a claim was made by a party, and (ii) notwithstanding the fact that there is not an express provision under Mexican law that allows or compels an arbitral tribunal to do so.

Bibliography

BÜHLER Michael W. & WEBSTER Thomas H., Handbook of ICC Arbitration, 2nd edition, Sweet & Maxwell, 2009

DASSER, Felix & IGBOKWE, Emmanuel O., “Chapter III: The Award and the Courts, Efficient Drafting of the Arbitral Award: Traditional Ways Revisited – Lesson Learned from the Past?”, in Klausegger Christian & Klein, Peter, et al. (eds), Austrian Yearbook on International Arbitration, volume 2019, Manz’sche Verlags- und Universitätsbuchhandlung; Manz’sche Verlags- und Universitätsbuchhandlung 2019

FRY, Jason, et. al., The Secretariat’s Guide to ICC Arbitration, International Chamber of Commerce, 2012

SPOORENBERG, Frank, “Chapter 17, Part II: Commentary on the ICC Rules, Article 42 [General rule]”, in ARROYO, Manuel (ed), Arbitration in Switzerland: The Practitioner's Guide, 2nd edition, Kluwer Law International, 2018

Judicial and arbitral legal precedents

Convenios ante el Centro de Justicia Alternativa del Tribunal Superior de Justicia. Los intereses usurarios deben ajustarse en su ejecución. (Legislación aplicable en la Ciudad de México), Fourth Collegiate Court in Civil Matters of the First Circuit [TCC] [Collegiate Circuit Courts], thesis I.4o.C.44 C (10a.),Gaceta del Semanario Judicial de la Federación, 10th epoch, vol. IV, January 2017, pg. 2508 (Mex.)

Intereses usurarios en materia civil. Deben aplicarse las mismas reglas que operan en la mercantil, Second Collegiate Court in Civil Matters of the Sixth Circuit [TCC] [Collegiate Circuit Courts], thesis VI.2o.C. J/32 (10a.), Gaceta del Semanario Judicial de la Federación, 10th epoch, vol. II, February 2019, pg. 2395, (Mex.).

Laudo arbitral. Denegación de su ejecución. Análisis sobre la actualización de la hipótesis señalada en el inciso c) de la fracción I del artículo 1462 del Código de Comercio, Seventh Collegiate Court in Civil Matters of the First Circuit [TCC] [Collegiate Circuit Courts], thesis I.7o.C.26 C (10a.), Gaceta del Semanario Judicial de la Federación,10th epoch, vol. 2, December 2012, pg. 1435 (Mex.):

Arbitros y secretaria de acuerdos designados en el procedimiento arbitral. No son autoridades para efectos del juicio de amparo, Twelfth Collegiate Court of Appeals in Civil Matters of the First Circuit [TCC] [Collegiate Circuit Courts], thesis I.12o.C.14 K (10a.), Gaceta del Semanario Judicial de la Federación, 10th epoch, vol. III, October 2018, pg. 2211 (Mex.).

Explotación del hombre por el hombre en operaciones contractuales, First Chamber of the Supreme Court of Mexico [SCJN] [Supreme Court], thesis 1a. CXXXII/2018 (10a.), Gaceta del Semanario Judicial de la Federación, 10th epoch, vol. I, Septemeber de 2018, pg. 843 (Mex.);

ICC Case No. 10623, Award Regarding the Suspension of the Proceedings and Jurisdiction, December 7, 2001.

Pagaré. Si el juzgador advierte que la tasa de intereses pactada con base en el artículo 174, párrafo segundo, de la ley general de títulos y operaciones de crédito es notoriamente usuraria puede, de oficio, reducirla prudencialmente, First Chamber of the Supreme Court of México [SCJN] [Supreme Court], (Mex.), thesis 1a./J. 47/2014 (10a.), Gaceta del Semanario Judicial de la Federación, 10th epoch, vol. I, June 2014, pg. 402. (Mex.).

Usura (explotación del hombre por el hombre). Puede presentarse en los accesorios o gastos distintos a los intereses en un contrato de apertura de crédito simple con interés y garantía hipotecaria, y para determinar si se actualiza debe acudirse al costo anual total (CAT), Third Collegiate Court of the Twenty-Seventh Circuit [TCC] [Collegiate Circuit Courts], thesis XXVII.3o.80 C (10a.), Gaceta del Semanario Judicial de la Federación, 10th epoch, vol. IV, January 2019, pg. 2706 (Mex.).

Usura. Procede su estudio en asuntos de índole civil, cuando se advierta la existencia de esa figura, Twenty Sixth Collegiate Court [TCC] [Collegiate Circuit Courts], thesis XXVI.2 C (10a.), Gaceta del Semanario Judicial de la Federación, 10th epoch, vol. III, May 2019, pg. 2827, (Mex.)