Tereposky & DeRose had the privilege of assisting the Secretaría de Economía represent Mexico in a multi-party and multi-treaty claim brought by six claimants under the NAFTA and Mexico’s investment treaties with Argentina, France and Portugal, seeking US$80 million plus interest and costs.  In August 2020, Mexico successfully bifurcated the arbitration into a preliminary phase to address its jurisdictional objections.  On 21 November 2022 the Tribunal issued its award on jurisdiction wherein it dismissed all of the claims.  The award has now been published on the ICSID website.

The proceeding concerned the self-consolidation (without Mexico’s consent) of multiple arbitrations into a single arbitration involving claims under four different treaties, by six different claimants of various nationalities including Mexican dual nationals, relating to five different boutique hotels and related investments in the Tulum region, concerning multiple actions that allegedly deprived the claimants of rights in the hotels.

Although Mexico’s objection to the self-consolidation of the arbitration was briefed in detail by the parties and by the United States and Canada (as intervenors in the case of self-consolidation of the NAFTA claims with the other treaty claims), the Tribunal did not find it necessary to address that objection because it dismissed the entirety of the arbitration based on Mexico’s other jurisdictional objections. These included:

Domicile: The claimant Sastre, who was a dual Mexican/Argentinian national, was found to be domiciled in Mexico at the time of the investment and the alleged measures and therefore ineligible to invoke the ISDS procedure under the Mexico-Argentina treaty because: (i) he obtained a Mexican visa which was extended three times before he became a naturalized Mexican national; (ii) as part of the naturalization process he renounced his Argentinian nationality; (iii) he was naturalized in Mexico for commercial reasons; and (iv) his actions during the time his hotel operated, including presenting himself as a Mexican national to different Mexican authorities, indicated he was domiciled in Mexico.

The Tribunal gave no weight to Sastre’s statement that he had the intent to leave Mexico for Argentina or the fact that he was domiciled in Argentina at the time the notice of arbitration was filed. It also rejected Sastre’s argument that the domicile requirement had no effect because the MFN clause in the treaty enabled Sastre to benefit from the treatment accorded in other Mexican treaties that did not have a domicile requirement. It reasoned that “the reference to the MFN clause… can only be understood to refer to substantive obligations related to the treatment granted to investors and not to procedural or jurisdictional questions, much less to issues of consent of the State [i.e., the domicile requirement]”.

Waiver & renunciation of nationality: The dual national claimants Sastre, Silva and Abreu submitted evidence of their Argentinian and Portuguese nationalities, respectively, arguing that it was prima facie evidence of their nationality for purposes of jurisdiction. The Tribunal recognized that they did not lose their nationalities in Argentina and Portugal under the laws of those countries. However, it observed that it did not have to determine whether the claimants were nationals of those countries but whether, in the light of the totality of the evidence, they could invoke their Argentinian and Portuguese nationalities for purposes of the investment treaties that Mexico entered with Argentina and Portugal.

Distinguishing the facts from findings on waiver/renunciation by other tribunals, the Tribunal found that the three claimants could not invoke these nationalities in their relationship with Mexico for the following reasons: (i) they voluntarily applied for Mexican nationality free of any external pressure; (ii) the nationality law left no doubt that the Mexican Constitution and laws did not permit dual nationality for naturalized Mexicans; (iii) foreigners were required to renounce their nationality of origin as a condition to become Mexicans and they did so validly and in writing; (iv) in doing so they acquired the rights and privileges of Mexican nationals while agreeing not to invoke their nationalities of origin in their national and international relationships with Mexico; and (v) the claimants were aware that individuals having Mexican nationality had significant advantages to invest in the lands upon which the hotels were located (i.e., ejidos and waterfront property subject to special regimes).

The Tribunal also found that the principles of good faith, estopple and pacta sunt servanda supported its interpretation.

Mexican Nationals who become foreign nationals: With respect to the claimant Galán, who was the only claimant with exclusively Mexican nationality at the time of the alleged investment and who brought her claim under the NAFTA as a Canadian national, the Tribunal found that she invoked her Mexican nationality to acquire rights in an area restricted to individuals who are Mexican nationals, to request permits from different Mexican authorities and to file judicial claims before the Mexican courts. During the relevant times, she held herself out as a Mexican national domiciled in Mexico. There was no evidence that after acquiring Canadian nationality she invoked that nationality. The Tribunal found that she made an investment in Mexico under the regime applicable to investments of Mexican nationals, and therefore she was not protected under NAFTA for purposes of such investment.

Legality of investments: The hotels at issue were located on ejido lands which themselves were located in a restricted zone (for waterfront lands). Properties in these areas were subject to a special legal regime. The Tribunal found that the claimant Jacquet did not make his alleged hotel investment in a manner consistent with this legal regime. It was therefore not made in accordance with Mexican law as required by the Mexico-France treaty and therefore Jacquet could not be considered an investor for the purpose of that treaty.

Tereposky & DeRose LLP regularly acts as counsel in investment treaty arbitrations. If you have any questions about the foregoing subject, please do not hesitate to contact us.