septiembre 12, 2024

Implications of the Judicial Reform in Mexico

Today, the Senate approved the Judicial Reform proposed by President López Obrador, a change that will significantly impact Mexico’s justice system. According to news reports, the reform has been approved by the minimum number of State congresses and, thus, the reform is here to stay.

This reform introduces a major transformation, allowing for the popular election of over 1,600 judicial positions, including Supreme Court justices, circuit magistrates, and district judges (hereinafter referred to as “judges”). It’s important to note that the reform does not affect the magistrates of the Federal Administrative Justice Court (TFJA), who handle tax-administrative disputes.

Below, we briefly explain the new legal landscape and its implications in business in Mexico.

Mexico's Judicial Reform - Key Aspects

Once the reform enters into force, citizens will be able to “elect” federal judges through voting. The first election is expected in 2025, and the second in 2027. Judges will serve a nine-year term, with the possibility of re-election.

A key point is the change in requirements for judicial positions. The judicial career will no longer be necessary, raising concerns about the experience of judges. Depending on the position, the judge must hold a law degree with a minimum “Mexican GPA” of 8 or 9, five years of experience, and letters of recommendation confirming the candidate’s suitability.

Candidates for “judges” will be “preselected” by the Executive and Legislative branches. The legal community and NGOs warn that future judges may be chosen based on their relationship with the ruling political party.

Under this scenario, judicial independence is questionable, especially given the creation of a new “Judicial Disciplinary Court” that will review rulings and remove judges from their positions based on unclear criteria and non-appealable decisions.

Impact on the Business Environment

The Mexican Institute of Finance Executives (IMEF) has warned that the reform could create uncertainty in the economic and financial sectors. The popular election of judges might lead to the politicization of the judiciary, raising concerns about the independence and impartiality of rulings. This lack of independence could affect investor confidence and the business environment in Mexico.

For investors and businesspeople, this presents additional risks, as judicial decisions may be influenced by external pressures. This is particularly concerning for those with business in Mexico, as commercial disputes or legal issues with federal authorities could be decided by judges without a judicial career and with compromised independence.

The Importance of Alternative Dispute Resolution Clauses (ADR)

Without a doubt, this reform will dramatically alter federal justice and introduces legal uncertainty. Considering this, businesses must adapt to the new judicial landscape and minimize the risks of unpredictable rulings.

For private disputes, we strongly recommend including clauses that establish alternative dispute resolution mechanisms, such as arbitration or mediation, in commercial contracts. In general, businesses and investors should avoid—whenever possible—an inefficient, inexperienced, and politicized judiciary. Including these clauses or opting for ADR will be a preventive measure that protects companies from unpredictable judicial decisions.

The issue of judicial independence becomes even more delicate when federal administrative authorities (such as SAT, ANAM, IMSS, etc.) launch investigations, initate audits or impose sanctions on companies. Will businesses find an “effective remedy” before a judge who is inexperienced and preselected by the ruling party? One thing is for sure, challenging successfully decisions in courts will be even more complicated.

Conclusion

The Judicial Reform in Mexico represents a significant shift in the justice system and raises uncertainties for the business sector. The removal of 1,600 judges and the selection of new members through the politicization of the judicial branch could compromise judicial independence and, in turn, investor’s confidence.

Given this imminent judicial scenario, the use of ADR mechanisms will be a crucial tool to ensure legal security in contracts and business dealings in the country, between individuals and business-Authorities.