Lion Mexico Consolidated L.P. v. United Mexican States

Case summary

At a glance

Parties: Lion Mexico Consolidated L.P. (a Quebec, Canada partnership with its main place of business in Dallas, Texas) v. United Mexican States
Case no.: ICSID Case No. ARB(AF)/15/2; US District Court for the District of Columbia Case No. 1:21-cv-03185 (ACR)
Forum and rules: ICSID Additional Facility Rules; seat Washington, D.C.
Treaty: NAFTA Chapter 11 (Arts. 1105, 1110, 1139)
Tribunal: Juan Fernández-Armesto (President), David J.A. Cairns, Laurence Boisson de Chazournes (who replaced Ricardo Ramírez Hernández in February 2018)
Court: US District Court for the District of Columbia, Judge Ana C. Reyes
Sector: Real estate finance; mortgages
Outcome: Mexico was held liable under NAFTA Article 1105 for a denial of justice by its courts, which had cancelled Lion's mortgages. The Award was unanimous. The US District Court refused to vacate it, confirmed it, and denied Héctor Cárdenas leave to intervene (8 November 2024).
Amount: Claimed: over USD 223 million. Awarded: USD 47,000,000 in compensation, USD 583,598.91 in costs and USD 1,725,000 in attorney's fees, all with interest.

The dispute

In 2007 Lion made three short-term loans, totalling about USD 32.8 million, to companies controlled by the Mexican businessman Héctor Cárdenas Curiel to fund real estate projects in Nayarit and Guadalajara (Jalisco). The loans were secured by mortgages and by non-negotiable promissory notes (pagarés). After the borrowers defaulted, they obtained a default judgment from a commercial court in Jalisco on 27 June 2012. The judgment cancelled the mortgages on the basis of a forged settlement agreement. Lion was never properly served, a sham amparo was filed and abandoned in its name, and the Mexican courts later refused to admit Lion's evidence of the forgery. Lion claimed expropriation (Article 1110) and breach of the minimum standard of treatment, including denial of justice (Article 1105). Mexico argued that Lion had no investment because the loans had maturities under three years, that Article 1105 protects only investments and not investors, and it also raised exhaustion of local remedies and the NAFTA waiver requirement.

Key holdings

Mexico's expedited objection that the claims were manifestly without legal merit was dismissed. Whether pagarés and mortgages securing loans of under three years can be investments under Article 1139(g) and (h) was a novel and complex question unsuited to the summary procedure. Costs were reserved. Decision on Art. 45(6) Objection ¶¶ 80–86
The Tribunal bifurcated only the objection that there was no investment under Articles 1101 and 1139, because it could dispose of all claims. It joined to the merits the objection that NAFTA Chapter 14 (financial services) governed the dispute. It rejected Mexico's request to move the seat from Washington to Toronto as untimely. Decision on Bifurcation ¶¶ 9–11, 18
The loans fail the three-year maturity test of Article 1139(d). The non-negotiable promissory notes are not debt securities under Article 1139(c), and they are not 'interests' under Article 1139(h) either, because they are títulos de crédito, not contracts. The Tribunal therefore has no jurisdiction over measures affecting the notes. Decision on Jurisdiction ¶¶ 190–207, 266(2)
The mortgages are derechos reales and therefore bienes inmuebles intangibles under the Civil Codes of Jalisco and Nayarit. They qualify as 'intangible real estate' acquired for economic benefit under Article 1139(g). The mortgages are protected investments separate from the loans, and protecting them does not extend protection to the loans. Decision on Jurisdiction ¶¶ 229–259, 266(1)
Article 1105 protects Lion as an investor. Relying on the Free Trade Commission's Note of Interpretation, which equates the standard with the customary minimum standard of treatment of 'aliens', the Tribunal rejected Mexico's literal reading that only investments are protected. Award ¶¶ 356–358 (as described by the District Court)
The Mexican courts denied Lion justice in three ways: they failed to ensure proper service and wrongly declared it in default; they denied it the right to appeal; and they denied it the right to submit evidence of the forgery. Mexico was ordered to pay USD 47,000,000 plus costs and fees, with interest. Award ¶¶ 371, 924 (as described by the District Court)
The District Court denied Mexico's petition to vacate. The Tribunal had interpreted Article 1105(1), so it neither exceeded its powers under 9 U.S.C. § 10(a)(4) nor manifestly disregarded the law, and the Award was confirmed. Cárdenas's motion to intervene was untimely and futile and was denied. District Court Memorandum Opinion, pp. 2, 20–21, 29