Originally from: Fifteen Years of NAFTA Chapter 11 Arbitration 

Preview Page

This year marks the fifteenth anniversary of NAFTA’s entry into force,1 but it also marks the tenth anniversary of the first award on the merits by a Chapter 11 tribunal. The award was Azinian v. Mexico, dispatched to the parties on November 1, 1999.2 Central to that case was the relationship between Chapter 11 arbitration and local remedies.

The basic claim in Azinian concerned the expropriation of contractual rights.3 The city of Naucalpan de Juarez had repudiated a concession contract for waste collection services, citing irregularities in the conclusion of the contract and in its performance. The concessionaire DESONA challenged this decision before the State Administrative Tribunal and lost. Its appeal and amparo were also unsuccessful.4 The validity of the concession contract under Mexican law was obviously key to the investors' expropriation claim-if the contract was not valid, there was nothing to expropriate. The tribunal reasoned that the Mexican courts' decisions holding the contract invalid were entitled to preclusive effect unless those decisions themselves could be shown to be denials of justice. "A governmental authority surely cannot be faulted for acting in a manner validated by its courts unless the courts themselves are disavowed at the international level."5 Investors who choose to pursue local remedies would have to live with their results. 

Of course, to say that the investors in Azinian chose to pursue local remedies presumes that they had a choice. Logically, prior to the effect to be given to the decisions of domestic courts are two other questions. First, may an investor take advantage of local remedies and still preserve its NAFTA claim? Second, must an investor exhaust local remedies before bringing its NAFTA claim? We will examine these issues first, before returning to Azinian and the question of res judicata.