On 30 July 2018, a NAFTA arbitral tribunal issued a decision on jurisdiction in Lion Mexico Consolidated LP v. United Mexican States, rejecting Respondent’s ratione materiae objection. The proceedings were governed by the ICSID Additional Facility Rules.
The dispute arose out of State’s judicial conduct in the dispute of the default of payment of three mortgages and three promissory notes by two private Mexican companies (“Borrowers”) to Claimant. The mortgages and the promissory notes, subject to Mexican law, secured and formalized three loans by Claimant to the Borrowers with a principal amount of approximately US $32.8 million. Upon the expiry of the repayment deadlines and the default of payment, Claimant turned to the State’s judiciary. Before the arbitral tribunal, it alleged that Respondent’s courts and public registries authorised a fraud based upon a forged loan restructuring agreement, which resulted in the unlawful cancellation of Claimant’s mortgages and notes, both to be qualified themselves as the protected investment. Respondent disagreed pleading that there was a sole and unique transaction. Consequently, it requested the arbitral tribunal to dismiss the dispute due to a lack of ratione materiae jurisdiction.
The arbitral tribunal partially sides with Respondent. The promissory notes cannot be qualified as investments since there was no contribution of capital. In contrast, the arbitral tribunal explains that the mortgages meet both requirements set up by Article 1139(h) of NAFTA to be qualified as protected investments: they fall within the provided category of assets in the form of “intangible real estate” and have been used for economic benefit or another business purpose. Consequently, the arbitral tribunal has ratione materiae and ratione personae jurisdiction over Respondent’s measures that affect the mortgages.