Lion Mexico Consolidated L.P. v. United Mexican States
ICSID · Investment (ICSID and treaty) · Mexico · 20 Sep 2021
Why it matters
This award clarifies that mortgages can constitute protected investments under NAFTA Article 1139(g) as 'intangible real estate,' even if the underlying loans do not qualify. It also reaffirms the high threshold for denial of justice claims and the importance of exhausting local remedies in investment treaty arbitration.
Summary
Lion Mexico Consolidated L.P., a Canadian partnership, made three loans totaling about US$32.8 million to Mexican companies owned by Sr. Cárdenas, secured by mortgages on properties in Nayarit and Guadalajara. After the borrower defaulted, Lion initiated foreclosure proceedings. However, the borrower's lawyer forged a document to cancel the mortgages, and a Mexican court cancelled them without proper notice to Lion. Lion challenged this through amparo proceedings but was unsuccessful. Lion then brought a NAFTA claim against Mexico, alleging denial of justice and expropriation. The Tribunal first issued a Decision on Jurisdiction (July 30, 2018) holding that the mortgages qualified as investments under NAFTA Article 1139(g) as 'intangible real estate,' but the notes did not. On the merits, the Tribunal found that Lion had not exhausted local remedies, as required for denial of justice claims. Even if it had, the Tribunal held that the Mexican courts' actions did not amount to a denial of justice because the standard is very high, requiring a 'clear and malicious misapplication of the law' or 'egregious' conduct. The Tribunal also rejected the expropriation claim because the mortgages were cancelled by a court order, not by a direct state measure. The award was issued on September 20, 2021, dismissing all claims and ordering each party to bear its own costs.
The detail
Parties: Lion Mexico Consolidated L.P. v. United Mexican States
Case number: ICSID Case No. ARB(AF)/15/2
Outcome: The Tribunal dismissed all claims. It found no denial of justice because Lion failed to exhaust local remedies, and the Mexican courts' actions did not meet the high threshold for a denial of justice under NAFTA.
Applicable law: NAFTA (Articles 1105, 1110, 1139); ICSID Additional Facility Rules; Mexican law (Civil Codes of Jalisco and Nayarit)
Issues in play: The case involved the definition of 'investment' under NAFTA Article 1139, specifically whether mortgages qualify as investments. Also at issue was the standard for denial of justice under NAFTA Article 1105 and the requirement to exhaust local remedies.
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