Assisting Clients to Do Business in Mexico: Working with Local Counsel in Mexico
Remarks of David D. Spencer Before the International Practice Section of the Oregon State Bar, February 19, 2004. (Reviewed to confirm continued relevance, February 2011)
I want to thank the International Law Section for inviting me to speak to you today. I especially want to thank Turid Owren for all her courtesy with respect to this program and that she has shown me over the years.
What I hope to do is speak for 20 or 25 minutes and leave time for questions or discussion as may come up.
It would be presumptuous of me to think that an audience like this one would need to know basic facts about Mexico, its history and political culture. However, whenever I begin a discussion like this (and frankly, every time I work on a matter concerning Mexico) it is helpful to remind myself of certain facts.
First, Mexico now is our second largest trading partner, second only to Canada. Bilateral trade between the U.S. and Mexico has increased exponentially in the last 20 years.
Second, however one wishes to define culture, Mexico’s culture has flourished far longer than ours. There was a university operating in Mexico City nearly 100 years before the founding of the Jamestown colony and more than 100 years before the Pilgrims set foot on Plymouth rock.
Third, regardless of “rights” and “wrongs” on today’s issues between the U.S. and Mexico, it is an inescapable fact that Mexico lost half its national territory to the United States in the 1830s and 40s, and this fact is part of the consciousness of all Mexicans.
My fourth fact is that if one can generalize, and I believe in this instance one can, one element of the Mexican character is extraordinary personal friendliness toward North Americans. After 25 years of close association with Mexico I am convinced this friendliness is not based on a desire for personal advantage or some other ulterior motive.
It is innate and genuine, and something you must work to lose through your own folly rather than work to win.
Fifth, as a country whose European beginnings date back five centuries, Mexico has highly valued legal traditions and extensive legislation and administrative procedures. But these matters are rooted in the civil law, not the common law, and so may be as different to the U.S. lawyer as Spanish is from English.
My sixth fact concerns the modern dynamism of Mexico. We are living in an extraordinary period of change in Mexico’s economy and political culture, with concomitant and resulting changes in the legal culture. In my own mind I date the beginning of the process to the second half of the presidency of Miguel de la Madrid in the mid-1980s. (Better minds than mine will fix a more precise date.) At that time foreign companies and natural persons could only own up to 49% of a Mexican corporation, foreign ownership of real property was almost completely prohibited, and the average tariff on products imported into Mexico was nearly 100%. Keep in mind that these restrictions had been in place for decades. Today these restrictions are almost entirely gone, and a whole new generation of Mexicans is being raised on the policies of economic and political apertura or opening, as opposed to the inward-looking and protective measures of the past. And lest you attribute too much of this change to NAFTA, remember that Mexico implemented these changes on its own through domestic legislation prior to NAFTA, and today Mexico is a party not just to NAFTA but also to free trade agreements with more than 30 other countries, including the European Community.
So what has any of this got to do with working with Mexico counsel? Keeping these facts in mind leads inevitably to the first of my two themes today, which is that Mexican co-counsel on a client project must be treated fairly, justly and with an understanding that she or he is a well-educated professional in a tradition that has developed over centuries. Wherever possible, she or he should be an equal partner on the client team.
Having expressed this theme I should mention the second: An important part of adding value to the client’s project in Mexico, whatever it may be, is to schedule, manage and interpret the work of Mexico counsel so that the client’s goals are met.
The remainder of my talk today is devoted to each of these topics: scheduling, managing and interpreting. I should mention that in developing these comments I solicited the views of colleagues from the U.S.-Mexico Law Institute, both U.S. and Mexican lawyers, to act as a crosscheck against my own observations.
Scheduling the Work of Mexico Counsel
With regard to scheduling, let’s start with the process of retaining counsel. Even if the specific task required of Mexico counsel will not be needed for some time in the future, the initial conversations and interviews needed to identify the right lawyer for the job should be done as soon as possible. One reason for this is to have the time to develop the relationship. Much is in the process, rather than the results. The size of the project will determine how much time to spend on this, but at a minimum there should be enough conversation to develop a rapport. Subjects beyond the law are not out of bounds the way they might be with U.S. lawyers.
Another reason to start early is that the Mexican bar is becoming more specialized, and depending on the task, a specialist may be available. In addition to intellectual property, energy and environmental law are areas in which I have noticed specific marketing by Mexican colleagues. The right may not be with one of the big Mexico City firms. There are good lawyers all over Mexico. I have often found better service at a more reasonable price elsewhere. A Mexican lawyer’s professional credential permits her or him to practice in all Mexican states and the Federal District.
The task of retaining counsel must also take into consideration conflicts of interest. One cannot assume counsel in any foreign country necessarily will identify and resolve conflicts issues in the same manner as is required under U.S. professional conduct rules. There is not yet an analogous umbrella of oversight in Mexico, and while most Mexican lawyers are aware that this is an important issue for U.S. lawyers, some are not. In 1998 the Mexican Bar Association issued a code of ethics that addresses conflicts of interest in a manner similar to the U.S. codes, the Mexican code is not mandatory.
Speaking of the Mexican Bar Association, I should point out that membership in the Mexican Bar Association, or any other organization of lawyers in Mexico, is not mandatory for Mexican lawyers. I have heard Mexican lawyers express the view that greater self-regulation would be desirable, but this has not yet occurred. I note, however, that the attorney-client relationship seems to be getting more attention by Mexican lawyers because, as one reported to me, the incidence of lawsuits by disgruntled clients is increasing. Some Mexican firms have inquired about obtaining professional liability policies, but so far my understanding is they are not available.
Permit me to digress a bit here on the subject of retaining counsel. At the risk of offending my friends who practice in Mexico City, I will offer my observation that some of the Mexico City firms have priced themselves out of the market for small to medium sized clients and businesses. Part of this is historical: for decades all the most important legal work for foreign clients took place in Mexico City. This was due both to the centralization and predominance of the federal government and the barriers to foreign participation in economic activity. Only the largest foreign corporations had the resources to overcome these barriers and all avenues for doing so centered on Mexico City. Now, however, with the reforms I’ve mentioned and the opening of the economy, many business projects can be completed without a Mexico City “presence” and with legal help from the provinces. It is worth mentioning that a reinvigorated federalism in Mexico has led to an increasing number of regional offices of federal agencies. It will also lead to greater decision-making at the state and local level.
A word about the structure of the Mexican bar is relevant here: A Mexican lawyer’s professional credential permits her or him to practice in any jurisdiction in the country.
Returning to the topic of scheduling, starting the process of retaining Mexico counsel early gives the advantage of looking ahead at the lawyer’s availability. Whether one is able to start the process early or not, analyze and understand the client’s time requirements from the beginning. This means more than the hours of operation and the time zone difference. U.S. counsel must understand the local customs regarding midday meals, vacations, holidays and the “puentes” or bridges leading up to and following after local holidays.
This also means doing more than stating a deadline. And here I beg the understanding of Mexican colleagues who may be in the audience. “No es crítica, es descripción.” What I say is not meant to be criticism; it’s description (from somebody who’s dealt with this for over 15 years). Mexican counsel operate under a different system of meeting deadlines. U.S. counsel may need something by Friday and ask local counsel to supply it no later than Thursday. Mistake. Think in terms of three deadlines. The first will not be met. The second will cause problems. The third will be met, and, hence, should be your real internal deadline. As one of my Mexican lawyer colleagues and best friends told me “Culturally, the Mexican is used to different rhythms...it is hard to understand why the American works to much and only talks about work, and the American has a hard time understanding why the work is the Mexican’s first priority.”
Managing the Work
I would like to move on now to observations about managing the work. Here there are several issues, some more obvious than others. Many of them may be avoided if Mexico counsel truly feels that she or he is part of the client team for the project on the basis of equality and respect, rather than chain-of-command.
An imperious or arrogant manner will make managing the work very difficult. More subtly, brusque or abrupt communications, such as emails without salutations and closings, very likely will be perceived as disrespectful. Such things are a trap for the unwary, since they are so common in the U.S.
Fees and billing practices can be issues if not discussed openly and thoroughly before the work begins. The timing and format of billing statements should be discussed. Regular monthly billing should not be taken for granted, nor should statements that fully explain the work performed. (This should not really be a surprise since our own billing practices may not be as regular and explanatory as we like to think they are.)
Hourly rates may not be at all common or desired. Some Mexican lawyers who regularly do work for foreign companies in Mexico have adapted to hourly billing; others are more comfortable quoting a flat fee. Both systems have their advantages. The important thing is to be sure that the work the client needs done will be completed in a timely manner at an acceptable cost.
If one or more of the project tasks will require the services of a notary, the cost of these services must be flagged early for investigation and resolution. As is the case in other civil law countries, the notary public in Mexico is a very important person, a trained lawyer who with others forms a geographic oligopoly on the completion of certain legal transactions, such as real property conveyancing and the formalization of corporate charters. As is the civil law tradition, he or she is charged with giving public faith to documents and transactions. Many U.S. clients are shocked by notary fees. Fortunately, the trend seems to be a movement toward fixed rather than percentage fees. Usually there is a choice as to which notary to use, so one may be able to shop around and find which notary is offering the best service.
Of course it is difficult to help the client gain an understanding of the approximate cost of the legal work in Mexico without an understanding of the various legal tasks that may need to be accomplished. This is the scope of work issue. In my experience the scope of the legal work required, and the time required to accomplish it, are two of the greatest sources of frustration for US companies who wish to do business in Mexico. Therefore initial discussions with Mexico counsel, held preferably in the course of retaining the counsel, should develop an inventory of the legal tasks, the priority of each, and the time required to accomplish them. Having such a prioritized inventory agreed upon with Mexico counsel should help focus her or his efforts, create a basis for monitoring progress, and avoid a bill for work that was not needed. The inventory should be revisited regularly and updated as necessary, always with the input of Mexico counsel.
The inventory is also a useful tool for conditioning client expectations. Here two useful examples immediately come to mind. It can take as long as a month or two to form a corporation in Mexico. Over the years I’ve managed to get the time down to as little as two weeks, but that requires extraordinary effort and a client who has already prepared the necessary power of attorney and other documents so that Mexico counsel can immediately proceed with the various filings and registrations. Another example is the time required to perfect a security interest in real or personal property. Clients who are not properly informed are often unpleasantly surprised and frustrated if their only frame of reference is filing articles of incorporation or a UCC form in Salem.
The issue of scope of work and creating an inventory raises another issue that can arise. A U.S. lawyer colleague who also works frequently on Mexico projects pointed out this one to me. He notes that local counsel in this country are fairly accustomed and comfortable with oversight from other lawyers, especially in-house counsel. However, he notes, for a myriad of reasons it can be very difficult to establish a close working relationship with Mexican local counsel, who tend to work independently of their U.S. counterparts and prefer to deal directly with the client.
I’m not sure I have a perfect answer for avoiding this dilemma. I have been fortunate to not face it much. I think it occurs most often when the client already has Mexico counsel or in some other way the U.S. lawyer did not participate in the selection process. Usually the Mexican lawyers I work with are people I have met and with whom I have developed an independent and friendly relationship. Being involved in the selection of Mexico counsel surely helps avoid this problem, as does an emphasis on team building for the project, which should include opportunities for Mexico counsel to interact directly with the client, such as through conference calls, and to share in an understanding as to how the project fits into the overall business of the client. My experience is that where understanding and respect have been communicated to Mexico counsel, and where Mexico counsel is part of the team rather than an outpost, there is far less likelihood of a breakdown in the management of the work.
If the project will involve matters to be discussed or negotiated between the U.S. client and a Mexican party, the question of whether, and when, to involve Mexico counsel (and U.S. counsel, for that matter) may come up. It is still far more common in Mexico for negotiations, even as to the details of documents, to be conducted directly by the parties rather than through their respective lawyers. The role of the business lawyer as dealmaker is rare. Traditionally, the involvement of lawyers means litigation is imminent and cooperation is at an end. I think this is changing, especially among the younger generation of lawyers and business people. But I continue to carefully consider a decision to inject a lawyer into the negotiation and communications arena of a project.
The substantive provisions of project or transaction documents are also implicated in managing the work of Mexico counsel. I have frequently found that my form files or transaction experience can improve a document or contract, even when it pertains solely to Mexico. When the matters is discussed with Mexico counsel, more often than not the suggested language is permissible under Mexican law.
Sometimes the U.S. client has a form it uses in the U.S. for its business, such as an order form for a product or a similar pre-printed contract. In many cases a similar form can be created for use in Mexico, provided it is adjusted and revised to conform to Mexican law. This process has the advantage of taking as its starting point the more detailed provisions from the more litigious society.
Or it may be the case that the project involves a contract or purchase agreement for which the question of which country’s law applies is by no means certain, notwithstanding clauses purporting to cover jurisdiction, venue and choice of law. In such a case it may be possible to “mexicanize” the form just in case, by including clauses that would achieve the desired result if Mexican law should be applied in the event of a dispute.
Similar notions hold true for structuring a project. Mexico’s commercial code envisions a wide variety of business entities, and there is no reason why U.S. counsel cannot become generally familiar with them and discuss the relative merits of each with Mexico counsel and the client. Similarly, the possibility of using additional U.S. entities for a project such as a joint venture can be discussed with Mexico counsel. It may be that a U.S. holding company for the Mexican joint venture company is preferred, even by the Mexican side of the deal, because of the relatively more flexible corporate governance rules under the U.S. statute.
The point here is that both U.S. and Mexico counsel are involved in the processes of preparing documentation and structuring the transaction. It is a collaborative process that results in a final product for the client that is better than it would have been if one or the other of them were going it alone.
In managing the work of Mexico counsel it is imperative not to try to replace Mexico counsel. Another colleague, this one in private practice in D.C. and very active on the Mexico Law Committee of the ABA, said, “Too many U.S. lawyers dismiss the profundity and complexity of Mexican law. Much is in the processes. U.S. lawyers tend to think that their law school training, Spanish in high school and occasional jaunts to Taco Bell merit equal footing with Mexican counsel.” I guess that’s blunt enough.
Interpreting the Work
The last element of adding value to the client’s project in Mexico is interpreting the work. The reason this element adds value for the client is twofold: First, it helps the client comprehend the work and advice that Mexico counsel provides, and second, it helps condition the client’s overall expectations and understanding for the project and for the environment in which the project will take place.
An important part of this interpretation function is communication. Many Mexican attorneys speak English, some very well. But speaking capabilities do not often equate with written capabilities, and vice versa. There will be translation challenges at both ends. Important information can get lost in the process and grave problems can result. These may occur even if both lawyers are fully bilingual. Here is what I try to do to meet the challenges and avoid damage to anybody’s ego:
1. Put important communications in writing. If necessary, specify in the task inventory that periodic updates be provided for the client.
2. Adopt a policy of bilingualism in attorney-client communications. If it is easier and faster for Mexico counsel to provide reports and documents in Spanish, permit them to do so. Having the documents translated in the U.S. will be more efficient and cost-effective in the long run than paying lawyer rates to Mexico counsel to translate. For Spanish-to-English work a translator whose first language is English is usually best. For English-to-Spanish a translator whose first language is Spanish is usually best.
3. Adopt a policy of bilingualism in the final project documents. Certainly for the U.S. client the documents should be translated into English. If there is a Mexican party to the documents, that party in all likelihood would prefer to have a Spanish translation. And certainly documents that are expected to be valid and enforceable in Mexico may, sooner or later, need to be in Spanish. For these reasons it is simpler and ultimately more efficient to produce the documents in both languages. If appropriate, the parties can negotiate which version will control in the event of a conflict in interpretation. Often I prefer to have the translation side-by-side, paragraph-by-paragraph.
4. If the U.S. client will be relying on a document in Spanish, have the translation double-checked by a bilingual U.S. lawyer. Although this may seem extravagant, it is very important. I’ve used the same translator for years, and he’s my friend and co-author, but we still go at it from time to time on the correct translation of certain legal terms. Sometimes Mexico counsel is called in to referee.
The second important part of the interpretation function is to learn as much as one can about the laws of Mexico that apply to your project. This is the key to fully comprehending Mexico counsel’s advise. As a civil law country Mexico’s law is code based, which means that for every legal principle there exist code provisions that are the fundamental source of law for it. Ask Mexico counsel to point you to the code provisions. You never know what issues of relevance may occur to you as you read them and the other provisions near them.
I hope in some small ways these remarks and suggestions are useful. I will now respond to any questions or comments you may have. Thank you for your kind attention.