A. LEGISLATION AND RULES
A.1 Legislation
International arbitration in Peru continues to be governed by Legislative Decree No. 1071 of 2008, based on the UNCITRAL Model Law; Urgency Decree No. 020-2020, which modified some articles of Legislative Decree No. 1071 related to arbitrations where the Republic of Peru (“State“) is a party; and the New York Convention[1].
A.2 Institutions, rules and infrastructure
Since the 2023 – 2024 edition of the International Arbitration Yearbook, there have not been many developments in the most relevant arbitration institutions in Peru:
A.2.1 Proceedings of the Arbitration Center of the Lima Chamber of Commerce are still regulated under the rules in force since January 2017 which include the emergency arbitration procedure, except in cases in which the State is a party and there is no express submission to the said procedure. Since 2020, arbitrations have been mainly virtual, and practical guidelines have been issued for them. Moreover, the Arbitration Center of the Lima Chamber of Commerce presented its new rules for dispute boards. These rules came into effect on 1 January 2022.
A.2.2 Proceedings of the International Arbitration Center of the American Chamber of Commerce of Peru are regulated by the arbitration rules adopted on 1 July 2021 which include the emergency arbitration procedure, except in cases in which the State is a party. Since 2020, arbitrations have been mainly virtual, and practical guidelines have been issued for them.
A.2.3 Proceedings of the Arbitration Center of CARC-PUCP are, since January 2024, regulated under new rules of arbitration. The new rules published by the arbitration center on 14 December 2023 made changes regarding among other things:
- Arbitration proceedings and notifications, which now are virtual by default
- The incorporation of non-signatories by the arbitration center and the arbitral tribunal
- The mechanism to appoint the president of the arbitral tribunal or the sole arbitrator in the absence of an agreement between the parties
- The possibility of establishing sanctions for arbitrators’ challenges that are manifestly lacking in factual basis
- The removal of emergency arbitration proceedings
- The implementation of express arbitration proceedings[2]
B. CASES
Pursuant to ICSID’s Caseload Statistics, four new cases were filed against the State in 2024:
- Gas Natural de Lima y Callao S.A. v. Republic of Peru (ICSID Case No. ARB/24/9) under a contract
- Gasoducto Sur Peruano S.A. En Liquidación v. Republic of Peru (ICSID Case No. ARB/24/29) under a contract
- Concesionaria Angostura Siguas, S.A. v. Republic of Peru (ICSID Case No. ARB/24/43) under a contract
- Unión de Cervecerías Peruanas Backus y Johnston S.A.A., Cervecería San Juan S.A. and AB InBev Southern Investment Ltd. v. Republic of Peru (ICSID Case No. ARB/24/53) under the BIT Peru – United Kingdom of Great Britain and Northern Ireland 1993
As at time of writing, Peru has 20 pending and 26 concluded arbitrations before ICSID. The large number of ICSID cases against Peru is the result of many years of large amounts of foreign investment entering the country, which is illustrated by the broad range of issues involved in these investment arbitrations, and not because of a state policy known for expropriation and anti-investment measures, like in some other countries in South America. However, during the past recent years, political instability and certain government decisions have generated new cases. Another reason for the substantial increase in ICSID cases is that several of them are based on arbitral agreements of concession contracts.
In 2024, there were ICSID awards in five cases against the State:
- Kaloti Metals & Logistics, LLC v. Republic of Peru (ICSID Case No. ARB/21/29) — Arbitral award of 14 May 2024 in favor of the State
- APM Terminals Callao S.A. v. Republic of Peru (ICSID Case No. ARB/21/28) — Arbitral award of 17 December 2024
- Desarrollo Vial de los Andes S.A.C. v. Republic of Peru (ICSID Case No. ARB/20/18) — Arbitral award of 27 November 2024
- ENAGÁS S.A. (España) and ENAGÁS Internacional S.L.U. (España) v. Republic of Peru (ICSID Case No. ARB/18/26)— Arbitral award of 27 November 2024 in favor of the claimant investor
- Freeport-McMoRan Inc. v. Republic of Peru, (ICSID Case No. ARB/20/8)— Arbitral award of 17 May 2024 in favor of the State
B.1 Kaloti Metals & Logistics, LLC v. Republic of Peru (ICSID Case No. ARB/21/29)
In 2012, Peru adopted robust legislation to combat illegal mining and money laundering related to gold mining. This legislation granted authorities such as SUNAT, the Prosecutor’s Office, the Attorney General’s Office, and criminal courts the power to initiate and conduct administrative and criminal investigations.
Kaloti Metals & Logistics, LLC (“Kaloti“) is a company incorporated in Florida in October 2010 that began purchasing gold in Peru in 2012. Kaloti established a physical office in Lima and hired local employees and a compliance officer. Kaloti’s business strategy included paying suppliers a higher price for gold and paying them upon receiving the gold at its facilities in Lima.
Between 2013 and 2014, five shipments of gold from suppliers to Kaloti were subject to temporary immobilization orders by SUNAT. These orders were issued to verify the legal origin of the gold and compliance with tax and customs requirements. Subsequently, the Prosecutor’s Office requested criminal courts to order the precautionary seizure of the shipments. The criminal investigations resulted in criminal proceedings against the suppliers for money laundering.
Kaloti claimed that multiple requests to lift the immobilizations were ignored by the Republic of Peru, while the State argued that the requests did not meet legal requirements and that Kaloti failed to pursue available remedies under Peruvian law. The prolonged investigations and seizures significantly affected Kaloti’s business, leading to a decline in gold purchases and the closure of bank accounts in the United States. Kaloti attributed these issues to the actions of the Republic of Peru, while the State denied responsibility, arguing that the decline was due to Kaloti’s association with entities involved in illegal activities.
Kaloti claimed that the Republic of Peru (i) failed to accord fair and equitable treatment (FET) to the claimant’s investments, (ii) took arbitrary or discriminatory measures that impaired the use and enjoyment of the claimant’s investments, (iii) failed to accord the same treatment to the claimant’s investments as it provided to nationals or companies of Peru or third states, (iv) wrongfully expropriated the Kaloti’s gold without complying with the requirements of the treaty, including non-discrimination and payment of prompt, adequate, and effective compensation, and (v) wrongfully expropriated the Kaloti’s business without complying with the requirements of the treaty, including non-discrimination and payment of prompt, adequate, and effective compensation.
On 30 April 2021, the ICSID received a request for arbitration from Kaloti against the Republic of Peru. The request was registered by the Secretary-General of ICSID on 20 May 2021, and the parties proceeded to constitute an arbitral tribunal composed of Prof. Donald McRae as President, Prof. Dr. José Carlos Fernández Rozas, and Prof. Dr. Rolf Knieper as arbitrators. The first session was held on 27 October 2021, and procedural orders were issued to manage the proceedings, including the schedule for the jurisdictional and merits phase.
While examining whether the subject matter of the dispute falls within the scope of the tribunal’s authority. The tribunal considered that (i) Kaloti failed to establish that its alleged investments had the necessary characteristics, such as a commitment of capital, expectation of profit, and assumption of risk, (ii) Kaloti did not provide sufficient evidence to prove that it owned or controlled the five shipments of gold that were seized by Peruvian authorities (the waybills and customs declarations were in the names of the suppliers, not Kaloti, indicating that Kaloti did not have ownership or control of the gold at the time of seizure), and (iii) Kaloti did not have a “going concern business enterprise” in Peru that could qualify as an investment. Kaloti’s operations in Peru were ancillary to its gold trading business based in Miami and did not constitute a substantial commitment of capital or other resources to an investment in Peru.
The tribunal concluded that Kaloti failed to establish that it had an investment in the territory of Peru within the meaning of article 10.28 of the United States-Peru Trade Promotion Agreement (TPA). As a result, the tribunal upheld the State’s objection to jurisdiction ratione materiae and declared that it had no jurisdiction in this dispute.
Accordingly, the tribunal dismissed all of Kaloti’s claims and decided that Kaloti should be responsible for both the costs of the arbitration and the reasonable costs of representation of the Republic of Peru. The tribunal ordered Kaloti to pay the Republic of Peru USD 3,509,234.41 for legal fees and expenses, and USD 367,949.63 for the expended portion of the respondent’s advances to ICSID.
B.2 ENAGÁS S.A. (España) and ENAGÁS Internacional S.L.U. (España) v. Republic of Peru (ICSID Case No. ARB/18/26)
The case centers around a 25% stake in a 34-year concession to build a 1100-kilometre natural gas pipeline, known as the Gasoducto del Sur Peruano (GSP) pipeline project. ENAGÁS S.A. (España) and ENAGÁS Internacional S.L.U. (España) (“Claimants“) alleged that actions taken by the Peruvian government (imposition of fines, the execution of the performance bond and the termination of the concession contract) adversely affected their investment in the project.
The Claimants filed a request for arbitration with ICSID under the ICSID Convention and the Peru-Spain BIT (1994), which was registered on 19 October 2018. The arbitral tribunal composed of Prof. Diego Fernández Arroyo as President, Prof. Álvaro Jana Linetzky, and Prof. Claus von Wobeser as arbitrators was constituted, and procedural orders were issued to manage the proceedings. The tribunal held hearings and received submissions from both parties, addressing issues of jurisdiction, merits, and quantum.
The Claimants argued that the Republic of Peru’s actions, including the termination of the concession contract and the imposition of fines, violated the fair and equitable treatment (FET) standard, expropriated their investment without compensation, and breached other protections under the Peru-Spain BIT. They sought compensation for the losses incurred due to these breaches.
The Republic of Peru contended that the termination of the concession contract was justified due to the Claimants’ failure to meet contractual obligations. The Republic of Peru argued that the actions taken were in accordance with Peruvian law and did not constitute a breach of the BIT and requested the tribunal to dismiss the claims and award costs in its favor.
The tribunal analyzed the jurisdictional objections raised by Peru, the merits of the claims, and the quantum of damages. The tribunal dismissed the jurisdictional objections raised by the Republic of Peru, which were based on evidence of corruption in the awarding of the GSP project and found that it had jurisdiction to hear the dispute under the Peru-Spain BIT. On the merits, the tribunal found that the measures challenged by the Claimants, such as the termination of the concession contract and the execution of the performance bond, were justified and did not violate the BIT.
However, the tribunal considered that the measures adopted by the Republic of Peru in exercise of sovereign powers after the termination of the concession contract had the effect of unilaterally modifying the legal regime applicable to the termination of the concession contract, thus determining that in the case of such measures an expropriation would have been constituted under the treaty.
As a result, the tribunal ordered the State to pay the Claimants the sum of USD 176.4 million plus interest and a portion of the costs.
B.3 Freeport-McMoRan Inc. v. Republic of Peru (ICSID Case No. ARB/20/8)
The Cerro Verde mine, initially explored in the 1880s, underwent various ownership changes and faced numerous challenges, including the abandonment of a concentrator construction plan in the 1970s. In the 1990s, Peru adopted a new mining regulatory framework and privatized the mine, leading to the creation of Sociedad Minera Cerro Verde SAA (SMCV). Stability agreements were signed in 1994 and 1998 to promote investment, but subsequent regulatory changes, including the 2004 Mining Royalty Law, led to disputes over the applicability of royalties and taxes to SMCV’s operations. Despite significant investments, including the construction of a concentrator in 2006, SMCV faced numerous legal challenges from SUNAT. The dispute between Freeport-McMoran Inc. (“Freeport“) and the Republic of Peru arises from the imposition of royalties and taxes on SMCV.
The claimants filed a request for arbitration with ICSID on 28 February 2020. The arbitral tribunal composed of Dr. Inka Hanefeld as President, Prof. Dr. Guido Santiago Tawil, and Prof. Dr. Bernardo Cremades as arbitrators was constituted on 31 March 2021, and procedural orders were issued to manage the proceedings. The tribunal received submissions from both parties and held hearings from 1 to 12 May 2023 in Washington DC.
Freeport claimed that the Republic of Peru breached the 1998 Stability Agreement and article 10.5 of the TPA by imposing royalties and taxes on SMCV. Freeport sought monetary damages of at least USD 942.2 million plus interest, or alternatively, at least USD 719.9 million plus interest.
The Republic of Peru disputed the tribunal’s jurisdiction over certain claims and argued that it did not breach the 1998 Stability Agreement or its obligations under article 10.5 of the TPA. The State also contended that the claimant’s alleged damages were grossly inflated.
The tribunal addressed objections regarding jurisdiction, including whether the claims were time-barred, whether penalties and interest on assessed taxes fell outside the tribunal’s jurisdiction, and whether the claims were based on acts or facts that occurred before the TPA entered into force. The tribunal found that Freeport’s claims were within the jurisdiction of the tribunal, except for the claims based on penalties and interest assessed on tax assessments, which were found to be outside the tribunal’s jurisdiction.
Regarding the merits, the tribunal examined whether Peru breached the 1998 Stability Agreement and article 10.5 of the TPA. The tribunal analyzed whether the State’s actions were arbitrary, inconsistent, or non-transparent, and whether they violated Freeport’s legitimate expectations and due process rights. The tribunal found that Freeport did not show to the tribunal’s satisfaction that the Republic of Peru breached its FET obligations under the TPA. The tribunal rejected Freeport’s claims in their entirety and decided that each party should bear its own costs and half of the arbitration costs.
[1] By means of the Sole Complementary Derogatory Provision of the General Law of Public Contracting, the second paragraph of numeral 2 of article 8 of Legislative Decree 1071, Legislative Decree that regulates arbitration, was derogated, but such modification is not yet in effect. Said change will enter into effect ninety calendar days after the day following the publication of the regulations of the Law. The derogated paragraph was an incorporation made by Urgency Decree No. 020-2020 which stated that in cases where the Peruvian State is affected by a precautionary measure, a joint and several, unconditional, and automatically enforceable performance bond in favor of the affected public entity is required for the duration of the arbitration process, and that the amount of the bond must not be less than the performance bond of the contract. The General Law of Public Contracting, instead, stablished that for the analysis of precautionary measures in contracts under this law, the judge or arbitral tribunal must evaluate the irreversibility of the measure and the harm to public interest before deciding. This law also stablishes that precautionary measures are not granted without prior notice to the counterparty, nor those that impede or delay works in critical sectors such as health, road infrastructure, and education. Finally, the law states that the contractor requesting a precautionary measure must offer a counter-guarantee in favor of the contracting entity, that for contracts up to 200 UIT and micro-enterprises could be a juratory bond; otherwise, a joint and several, unconditional, and automatically enforceable performance bond is needed. The non-compliance can nullify the precautionary measure.
[2] The novelty among these changes compared to the most representative centers in Peru (CCL and Amcham) was the complete elimination of the emergency arbitration procedure.
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