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Why is Peru so much sued before ICSID?

Javier Ferrero

Lawyer and arbitrator specialized in national and international arbitration and foreign investment promotion.

Peru is very active in the ICSID process, with 44 cases to date, of which 22 are pending and 22 have been concluded.
Each of these investment arbitrations deals with different controversies involving various sectors, such as mining, hydrocarbons, infrastructure, banking, road concessions, electricity concessions, port concessions, telecommunications, among others. Therefore, it is not the result of a general policy of expropriation as was the case in Venezuela during the government of President Hugo Chávez or a serious financial crisis as happened at the time in Argentina in 2001. Therefore, each of the ICSID arbitrations against Peru can be very different and involve very different conducts of the Peruvian State.


ICSID arbitration of Republic of Peru v. Caraveli Cotaruse Energy Transmitter, ICSID Case No. ARB/13/24, which was discontinued by agreement of the parties shortly thereafter, when both parties entered into a comprehensive agreement.


After Argentina (59 cases, many of which have already been concluded and there are currently only 8 cases pending) and Venezuela (55 cases, of which 18 are pending), Peru is currently the third most sued country before ICSID in South America and one of the countries with the largest number of cases worldwide. Even in 2021, according to ICSID statistics, Peru was the most in-demand state worldwide.


Faced with this reality, the logical question that one asks is, why is Peru so sued before the ICSID? This is without considering that Peru also has 5 investment arbitrations (4 pending and 1 concluded) under the UNCITRAL Arbitration Rules, administered under the Permanent Court of Arbitration in The Hague.


A First Reason This is the large number of investment protection treaties that Peru has concluded, both in terms of Bilateral Investment Treaties (first and second generation, totalling 33 in force) and various Free Trade Agreements with Investment Chapters, the most recent of which is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (made up of Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam). All these treaties represent channels for a national investor of a State Party to sue Peru, provided that the jurisdictional requirements of ratione personae, ratione materiae and ratione temporis are met.


A second reason, is that, unlike other countries in the region, most of the Concession Contracts in Peru contain clauses to go to ICSID arbitration when a certain threshold is reached on the amount in dispute, the Peruvian State having expressly considered the local concessionaire company as a national of another Contracting State of the ICSID Convention because it is subject to foreign control. This has led to a significant increase in the number of ICSID cases against Peru, as well as a series of pathological arbitration clauses when the Concession Contract has been entered into by a Local or Regional Government, which cannot be sued directly before ICSID.
Thus, to date, of the 44 cases that Peru has pending and concluded, 15 of them are merely contractual, where the applicable law is not public international law and investment law, but Peruvian law. These contractual cases have been mainly linked to Concession Contracts (11), with License Agreements for the Exploitation of Hydrocarbons (Upland Oil and Gas and Pluspetrol Corporation). Additionally, 2 arbitrations were based on Legal Stability Agreements (the Aguaytía Energy and Duke Energy cases).


As of today, only Perupetro S.A. can be sued directly before ICSID, based on the consent given by Peru.


A third reason, it is due to the period of political instability in which Peru has been involved in recent years, with the various changes of government and its various ministries, which in some cases generated unwise decisions, being an additional element for the generation of investment controversies against the Peruvian State.


A fourth reason, and no less relevant, is that the period of Direct Treatment prior to international arbitration provided for in the investment protection contract or treaty is not used by the parties to seek any amicable solution to the dispute. On the contrary, these Direct Deal periods are usually used simply by the parties to comply with an admissibility formality and thus be able to initiate an investment arbitration later. In this way, a valuable opportunity is lost for both the State and the foreign investor to sit down and talk and look for an alternative way to find a solution to an existing dispute. Even during this Direct Deal period, the parties may voluntarily (when they consider there is a possibility) to attempt a mediation process under the new 2022 ICSID Mediation Rules, or other available rules. Therefore, the public officials in charge of these cases, such as the members of the Special Commission under Law No. 28933 – Law on the System of Coordination and Response of the State in International Investment Disputes – together with the state entity involved, should make the decision to use this previous phase of Direct Dealing, as a way to talk with the foreign investor and seek a solution to the controversy through a favorable solution for both parties, of course when possible.


While Peru has had very good results in many of the ICSID investment arbitrations it has faced (Peru has recently achieved favorable results in ICSID arbitrations) Worth Capital Holdings 27 LLC, where arbitration was discontinued and Latam Hydro and others, where the Tribunal dismissed the claimants’ claims), will Peru continue to have a good run of results in investment arbitrations or is the balance beginning to tip the other way?[3]



See Diario Gestión, Will Peru continue to have the good streak of results in investment arbitrations or is the balance beginning to tip the other way?, February 9, 2023, available at the following link: https://blogs.gestion.pe/agenda-legal/2023/02/seguira-el-peru-teniendo-la-buena-racha-de-resultados-en-arbitrajes-de-inversion-o-la-balanza-se-empieza-a-inclinar-hacia-el-otro-lado.html


The fact is that things are no longer rosy, Peru having lost 8 ICSID arbitrations as of the date of this article: partially in a dispute related to a Legal Stability Convention (Duke Energy); with an investment in the fisheries sector (Tza Yap Shum); with a mining investment (Bear Creek Mining); with a concession of an underground metro (Lima Metro Line 2 – first arbitration in which a Partial Award has been issued); with a road concession (Northern Highway), but the Investor has received only 5% of the amount claimed; with an investment in agrarian reform bonds (Grammercy Funds Management et al.); with an airport concession (Sociedad Aeroportuaria Kuntur Wasi and others) where a Partial Award has been issued; and with an electricity concession (IC Power Ltd. and others). Only time will tell which way the balance tips.


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