2010/IEG/WKSP1/007 State Coordination and Response System for International Investment Disputes

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1 2010/IEG/WKSP1/007 State Coordination and Response System for International Investment Disputes Submitted by: Peru Workshop on Dispute Prevention and Preparedness Washington, DC, United States July 2010

2 STATE COORDINATION AND RESPONSE SYSTEM FOR INTERNATIONAL INVESTMENT DISPUTES Peruvian Investment Agreements Network Investment Agreements Peru has signed more than 30 International Investment Agreements (Bilateral Investment Treaties andfree TradeAgreements ) thatunderpinitsliberalizationpolicy. p Australia China* Korea Malaysia Singapore* Thailand Japan * FTA Canada* United States* Cuba El Salvador Germany Belgium and Luxemburg Denmark Spain Finland France Nederland Italy Argentina Norway Bolivia Portugal Chile* United Kingdom Colombia Czech Republic Ecuador Romania Paraguay Sweden Venezuela Switzerland 1

3 The Evolution of Peruvian IIAs Phase 1: The early 90s: post establishment broad and diffuse concepts Phase 2: The learning process 1997/2000 MIA (OECD) / FTAA Phase 3: The TPA Peru U.S. adoption of a new model Phase 4: Consolidation and review process Situation before the System More and more covenants, treaties, agreements or contracts signed by the State, which include international dispute settlement mechanisms. Lack of knowledge of clauses on dispute settlement before international courts, which were included in various contracts with foreign investors State impossibility of centralizing actions for the emergence of such disputes at different government levels, and of coordinating actions between public entities directly involved. Lack of an adequate, timely and coordinated handling of disputes by the State. 2

4 Situation before the System Lack of responsibility from public entities generating disputes due to lack of a mechanism to internalize the consequencesofof their actions. Lack of an organization with decision making capacity to manage the Direct Negotiations stage of investment Dispute Settlement mechanisms. State difficulty to hire defense lawyers and pay arbitrators and arbitration expenses in a direct and quick ikway, causing risk ikof df defenselessness. The previous structure Negotiating Commission Agencies facing the controversies Ministry of Economy Ministry of Trade Ministry of Foreign Affairs Ministry of Foreign Affairs Ministry of Economy ProInversion 3

5 Rationale behind system creation Continuance of described status quo would increase transaction costs for the State and private sector. Uncertainty among investors because there is no clear sign from the State to honor investment promises. Unnecessary costs for the State. High risk of dispute generation due to poorly coordinated and sometimes discretional performance by national, regional and local government entities. Establishment of a legal framework December 2006 Law that sets the State Coordination and Response System for International Investment Disputes (Law No ) to optimize State response, centralize information on investment agreements and covenants, and define coordination procedures for Public Entities involved in a dispute. Regulations approved by Supreme Decree No EF that creates the content of Law No , with regard to general concepts, procedures, System members, transparency and criteria of mandatory application in writing dispute settlement clauses. Regulations approved by Supreme Decree No EF establishing the procedures for hiring law firms. 4

6 System characteristics Scope of competence Investment disputes. International dispute settlement mechanisms. Public entities. Objectives To optimize the response and coordination within the public sector. To centralize information on Investment Covenants or Treaties signed by the various goverment levels, and Dispute Settlement clauses that refer to international mechanisms. Disputes. To set an alert mechanism To establish responsibility for the costs. To standardize dispute settlement clauses, where possible. System characteristics Coordinator Ministry of Economy and Finance (MEF) Duties: Centralize system information and coordination. Knowledge of emergence of disputes. Receive Direct Negotiations or Dispute notices. Set and keep record of Agreements and Treaties. Special Commission: Special Commission: Is attached to the Ministry of Economy. It represents the State in Direct Negotiations and Arbitration Stage. 5

7 System characteristics Special Commission Structure and Duties Permanent Members: Ministry of Economy and Finance (Chair) Ministry of Justice Ministry of Foreign Affairs ProInversión Non permanent members: Case specific. Duties: Participate in the direct negotiations stage. Propose hiring of lawyers and professionals. Appoint arbitrators. Contribute in the process. Approve provision of resources. Define responsibility of Public Entity involved. Desired Impacts The system is safe and reliable in the market because it will allow a timely and appropriate handling of disputes that may arise between the private investor and the Peruvian State. As a consequence of offering a safe and predictable market regarding dispute settlement, the system will provide, at least, regularity in domestic and international trade. By increasing handling of disputes and improving it, transaction costs for the State and investor are reduced, and a reduction in indemnity costs is expected. Investor gets more legal security and certainty regarding gthe host State's response and public in general. Potential savings in possible indemnities due to timely settlement at the Direct Negotiations stage. 6

8 How does the System works? The Alert System Every Governmental Agency concluding an agreement or treaty regarding investment issues, sending the settlement of investment disputes to international mechanisms, must inform the Coordinator of the System. In case of being notified about the investor s intention of demand, the Governmental Agency must inform in detail to the Coordinator. How does the System works? Consultation and Negotiation Thecoordinator will share the information with membersof the Special Commission in order to determine its competence on the case. Establishes a Special Ad Hoc Commission, calling for the designation of nonpermanent members. The Special Ad Hoc Commission call on the relevant government agencies to report in detail on the circumstances giving rise to the dispute. The investor is invited to submit its views on the facts. The Special Ad Hoc Commission promotes dialogue between the parties in dispute. The Special Ad Hoc Commission may provide transactional formulas for conciliation. This formula must be informed to the Cabinet and approved by the Ministers represented before the Special Ad Hoc Commission. 7

9 How does the System works? The Defense in the Arbitral Procedure Once the notification of registration is received, the Special Ad Hoc Commission initiates the process for selection of the lawyer s firm who will be in charge of the defense. According to the regulations, at least three lawyer s firms are invited to present proposals. A qualification method is applied The Commission selects an international law firm which must contract a Peruvian Law firm as local expert and counterpart. The Law firm assumes the defense of the Peruvian State and coordinates with the Commission on the general guidelines of the strategy and procedural matters. The hiring process and payments to the Law firm are managed through the Ministry of Economy and Finance. Investor State Arbitral procedures before ICSID Chinese citizen, Tza Yap Shum: BIT Peru China Indirect expropriation (tax measures taken by the tax authority (SUNAT) and applied against its investment, TSG Peru S.A.C) Jurisdictional stage Decision of Jurisdiction and Competence of the Tribunal in June, Merit stage currently the final audience has justtaken taken place and there are some documents pendent to be sent by the Peruvian defense Governmental Agency involved: SUNAT and Ministry of Production. International and local law firms in charge of the defense of the state 8

10 Investor State Arbitral procedures before ICSID Duke Energy International Peru Investment Nº 1 LTD: LegalStability Agreementconcluded between the Peruvian State andthe entity (tax measures taken by SUNAT and applied against Duke Energy International Egenor) Merit stage the request of arbitration had two main claims. The award found Peru liable to the enterprise for one of the claims, stating that it shall pay US$ 18, plus interests. Peruvian State began a partial annulment process of the award. Currently the Peruvian state is waiting for the award by the ad hoc tribunal Governmental Agency involved: SUNAT. International law firm in charge of the defense of the state Investor State Arbitral procedures before ICSID Convial Callao S.A. and CCI Compañía de Concesiones de Infraestructura S.A.: BIT Peru Argentina Indirect expropriation and Fair and Equitable Treatment (in the execution of the Concession Contract between the Callao Local Government and Convial Callao S.A., for the construction, maintenance, and exploitation of an Expressway) Registration of the request of arbitration by ICSID on February 2010 Currently the parties are making the coordinations for the first procedural audience. Governmental Agency involved: The Local Government of Callao. International and a local law firm in charge of the defense of the state 9

11 Investor State Arbitral procedures before ICSID Mrs. Renee Rose Levy de Levi BIT Peru France Indirect expropriation and Fair and Equitable Treatment (measures taken by the Superintendency of Banking, Insurance and Pension Funds, applied to its investment, Banco Nuevo Mundo) Registration of the request of arbitration by ICSD on July 2010 The Special Commission will communicate the registration to the entity involved and begin the process to contract legal services for the defense of the case. Thank you very much for your attention and remember, the best way to prevent conflicts is to be aware of the commitments that are undertaken and to fulfill them. 10