Bacilio Amorrortu USA v The Republic of Peru - PCA Case No 2020-11 - Answer to Respondent's Submission on Preliminary Objections - 26 April 2021
TABLE OF CONTENTS
II. RELEVANT ALLEGATIONS FROM CLAIMANT'S STATEMENT OF CLAIM
1) Amorrortu forms Baspetrol
2) Baspetrol Commences Direct Negotiations With PeruPetro
3) Baspetrol's Direct Negotiation Proposal For Blocks III & IV
4) PeruPetro Violates Amorrortu's Legitimate Right To
Direct Negotiation For Blocks III & IV
III. PROCEDURAL HISTORY
IV. OBJECTION 1 FAILS: AMORRORTU'S INVESTMENT IN PERU GIVES RISE TO A TREATY CLAIM FOR WHICH AN AWARD MUST BE GRANTED
1) PeruPetro's Rules and Procedures for the Direct Negotiation of Contracts
2) The Direct Negotiation Process Commenced When
Baspetrol Submitted the Baspetrol Proposal for Blocks
III and IV at the Request of PeruPetro
3) Blocks III and IV Were Available for Direct Negotiation
4) Peru Cannot Argue That Baspetrol Was Not Qualified to Commence Direct Negotiation with PeruPetro
5) Amorrortu's Reasonable Expectations to a Corruption Free Direct Negotiation Process are Protected by the USPTPA
V. OBJECTION 4 FAILS: AMORRORTU'S WAIVER IS NOT DEFECTIVE
1) Peru is Estopped From Arguing That it Did Not Consent
to This Arbitration
2) Peru's Interpretation of Article 10.18(2)(b) is Erroneous and Divorced From the Textual Language of the Treaty
a) There is no requirement to present the waiver in a separate document signed by Amorrortu
b) There is no requirement of an absolute waiver
VI. AMORRORTU'S PENDING APPLICATION TO AMEND RENDERS OBJECTION 4 MOOT
1. In Respondent's submission pursuant to Article 10.20.4 of the Treaty and submission on Waiver Objection under Article 23 of UNCITRAL Arbitration Rules (Peru's Submission on Preliminary Objections), Peru argues that Bacilio Amorrortu (Amorrortu or the Claimant) does not possess any right to a direct negotiation (Objection 1) and that Amorrortu did not submit a valid waiver (Objection 4). Both of these objections fail.
2. Objection 1 is a fact intensive objection based on the false premise that Amorrortu did not commence a direct negotiation process with PeruPetro, S.A.
(PeruPetro). This argument is belied by Amorrortu's factual allegations and PeruPetro's own Rules and Procedures for the Direct Negotiation of Contracts. 1 Indeed, Objection 1 can be summarily rejected as inconsistent with Amorrortu's factual allegations, which must be assumed as true at this procedural juncture.2
3. In his Statement of Claim, Amorrortu established, among other things, that:
i. he formed Baspetrol S.A.C. (Baspetrol) with the objective to operate oil fields in Peru and recover the contractual rights to operate Block III of the Talara Basin;3
ii. In 2013 and 2014, he communicated with the President of PeruPetro, Luis Ortigas (Ortigas) and PeruPetro for several months regarding the availability of Block III;4
iii. he met with Ortigas on May 22, 2014 and presented his plans for Block III and his history operating Block III;5
iv. Ortigas instructed Amorrortu to present a proposal for direct negotiation for the operation of Block III and to also present a proposal for Block IV (the Baspetrol Proposal or the Proposal);6
v. and he submitted the Baspetrol Proposal on May 28, 2014, including the additional requested proposal to operate Block IV.7
4. Pursuant to PeruPetro's Rules and Procedures for the Direct Negotiation of Contracts, the submission of the direct negotiation proposal at the request of PeruPetro commenced the process of direct negotiation.8 At that point, PeruPetro had the obligation to consider the Baspetrol Proposal in compliance with the principles of good faith, equal treatment, impartiality, due process, procedural conduct, and predictability under Peruvian law.9 Obviously, the corruption scheme designed to grant the contracts to operate Blocks III and IV to Graña y Montero violates all of these principles.
5. Peru seems to suggest that the direct negotiation process could only be commenced once PeruPetro confirmed that Blocks III and IV were available for direct negotiation. This argument is inconsistent with PeruPetro's Rules and Procedures for the Direct Negotiation of Contracts, which make clear that the direct negotiation process starts upon the submission of a direct negotiation proposal by an interested oil company to PeruPetro. In any event, in this particular case, the Baspetrol Proposal was submitted at PeruPetro's request. Indeed, Amorrortu was initially only interested in Block III and submitted a proposal for Block IV at PeruPetro's request. On these facts, Peru cannot seriously deny that the direct negotiation process was commenced once Amorrortu, through his company, Baspetrol, submitted the requested direct negotiation proposal.
6. The same is true of the argument that Blocks III and IV were not available for direct negotiation. The President of PeruPetro, Ortigas, asked Amorrortu to submit a proposal for direct negotiation before the commencement of the public bidding process and, for the contemplated period starting in May 2015,10 the Blocks were not subject to any contract. Therefore, as a matter of Peruvian Law, Blocks III and IV were available for direct negotiation when Amorrortu submitted the Baspetrol Proposal.
7. Peru further claims that Amorrortu failed to obtain the certification of Baspetrol as a qualified oil company to commence the direct negotiation process. However, it is undisputed that PeruPetro failed to respond to Amorrortu's submissions within the ten-day period PeruPetro had to either reject or request any additional information needed to certify Baspetrol as a qualified oil company. This administrative silence prevented Amorrortu from appealing any adverse decision with respect to Baspetrol's qualifications and, more importantly at this juncture, this administrative silence under Peruvian law estops Peru from contending that Baspetrol was not qualified for purposes of the direct negotiation process.11 Tellingly, Amorrortu and the members of the Baspetrol team had been working in the Talara Basin - and Block III in particular - since 1976 and met all the applicable qualification requirements.
8. As part of Objection 1, Peru also argues that the commencement of the direct negotiation process does not guarantee the execution of a contract for Blocks III and IV. This argument misconstrues Amorrortu's claims. Amorrortu has never claimed that the direct negotiation process guarantees, as a matter of law, the execution of the contracts to operate Blocks III and IV. Amorrortu's claims are based on the undisputable fact that (i) he invested in Baspetrol as an "enterprise" with the reasonable expectation to have the Baspetrol Proposal considered by Peru and its agencies in a process free of corruption and (ii) that Amorrortu, through Baspetrol, acquired all of the rights appurtenant or concomitant to the direct negotiation process under Peruvian law. Specifically, the direct negotiation process guarantees the exclusive technical evaluation and the community analysis of a direct negotiation proposal before any competing company is invited to participate in the process. This substantive right to an exclusive analysis has significant value. The direct negotiation process gives oil companies a competitive advantage that is practically and factually insurmountable and that, in most if not all cases, concludes with the execution of the contract, particularly in the case of a company that has the experience and success of Amorrortu in the Talara Basin.12 This is the bundle of rights that Amorrortu acquired before PeruPetro aborted the process and opened an arbitrary and illegal bidding process as a result of the Corruption Scheme.13 Simply put, Amorrortu invested in an enterprise, and the United States-Peru Trade Promotion Agreement (the USPTPA or the Treaty) protects this investment as well as Amorrortu's reasonable expectations in making this investment. This is not a controversial proposition.
9. What is really controversial, is Peru's claim that reasonable expectations are not protected by the USPTPA. This bold statement is belied by the text of the Treaty, which explicitly extends its protections to "an investor that attempts through concrete action to make, is making, or has made an investment." 14 If an investor that attempts through concrete action to make an investment enjoys the protections of the Treaty, then Amorrortu, who made an investment in an enterprise, acquired the rights concomitant to the direct negotiation process, is certainly protected by the Treaty. Peru's argument to the contrary is simply frivolous. Indeed, Peru's argument was rejected by the tribunals in Lemire, Bosca, and EDF, three decisions that are quoted extensively in Claimant's Statement of Claim and that are completely ignored by Peru in its Submission on Preliminary Objections. This Tribunal should reject Peru's argument and share the view "expressed by other tribunals that one of the major components of the [Fair and Equitable Treatment] standard is the parties' legitimate and reasonable expectations with respect to the investment they have made."15
10. To be clear, the facts establish that in the absence of the massive Corruption Scheme designed to benefit Graña y Montero, Amorrortu would have secured the contract to operate Blocks III and IV. But the well-established likelihood that the direct negotiation process would conclude in the execution of a contract is an issue that pertains to the damages that Amorrortu has suffered and that has very little bearing on the viability of Amorrortu's claims. Therefore, Objection 1 must be overruled.
11. Objection 4 similarly fails. Peru contends that it has not consented to this arbitration because Amorrortu's waiver is purportedly defective. What Peru conveniently forgets is that it filed a motion asking the Tribunal to order Amorrortu to confirm that it had a third-party funder, to identify the identity of the third-party funder, and to produce the funding agreement. The Tribunal granted Peru's motion in part, and Amorrortu identified the name of his third-party funder in compliance with the Tribunal's order. Having availed itself of the jurisdiction of this Tribunal, Peru is estopped from claiming that this Tribunal does not have its jurisdictional consent. This arbitral ship is already sailing, and Peru voluntarily and without reservation got on board.
12. This is not the first time in which Peru has made a belated challenge to its arbitral consent.16 The late assertion of its consent objection seems to be part of Peru's strategy to derail and delay arbitral proceedings, and Peru has been admonished for this conduct.17 This Tribunal should not countenance this strategy and should require Peru to pay Amorrortu's costs and fees in connection to this frivolous objection.
13. On the merits, Objection No. 4 fails as contrary to the text of Article 10.18(2)(b) of the USPTPA and in the alternative, as moot in light of Amorrortu's pending motion or application for leave to amend (Application to Amend) the Notice of Arbitration (NOA). Amorrortu has made clear to Peru that no other action arising out of the subject investment was pending in any other jurisdiction and that, in an effort to avoid any further delay,18 he was willing to amend his waiver to explicitly renounce his right to bring any such action. Amorrortu filed an Application to Amend to submit an unconditional waiver19 and has waived, under oath, any right to present any claim against Peru in any other jurisdiction.20
14. Peru's position on this issue is a moving target seeking to weaponize, in bad faith, the decision in Renco 1 beyond its context. First, Peru argued that the purported defective waiver had to be cured at the moment of the filing of the Claimant's Statement of Claim.21 Then, after learning of Amorrortu's willingness to amend the purported defective waiver, Peru shifted its strategy to argue that it could not be cured at any point during the arbitration.
15. The inconsistency of Peru's position confirms what is clear, Objection 4 is nothing more than a frivolous bad faith attempt by Peru to derail this arbitration.
16. Therefore, as discussed in more detail below, both Objections 1 and 4 must be overruled and Peru must file its Statement of Defense.
17. This Answer to Peru's Submission on Preliminary Objections is divided in the following sections:
i. Section II sets forth the relevant factual allegations from Claimant's Statement of Claim;
ii. Section III addresses the relevant procedural history of this arbitration;
iii. Section IV demonstrates that Objection 1 lacks any legal or factual support;
iv. Section V addresses Objection 4 and establishes that this Tribunal has jurisdiction to adjudicate Amorrortu's claims; and
v. Section VI establishes that, in the alternative, Objection 4 is moot in light of Amorrortu's pending Application to Amend.
18. Together with this brief, Amorrortu submits and incorporates his Witness Statement and Declaration, the First and Second Expert Reports of Anibal Quiroga Leon, and Claimant's Statement of Claim filed on September 11, 2020 in its entirety.