Kaloti Metals & Logistics LLC v Republic of Peru - ICSID Case No. ARB/21/29 - Republic of Peru's Memorial on Jurisdiction and Counter-Memorial on Merits - 5 August 2022
Country
Year
2022
Summary
TABLE OF CONTENTS
I. INTRODUCTION
A. Overview
B. Summary of key facts
C. The reasons why Kaloti's claims must be dismissed
1. The Tribunal lacks jurisdiction over Kaloti's claims
2. Kaloti's claims fail on the merits
3. Kaloti has failed to demonstrate that it is entitled to damages
D. Kaloti should be ordered to provide security for all costs ultimately incurred by Peru in this arbitration
II. FACTS
A. Before Kaloti started operating in the country, Peru strengthened its legal framework to combat the increasingly pernicious effects of illegal mining, money laundering and related criminal activities
1. Illegal mining hinders the socio-economic development of Peru
2. Illegal mining is closely linked to other forms of criminal activity
3. Illegal mining causes environmental degradation and pernicious health effects on local communities
4. Measures adopted by Peru during 2012 to strengthen its legal framework against illegal mining, money laundering and related criminal activities
5. SUNAT, the Prosecutor's Office, the State Attorney's Office, and the Criminal Courts play a key role in enforcing Peru's legal framework against illegal mining and money laundering
B. SUNAT properly immobilized the gold in Shipments 1 to 4 because the Suppliers failed to prove that the origin of such gold was lawful
1. SUNAT correctly corresponded only with the Suppliers and/or their appointed customs brokers
2. SUNAT decided to inspect Shipments 1 to 4 based on objective risk indicators
3. SUNAT's inspections not only confirmed that the Suppliers had failed to establish the lawful origin of Shipments 1 to 4, but also revealed indicia of criminal activity
4. Peruvian law prevented SUNAT from lifting the immobilizations, given the circumstances
5. SUNAT properly notified its findings to the Prosecutor's Office and other competent authorities, and ultimately lifted the immobilizations
6. Kaloti did not comply with its obligation to conduct appropriate due diligence on the Suppliers and the Five Shipments
C. Peru conducted criminal investigations and commenced judicial proceedings against the Suppliers
1. The Prosecutor's Office found sufficient evidence to open preliminary criminal investigations
2. The Criminal Courts granted the Precautionary Seizures, in accordance with Peruvian law
3. The Criminal Courts initiated the Criminal Proceedings in accordance with Peruvian law
4. Kaloti's misplaced attempts to participate in the criminal investigations and proceedings
5. The Criminal Courts conducted the Criminal Proceedings in full accordance with Peruvian law
6. Shipment 5 is subject to a precautionary attachment in the context of a civil proceeding brought by
7. Kaloti was included in criminal investigations due to its close links with companies that were the subject of criminal investigation
D. Kaloti is solely responsible for its global reputation
1. Kaloti's worldwide disrepute is the result of its own business practices
2. Peru did not leak any information about Kaloti to the press
3. Peru was not responsible for any gold supplier's alleged refusal to conduct business with Kaloti
4. Peru is not responsible for any severed relationship between Kaloti and financial institutions
E. Peru engaged in good faith negotiations with Kaloti
III. JURISDICTION
A. The Tribunal lacks jurisdiction ratione materiae over Kaloti's claims
1. Kaloti's alleged assets in Peru do not have the "characteristics of an investment" under Treaty Article 10.28 and the ICSID Convention
2. Kaloti has failed to establish that it owns or controls the alleged investments underlying its claims
3. Kaloti's alleged investments were not acquired in accordance with Peruvian law and international public policy
4. In any event, the Tribunal lacks jurisdiction ratione materiae over the alleged expropriation of Kaloti as an enterprise, as well as over Kaloti's claims of lost profits outside of Peru
B. The Tribunal lacks jurisdiction ratione temporis over most of Kaloti's claims because they are barred by the limitations clause in Treaty Article 10.18.1
1. The relevant cut-off date here for purposes of the three-year limitations clause is 30 April 2018
2. None of Kaloti's arguments enable it to circumvent the three-year limitations bar
3. Kaloti already had actual or constructive knowledge, before the Cut-off Date, of most of the alleged breaches and of the alleged resulting loss or damage
IV. PERU HAS COMPLIED WITH ITS OBLIGATIONS UNDER THE TREATY
A. Kaloti's FET claims under the MST Provision lack merit
1. The MST Provision requires Peru to treat Kaloti's investment in accordance with the "minimum standard of treatment of aliens" under customary international law
2. Kaloti has failed to establish that the events underlying its claims for breach of the MST Provision constitute a composite act
3. Kaloti's denial of justice claims also lack merit
4. Kaloti's FET claim regarding discrimination courts fails as a matter both of law and of fact
5. Kaloti's FET claim regarding the Parties' negotiations fails as a matter of law and fact
B. Peru did not expropriate any investment by Kaloti
1. The relevant requirements under the Expropriation Provision and Treaty Annex 10-B
2. Kaloti has failed to prove that its expropriation claims concern a "covered investment" which it legally owns (or owned) under Peruvian law
3. Peru's actions did not interfere "with distinct, reasonable investment- backed expectations"
4. Peru's actions neither permanently deprived Kaloti of the gold shipments nor caused Kaloti's alleged bankruptcy
5. Peru's measures were non-discriminatory regulatory actions that pursued legitimate public welfare objectives, and fell within Peru's police powers
6. In the event that an expropriation were deemed established, it would have been a lawful one and thus would not give rise to any obligation to pay compensation
C. Kaloti's National Treatment Provision claim lacks any merit
1. The applicable legal standard in relation to national treatment
2. Peru has not violated the National Treatment Provision
V. KALOTI IS NOT ENTITLED TO ANY COMPENSATION
A. Kaloti's losses were not caused by any actions attributable to Peru
1. Kaloti has failed to establish a proximate causal link between Peru's conduct and Kaloti's loss
2. There were numerous supervening causes for the failure of Kaloti's enterprise
B. Kaloti has failed to substantiate the damages it seeks
1. The applicable legal standard for damages under international law
2. Kaloti's damages claims are speculative and uncertain
C. Kaloti has failed to mitigate its losses
D. Kaloti's claim for pre-award interest is inflated
E. Kaloti is not entitled to any "Tax Gross-up"
VI. CLAIMANT SHOULD BE ORDERED TO PROVIDE SECURITY FOR PERU'S
COSTS IN THIS ARBITRATION
A. The Tribunal has the power to order claimant to provide security for costs
B. The relevant legal standard
C. All the conditions for ordering Claimant to provide security for costs are satisfied in this case
1. There is a legal right to be preserved
2. The measures requested are urgent
3. An order for security for costs is necessary, and Peru would suffer significant harm if security were not ordered
D. The Tribunal should suspend the proceeding in the event of non- compliance by Claimant with any order of security for costs
VII. REQUEST FOR RELIEF
I. INTRODUCTION
1. Unlike most investment arbitrations, which are typically quite complex legally and/or factually, the present case can be summarized in rather simple terms, as follows.
2. Claimant (Kaloti) is part of a Dubai-based corporate group of dubious reputation (the Kaloti was in the business of exporting from Peru gold that was mined there. However, it was not abiding by its obligation under Peruvian law to conduct due diligence to ascertain that the gold that it was purchasing had a lawful provenance. Kaloti itself admits that much of the gold trade in Peru is linked with criminal activities, and yet despite that it did not conduct even minimal due diligence on its suppliers.
3. Kaloti's claims in this arbitration are based on various measures adopted by the authorities of the Republic of Peru ("Peru") with respect to five specific shipments of gold. Based on objective indicators, and in the normal course of their duties, the Peruvian customs and tax authorities had identified those shipments, and their suppliers, as suspect and potentially associated with criminal activity. As a result, those authorities promptly ordered the immobilization of the relevant shipments, pending further investigation. The same authorities also notified prosecutors about the potential criminal activity related to those suppliers and shipments, as a result of which the prosecutors conducted their own investigation. Such investigation yielded sufficient evidence of criminality to persuade the prosecutors that the commencement of criminal proceedings against the suppliers was justified.
4. In connection with such criminal proceedings, the prosecutors asked the Peruvian criminal courts for orders for the seizure of the five shipments, in order to preserve evidence and prevent the potential dissipation of the shipments. The courts granted such requests, based on the evidence provided to them by the prosecutors. Judicial seizure orders were thus issued, at which point the initial (administrative) immobilization measures were lifted. The relevant criminal proceedings remain pending, and the five shipments remain seized pending resolution of such proceedings. In this arbitration, Kaloti is challenging many of the measures adopted by the customs, tax, and prosecutorial authorities, as well as by the courts, with respect to the immobilization and seizure of the five shipments of gold.
5. Kaloti's claims should be dismissed, however, because as demonstrated below, it has not succeeded in establishing that the Tribunal has jurisdiction, and in any event there is nothing to Kaloti's claims on the merits. All of the measures adopted by the relevant authorities--both executive and judicial--with respect to the five shipments, and to Kaloti, were reasonable, proportionate, and justified, and designed to advance legitimate public welfare objectives.
6. The remainder of this Introduction provides additional general comments about various relevant strands,1 and the body of the submission then demonstrates conclusively, and on the basis of concrete evidence, that the Tribunal lacks jurisdiction, and that, in any event, Kaloti's claims are meritless and its damages quantification untenable.
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VII. REQUEST FOR RELIEF
857. For the reasons set forth in this Counter-Memorial, the Republic of Peru respectfully requests that the Tribunal:
a. dismiss all of Claimant's claims for lack of jurisdiction and/or inadmissibility;
b. dismiss for lack of merit any and all claims in respect of which the Tribunal may determine that it has jurisdiction;
c. reject in its entirety Claimant's request for compensation, should the Tribunal find that it has jurisdiction and that there is merit to any of Claimant's claims;
d. order Claimant to pay all costs of the arbitration, including the totality of Peru's legal fees and expenses, expert fees and expenses, and all other expenses incurred in connection with Peru's defense in this arbitration, plus compounded interest on such amounts until the date of payment, calculated at the risk-free US Treasury Bill rate; and
e. order Claimant to post a security for costs, per Peru's detailed request in Section VI.
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