Freeport-McMoRan Inc v Republic of Peru - ICSID Case No. ARB/20/8 - Claimant's Rejoinder on Jurisdiction - 16 December 2022
Reproduced from www.worldbank.org/icsid with permission of ICSID.
CLAIMANT'S REJOINDER ON JURISDICTION
II. THE TRIBUNAL HAS JURISDICTION TO CONSIDER FREEPORT'S CLAIMS
A. Article 10.18.1 of the TPA Does Not Bar Freeport's Claims
1. Freeport's Claims for Breach of the Stability Agreement Are Timely
i. Under the Terms of Article 10.18.1, the Limitation Period Can Only Start After a Claimed Breach Has Occurred and the Claimant Has Incurred Damage
ii. Peru's Breaches of the Stability Agreement Did Not Occur and SMCV Did Not Incur Loss Until Each Assessment Became Final and Enforceable
2. Freeport's Claims for Breaches of the TPA Are Timely
i. Freeport's Article 10.5 Claims Challenging Royalty Assessments Based on Breach of Legitimate Expectations, Arbitrary Actions, Inconsistent and Non-Transparent Action, and Lack of Due Process Are Timely
ii. Freeport's Article 10.5 Claims Based on Due Process Violations are Timely Because Freeport and SMCV Exercised Reasonable Diligence
iii. Freeport's Article 10.5 Claims Based on Peru's Failure to Waive Penalties and Interest Are Timely
iv. Freeport's Article 10.5 Claims Based on Peru's Failure to Reimburse GEM Payments Are Timely
B. Article 10.18.4 Does Not Apply Because SMCV Did Not Submit Claims for Breaches of the Stability Agreement to a Peruvian Administrative Tribunal or to Any Other Binding Dispute Settlement Procedure
1. Article 10.18.4 Does Not Apply Because SMCV Did Not Previously Submit Claims for Breaches of the Stability Agreement for Adjudication
2. SMCV Did Not Previously Submit Claims to an Administrative Tribunal or to Binding Dispute Settlement Procedures
i. SUNAT's Claims Division and the Tax Tribunal Are Not Administrative Tribunals
ii. SUNAT's Claims Division and the Tax Tribunal Do Not Provide the Binding Dispute Settlement Procedures Article 10.18.4 Contemplates
C. Freeport's Claims Do Not Require Retroactive Application of the TPA
D. Article 22.3.1 Does Not Apply to Penalties and Interest on the Tax Assessments
E. The Stability Agreement Is an Investment Agreement On Which SMCV Relied in Establishing Its Investment in the Concentrator
1. Article 10.16.1(b)(i)(C) Only Requires That SMCV Relied on the Stability Agreement
2. There Is No Temporal Limitation Unique to Article 10.16.1(b)(i)(C) Claims
3. Phelps Dodge and SMCV Relied on the Stability Agreement in Making the Covered Investment
III. REQUESTED RELIEF
1. Peru's Reply on Jurisdiction does nothing to rehabilitate the flawed arguments in Peru's Memorial on Jurisdiction. Peru admits that, if its arguments were accepted, an investor that has received an assessment from the National Superintendence of Customs and Tax Administration ("SUNAT") would forfeit access to investment treaty arbitration by requesting that the Peruvian tax administration reconsider and, where appropriate, correct that assessment. Peru also admits that its position would mean that an investor would have to submit to treaty arbitration claims for breaches that are based on future SUNAT assessments that might never be rendered, for fiscal periods that have not yet commenced, and for amounts that cannot yet be determined. Peru argues that achieving these absurd results is the object and purpose of the U.S.-Peru Trade Promotion Agreement ("TPA"). And because the preparatory work of the TPA and the unrebutted testimony of representatives from both sides of the negotiations clearly show that Peru's arguments are antithetical to the object and purpose the TPA drafters intended to achieve, Peru argues that-- contrary to basic rules of treaty interpretation--the Tribunal should simply ignore that evidence.
2. More fundamentally, Peru fails to reconcile its arguments with the plain terms of the TPA.
For example, Peru now disavows its argument in the Memorial on Jurisdiction that Freeport had to submit claims for losses SMCV "would incur" in the future. Yet, that would precisely be the result if Peru were correct that the limitation period began once a claimant "first knew" the "legal basis" of a future breach.
And it is unsurprising that this argument remains central to Peru's Article 10.18.1 objection because, in its own words, "Respondent does not accept" that Article 10.18.1 "require[s] completed breach and injury."
But that is exactly what the plain terms of Article 10.18.1 require--the limitation period does not begin until the claimant acquires knowledge that a breach has occurred and that the claimant "has incurred loss or damage."
3. If anything, Peru's Reply on Jurisdiction only makes Peru's jurisdictional objections more irreconcilable with the plain terms of the TPA. Contrary to Article 10.18.4, which only applies if an investor previously submitted claims for the "same alleged breach," Peru maintains its argument that any claim for breach of the Stability Agreement that Freeport submitted is barred if it is based on an Assessment that SMCV previously challenged through the administrative process. But now Peru also argues, in the alternative, that Article 10.18.4 bars all of Freeport's Stability Agreement claims because SMCV submitted administrative law challenges to the 2006-2007 and 2008 Royalty Assessments to the Contentious Administrative Courts, even though Freeport does not even allege breaches of the Stability Agreement based on the 2006-2007 and 2008 Royalty Assessments in this arbitration. Peru's new argument only demonstrates that the "fundamental basis test" that Peru proposes has no objective limitations, which is why Peru's own authority describes it as a test "simply too vague to ensure legal certainty."
4. Peru's new objection that Freeport's Stability Agreement claims are barred because the definition of "investment agreement" in Article 10.28 allegedly contains a latent temporal limitation is equally detached from the plain terms of the TPA. Peru argues that the definition of investment agreement excludes agreements that an investor or enterprise relied on in establishing an investment before the TPA entered into force. However, Article 10.28 does not say that and the TPA expressly defines "covered investment" to include investments that predate the TPA's entry into force. Moreover, Peru ignores the documents in the negotiation record showing that the TPA drafters expressly considered and rejected a provision limiting the temporal scope of investment agreements to those that "take effect two years after the date of entry into force of this Agreement," which would have rendered Peru's temporal limitation superfluous.
5. Peru's Reply on Jurisdiction also exacerbates the inconsistencies between Peru's jurisdictional arguments and Peru's position on liability and quantum. For example, in support of its retroactivity objection, Peru maintains that the June 2006 MINEM Report is the "sine qua non of SUNAT's Assessments" but, elsewhere, argues that "SUNAT's audit and assessments against SMCV were not a response to MINEM's June 2006 Report." In support of its time-bar objection, Peru continues to argue that, when SUNAT notified SMCV of the 2006-2007 Royalty Assessments, Freeport "incurred" damages from assessments that SUNAT could not yet enforce against SMCV and future assessments that SUNAT had not yet rendered. But for damages purposes, Peru argues that "[a] legal obligation can only be considered a `damage' if that legal obligation will actually result in the victim making the payments; if not, then the victim has not suffered (and will not suffer) any actual damage." In its submissions on Article 10.18.1, Peru admits that, if during the administrative process, "SMCV had won, then it would have been refunded the amount of any overpayment, with interest." But for damages purposes, Peru maintains its absurd argument that even if it breached the Stability Agreement and Article 10.5 of the TPA, it should be permitted to retain over 60% of the ill-gotten gains resulting from the penalties and interest because SMCV allegedly failed to sufficiently mitigate those damages.
6. As Freeport has explained, all of Freeport's claims for breaches of the Stability Agreement and Article 10.5 of the TPA have been properly submitted to arbitration and squarely fall within the scope of Peru's consent to arbitrate. First, all of Freeport's claims for breaches of the Stability Agreement are timely under Article 10.18.1 because Freeport submitted its claims within three years of when it acquired or should have acquired knowledge of each of Peru's breaches and the resulting loss or damage. Peru breached the Stability Agreement and SMCV incurred loss or damage only once each Assessment became final and enforceable and SMCV had an obligation to pay. Likewise, Freeport submitted each of its claims for breaches of Article 10.5 within three years of the date of each breach, with the exception of Freeport's claims for breach of due process in the 2006-2007 and 2008 Royalty Cases, which are still timely because Freeport submitted those claims within three years of acquiring knowledge of those breaches.
7. Second, Peru's Article 10.18.4 objection falls away because Peru breached the Stability Agreement when each SUNAT assessment became final and enforceable and SMCV, therefore, could not have taken the fork-in-the-road for those breaches before they occurred. In any event, Article 10.18.4 of the TPA does not apply to any of Freeport's claims for breaches of the Stability Agreement because SMCV did not submit the "same alleged breach[es]" to any court or administrative tribunal of Peru or to binding dispute settlement procedures. SMCV submitted administrative law challenges to SUNAT and the Tax Tribunal, not contract claims for breaches of the Stability Agreement. Similarly, SMCV submitted administrative law claims to the Contentious Administrative Courts in the 2006-2007 and 2008 Royalty Cases and, in any event, does not allege breaches of the Stability Agreement based on the 2006-2007 and 2008 Royalty Assessments in this arbitration. Moreover, the proceedings before SUNAT's Claims Division and the Tax Tribunal are not proceedings before "an administrative tribunal" or "binding dispute settlement procedures" under Article 10.18.4 of the TPA.
8. Third, Freeport's claims comply with Article 10.1.3 of the TPA, as all of the breaches that Freeport alleges occurred after the TPA entered into force.
9. Fourth, Article 22.3.1 does not bar Freeport's Article 10.5 claims for penalties and interest on the Tax Assessments because penalties and interest are not taxes under Peruvian law and, therefore, cannot constitute "taxation measures" under the TPA.
10. Finally, Freeport can submit claims for breaches of the Stability Agreement on behalf of SMCV under Article 10.16.1(b)(i)(C) because SMCV relied on the Stability Agreement in making its investment in the Concentrator.
III. REQUESTED RELIEF
103. Freeport respectfully requests the Tribunal dismiss Peru's objections to jurisdiction and declare that it has jurisdiction over Freeport's claims.