Summary

Source: icsid.worldbank.org

I. INTRODUCTION

1. As recalled in Peru's Counter-Memorial, the Arbitral Tribunal dismissed The Bank of Nova Scotia's (the "Claimant" or "Scotiabank") claims for Expropriation and Minimum Standard of Treatment under the Free Trade Agreement between the Republic of Peru and Canada (the "FTA") as manifestly without merit on 31 May 2024. The Tribunal's decision greatly circumscribed the dispute to the question of whether the Republic of Peru has--as the Claimant alleges--failed to observe its obligations towards Scotiabank under the National Standard of Treatment.

2. As the Respondent demonstrated in its Counter-Memorial, the Claimant's attempt to repackage its claims regarding the Minimum Standard of Treatment as ill-conceived allegations concerning National Treatment in order to ask this Tribunal to sit as an appellate court and review the decision of the Peruvian Constitutional Court of 9 November 2021 is impermissible.

3. As Peru shows in this submission, the Claimant's Reply does not cure the fundamental defects in its only remaining claim. It instead confirms that Scotiabank's case depends on artificially transforming an unsuccessful domestic constitutional proceeding into an international wrong. To do so, Scotiabank asks the Tribunal to accept a distorted factual narrative according to which the Constitutional Court had already adopted a final decision in its favor in 2017, only to reverse course under media and political pressure; to disregard jurisdictional limitations to which the Contracting States to the FTA expressly agreed; and, ultimately, to cast judgment over the Constitutional Court's handling and resolution of the Default Interest Amparo under the guise of a claim for breach of National Treatment. None of these propositions withstands scrutiny. As Peru demonstrates below, Scotiabank's account is contradicted by the contemporaneous documentary record; the Tribunal lacks jurisdiction over its claims; the attempt to challenge an adjudicative process outside the framework of denial of Justice is inadmissible; the elements of National Treatment are in any event not established; and the compensation sought bears no legally sufficient relationship to the alleged breach and ignores Scotiabank's own contribution to the losses it claims.

4. Section II first dismantles the factual premise on which Scotiabank's case rests. Scotiabank has not established that, before the publication of the Hildebrandt article, the Constitutional Court had adopted a final judgment in its favor. The Published Document and the so-called "Partially Signed Judgment" were no such thing: as both Peruvian law and the contemporaneous procedural record confirm, they did not embody nor reflect a final decision of the Constitutional Court. Nor has Scotiabank shown that the 2021 Decision was adopted under duress. Its allegations of an orchestrated media campaign, collusion involving members of the Court, and political pressure are built on inference, exaggeration, and innuendo rather than evidence capable of establishing that the Court's decision- making was improperly influenced. The procedural history of the Default Interest Amparo likewise defeats Scotiabank's attempt to portray the case as having been deliberately placed in "perpetual limbo" after the Hildebrandt article: the Court continued to process the Default Interest Amparo normally against the background of its extraordinary caseload, its prioritization measures, and, subsequently, the COVID-19 pandemic. The 2021 Decision was ultimately rendered through the Court's ordinary procedures and is supported by a reasoned legal basis. Scotiabank's ex-post attacks on its procedural and substantive lawfulness are particularly difficult to reconcile with its own failure to pursue the domestic mechanisms available to challenge those alleged defects. And the wider factual record exposes an additional problem with Scotiabank's narrative of victimhood: Scotiabank knowingly assumed the risk that the Tax Debt would be confirmed, failed to protect itself against the consequences of that risk, and declined to use procedural remedies capable of limiting the accumulation of default interest.

5. Section III demonstrates that the Tribunal need not--and cannot--hear Scotiabank's allegations in any event, because it lacks jurisdiction over them for two independent reasons. First, Peru and Canada deliberately removed measures concerning financial institutions from the investment protections on which Scotiabank relies. Article 1101 turns on the relationship between the challenged measure and the relevant financial institution or investment. Because Scotiabank Peru is undisputedly a financial institution, measures relating to it fall within the Treaty regime specifically applicable to financial institutions and outside the scope of Chapter Eight. Scotiabank cannot circumvent the Contracting State's broad exclusion of any measure relating to a financial institution from the investment chapter merely because the measure it now challenges took the form of a decision of the Constitutional Court, which it purports to do by reading language into Article 1101 that is simply not there. Second, even assuming arguendo that the relevant measures could fall within Chapter Eight, Scotiabank failed to satisfy the FTA's waiver requirement. It continued pursuing domestic proceedings concerning the same Tax Debt whose default interest forms the subject of this arbitration. The relevant inquiry is one of substantive overlap, not formal identity: under Peruvian law, the Tax Debt comprises the default interest accrued upon it, and the domestic and arbitral proceedings are therefore inextricably connected. Because compliance with the waiver requirement was a condition precedent to Peru's consent and had to exist when the Arbitration commenced, the subsequent dismissal of the domestic proceedings cannot retroactively cure that defect.

6. Section IV addresses the still more fundamental problem with Scotiabank's claim. Scotiabank cannot ask this Tribunal to review the conduct of a domestic court in the exercise of its adjudicative function while avoiding the specific requirements provided under international law for such a claim to succeed. Despite its attempts to disguise its claims, the substance of Scotiabank's case concerns the Constitutional Court's allegedly improper handling and disposition of the Default Interest Amparo. This entails a decision on whether the 2021 Decision was reasonably grounded in Peruvian law, both as regards its form and merits. Scotiabank's complaints do not cease to concern adjudicative conduct merely because Scotiabank also invokes vague allegations of interference by actors outside the Court. Nor can Scotiabank escape the problem by arguing that Peru, rather than Scotiabank, has placed the merits of the 2021 Decision in issue. Peru addresses the legal basis of the Decision solely because Scotiabank itself relies on its supposed procedural and substantive defects as purported evidence of arbitrariness and discrimination. Whether Scotiabank characterizes its complaint as procedural or substantive therefore makes no difference: in either case, it seeks an appellate-style review of an adjudicative process through a National Treatment claim. International law does not permit that result. Scotiabank's avenue for challenging the adjudicative conduct of the Constitutional Court was denial of Justice; after its Minimum Standard of Treatment claim was dismissed, it cannot reinstate that cause of action under Article 803.

7. Section V shows that Scotiabank's claim would fail even if the Tribunal were to entertain it under Article 803. National Treatment is a relative standard directed at nationality-based discrimination, and Scotiabank therefore bears the burden of establishing relevant "treatment", identifying appropriate domestic comparators, and proving that Scotiabank Peru received less favorable treatment than those comparators in like circumstances. The Claimant has done none of these things. Scotiabank first stretches the concept of "treatment" in an attempt to bring within Article 803 conduct that bears no relation with the management, conduct and operation of its investment: namely, proceedings concerning a decades-old tax debt that it inherited from its predecessor. It also relies on aspersions and innuendo with no material impact on its investment. Scotiabank then assembles a collection of domestic cases whose factual, procedural, and legal circumstances materially differ from those of the Default Interest Amparo, depriving them of probative value as comparators. And even relying on its flawed universe of cases, Scotiabank cannot establish that Scotiabank Peru received less favorable treatment than other plaintiffs. The record instead shows that the differences on which Scotiabank relies are explained by the particular circumstances of the respective proceedings rather than by nationality. The National Treatment claim thus reveals itself for what it is: not evidence of discrimination against a foreign investor, but an attempt to transform disagreement with the outcome and handling of a domestic case into a treaty violation.

8. Finally, Section VI demonstrates that, in any event, Scotiabank's request for compensation is unsustainable. Even if Scotiabank could establish a breach of Article 803 (quod non), it must still prove that the specific losses for which it seeks recovery were factually and legally caused by that breach. It has not done so. Scotiabank's damages case improperly attributes to the alleged treaty violation losses that arose from independent causes and from risks that Scotiabank itself assumed. In particular, Scotiabank acquired its interest in Banco Wiese without adequately accounting for the contingent Tax Debt and subsequently failed to pursue procedural mechanisms capable of preventing or reducing the continuing accrual of default interest. Those acts and omissions require a substantial reduction of any compensation that might otherwise be awarded on account of Scotiabank's contribution to its own alleged losses. Scotiabank's remaining quantum requests are similarly overstated: its proposed pre- and post-award interest rests on an inappropriate commencement date, rate, and compounding methodology, which seek to recover Scotiabank's lost profits, despite the fact that it never sought nor substantiated this head of damages. Moreover, Scotiabank has no basis to recover the costs of an arbitration in which most of its claims were dismissed at the outset and its sole remaining claim is equally meritless. The Tribunal should therefore dismiss Scotiabank's claims in their entirety and order it to bear the costs of these proceedings.

9. This is a paradigmatic case of improper multiplication of procedures at every instance and instrumentalization of investment arbitration for purposes of having a tenth chance to prevail in a case dismissed at every single instance by the domestic courts. It is also a case marked by the serious and blatant distortions of the facts and the case law; a practice that the Tribunal should not countenance.

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