Foreign investment protection in Peru and its role in ICSID arbitration

The 1993 Peruvian Constitution and the Peruvian Arbitration Law

Peru’s 1993 Constitution states that private initiative is free and exercised in a social market economy.  National and foreign investments are also subject to the same conditions, with certain exceptions.

The Peruvian Constitution provides that disputes under contractual relations are to be resolved in the State’s Judicial Branch or through arbitration, in accordance with dispute settlement mechanisms that may be provided under the relevant contract or in accordance with the law. The Constitution also establishes that the State and other public legal entities may submit their disputes arising from contractual relationships for resolution through national or international arbitration in the manner provided by national law.  

The Peruvian Arbitration Law under Legislative Decree No. 1071 of September 2008 is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration of 1985 (as amended in 2006). This law establishes a monist system that applies to national or international arbitrations in Peru, with only a few exceptions.

In accordance with its membership of the New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards of 1958 and the Interamerican Convention on Commercial Arbitration of 1975 (the Panama Convention), Title VIII of the Peruvian Arbitration Law provides for the recognition and enforcement of foreign arbitral awards. Pursuant to this law, ICSID arbitral awards are treated as a final judgment handed down by Peru’s national courts, as also established in Article 54.1 of the ICSID Convention.

Investment treaties celebrated by Peru

During the 1990s Peru entered into a wide range of BITs, with the objective of promoting and protecting foreign investments in the country. These treaties were signed by Peru during the 1990s are considered first generation treaties, given their limited content and scope.  Second-generation BITs were subsequently forged between Peru and Colombia in 2007, and Japan in 2008. As at the time of writing this article, Peru has signed 33 BITs.

Peru signed its first FTA in April 2006, the Peru - United States Trade Promotion Agreement (the “US FTA”), which entered into force in February 2009. After the US FTA, a new period of investment treaties began for Peru, with the creation of various FTAs.

Several of these FTAs contain Investment Chapters, such as its FTAs with Australia, Canada, Costa Rica, Chile, China, Mexico, Singapore, and South Korea. Peru also has multilateral free trade agreements with Investment Chapters under the Additional Protocol of the Pacific Alliance of 2016 (which was signed by Chile, Colombia, Mexico and Peru) and, more recently, the Comprehensive and Progressive Agreement for Transpacific Partnership of 2018 (CPTPP) which entered into force in January 2022.

All of these investment protection treaties contain investor-state dispute resolution mechanisms, such as arbitration before the ICSID, ad hoc arbitration under the UNCITRAL Arbitration Rules or other systems that the disputing parties may agree upon. At the time of writing, Peru has also been involved in five investment arbitration cases operating under UNCITRAL Arbitration Rules, which are administered by the Permanent Court of Arbitration of the Hague (the “CPA”).

In addition, concession contracts in Peru typically contain arbitral agreements that include the option of international arbitration for higher amounts in dispute (between USD 10m and USD 30m mainly with  ICSID and UNCITRAL. Some Legal Stability Agreements and Licence Contracts for the Exploitation of Hydrocarbons also contain ICSID clauses, which provide greater protection for foreign investors. These protections derive from the Peruvian constitution that recognises national and international arbitration in contracts with the State.

The State Response and Coordination System in International Investment Disputes

In December 2006 the Peruvian state adopted Law No. 28933 which established the State Response and Coordination System in International Investment Disputes (SICRECI), a centralised system in charge of the administration of Peru´s defence in investment arbitrations. On October 2008, Peru enacted Supreme Decree No. 125-2008-EF, which regulates Law No. 28933.

The SICRECI consists of:

1. a coordinator (the Ministry of Economy and Finance or “MEF”);
2. a Special Commission which itself forms part of the MEF; and
3. the public entities of the central government that have either signed contracts granting rights or guarantees to investor concessionaries, or represent Peru in the signing of investment protection treaties.

The Special Commission is directly involved in the administration of the defence of the State in investment arbitrations. The Commission’s permanent members include representatives from the MEF (acting as President), the Ministry of Foreign Affairs, the Ministry of Justice and Human Rights, and the Agency for the Promotion of Private Investment. The Special Commission also has non-permanent members for each case, including: (i) a representative of the Ministry of Commerce and Tourism, in disputes involving investment treaties; and (ii) a representative of each public entity involved in the investment dispute.

The Special Commission represents Peru in the direct settlement negotiations with foreign investors and appoints the law firms that will work on the defence of the case.  In general, Peru is represented by distinguished foreign law firms together with local counsel, which is one of the reasons Peru has achieved good results in its cases.

Peru´s active role at the ICSID

As of the time of writing this article Peru has been involved in a total of 44 ICSID cases, consisting of 25 concluded cases and 19 pending cases. Each of these investment arbitrations deal with different types of disputes concerning various sectors such as mining, hydrocarbons, infrastructure, banking, road concessions, electricity concessions, ports concessions, telecommunication concessions, among others.

As many as 17 of Peru´s ICSID cases are based on contracts: 13 are concession contracts, two are licence contracts for the exploration and exploitation of hydrocarbons, and two are stability agreements. These cases are very different, and are not the result of a specific political decision by the State.

In general, Peru has achieved good results in ICSID cases considering the large number of cases in which it has been involved. However, in recent years there has been an increase in cases where the State has lost (i.e. amounting to a total of eight cases). These lost cases involved investment treaties, concession contracts, and stability agreements.

Conclusions  

Peru has a solid legal framework for the promotion and protection of foreign investments, which includes the 1993 Peruvian Constitution, the 2008 Peruvian Arbitration Law (based on the UNCITRAL Model Law), and several BITs and FTAs with Investment Chapters. The SICRECI, led by the MEF and the Special Commission, plays a key role in representing the Peruvian State in investment arbitration, for which it uses distinguished law firms. As of today, Peru has been involved in 44 ICSID cases (25 concluded and 19 pending). Seventeen of these cases are solely contractual in nature, and 27 are based on investment treaties. Peru also has investment arbitrations under the UNCITRAL Arbitration Rules administered by the CPA.

Although Peru's results before the ICSID continue to be positive, the scales are beginning to tip in the other direction. Peru had unfavourable results on eight occasions and more losses are possible given the large number of ICSID arbitrations now in progress.