Gramercy Funds Management LLC, Gramercy Peru Holdings LLC, Gramercy Investment Advisors LLC and Gramercy Advisors LLC v. the Republic of Peru

Case summary

At a glance

Parties: Gramercy Funds Management LLC and Gramercy Peru Holdings LLC (both Delaware, USA) v. the Republic of Peru
Case no.: ICSID Case No. UNCT/18/2
Forum and rules: UNCITRAL Arbitration Rules 2013, with ICSID as administering authority; seat Paris (France)
Treaty: United States–Peru Free Trade Agreement, signed 12 April 2006, in force 1 February 2009
Tribunal: Prof. Juan Fernández-Armesto (President), Mr. Stephen L. Drymer, Prof. Brigitte Stern (dissenting)
Sector: Sovereign debt; Peruvian agrarian reform bonds
Outcome: By majority, the Tribunal upheld jurisdiction and found that Peru breached Art. 10.5 of the FTA by imposing an arbitrary method for revaluing and paying the bonds in DS 242/2017. All other claims were dismissed. In 2024 the parties settled, and the settlement was recorded in a stipulated US court judgment.
Amount: Claimed: about USD 1.8 billion as of 31 May 2018, with alternatives down to about USD 550 million. Awarded: USD 33,222,630 plus 7.22% p.a. compounded annually from 1 January 2009 until payment, about USD 88 million at the award date. Costs: Peru to pay USD 9,860,000 of the claimants' legal costs and USD 771,388.92 of arbitration costs, plus interest. Settlement: USD 40,000,000 in two instalments under the Stipulated Judgment of 12 November 2024.

The dispute

Between 2006 and 2008 Gramercy Peru Holdings LLC (GPH) bought 9,656 Peruvian agrarian reform bonds (Bonos Agrarios) from their original Peruvian holders for about USD 33.2 million. The bonds had been issued in the 1970s to compensate landowners for expropriations under the Ley de Reforma Agraria 1969, and hyperinflation had left them practically worthless. In 2001 Peru's Constitutional Tribunal held that the bonds must be revalued. Its Resolución of 16 July 2013 then ordered revaluation by dollarization, and the Ministry of Economy and Finance (MEF) issued Supreme Decrees in 2014 and 2017 (DS 242/2017) setting up a bondholder process. Gramercy claimed that these measures denied it justice and breached the minimum standard of treatment, indirectly expropriated its bonds, breached national treatment, and breached an effective-means clause imported through the MFN clause. Peru raised eight jurisdictional objections, among them that the bonds were not an investment, that the claim was an abuse of process over a pre-existing domestic dispute, that the waiver was defective and that the claims were time-barred. It also defended the measures on the merits.

Key holdings

Jurisdiction upheld. The bonds are "bonds" within paragraph (c) of the investment definition in Art. 10.28 of the FTA. Their domestic origin, local currency and link to land expropriation do not take them out of that category. Award ¶¶ 186–197
All of Peru's jurisdictional objections were dismissed. There was no abuse of process and no improper retroactivity. GPH's first waiver was invalid, but the second waiver of 18 July 2016 complied with the Treaty. No claim was time-barred, both claimants are investors, and Peru's denial-of-benefits objection was late and meritless. Award ¶ 146
Breach of the minimum standard of treatment (Art. 10.5). DS 242/2017 used an unexplained parity exchange rate that contradicted the Constitutional Tribunal's mandate. It converted amounts back into Soles at the lower market rate and stopped interest at the date of revaluation, all arbitrarily reducing the sums payable. Its category of "speculative" holders was arbitrary regulation aimed at Gramercy. Award ¶¶ 1237, 1289–1292, 1396(iii)
The ancillary claims failed. The Resolución TC Julio 2013 was not a denial of justice and states the law of the land on revaluation. There was no expropriation, because under the measures the bonds were worth USD 33.57 million, slightly more than Gramercy paid. The effective-means claim failed because bondholders retain court remedies, and the national-treatment claim failed because the "speculative" category is not based on nationality. Award ¶¶ 1213–1216, 1230, 1239, 1293
Damages. The Tribunal rejected all of Gramercy's methods, which were based on CPI, its own dollarization method, Peruvian court outcomes and internal valuations. It adopted Peru's proposal of the purchase price brought forward: USD 33,222,630 plus 7.22% p.a. (Prof. Edwards' average real return on debt in Peru), compounded annually from 1 January 2009 until payment, payable to GPH alone. On payment GPH must deliver the original bonds if Peru requests them. Award ¶¶ 1316–1339, 1353
Costs. Reasonable legal costs were capped at USD 17 million. Gramercy recovers 100% of its jurisdiction-phase costs and 60% of its merits and quantum costs, totalling USD 9.86 million, plus its USD 771,388.92 share of the tribunal and ICSID costs, with 7.22% compound interest. Each side bears its own document-production costs. Award ¶¶ 1382–1393
Prof. Stern dissented. In her view the Tribunal lacked jurisdiction because the claim was an abuse of process: Gramercy bought claims burdened with a long-standing domestic dispute. She also considered that the bonds, acquired by sale without any economic activity in Peru, lacked the characteristics of an investment. Dissenting Opinion ¶¶ 2–4, 114