Latam Hydro LLC and CH Mamacocha S.R.L. v. Republic of Peru

Case summary

At a glance

Parties: Latam Hydro LLC (United States) and CH Mamacocha S.R.L. (Peru) v. Republic of Peru
Case no.: ICSID Case No. ARB/19/28
Forum and rules: ICSID Convention; ICSID Arbitration Rules 2006, as modified by Chapter Ten, Section B of the TPA; place of proceeding Washington, D.C.
Treaty: United States–Peru Trade Promotion Agreement (signed 12 April 2006, in force 1 February 2009); also the RER Concession Contract of 18 February 2014
Tribunal: Prof. Dr. Albert Jan van den Berg (President), Prof. Dr. Guido Santiago Tawil, Prof. Raúl E. Vinuesa
Sector: Renewable energy; small hydroelectric plant
Outcome: Award of 20 December 2023: jurisdiction upheld except over the Upstream Projects. By majority, all treaty and contract claims were rejected. The RER Contract was declared terminated and the USD 5 million Performance Bond is to be returned. Tawil dissented in part on the merits.
Amount: Claimed: at least USD 45,620,000. Awarded: nothing, but Peru may not call the USD 5 million Performance Bond and must return it. Claimants bear the arbitration costs of USD 1,508,304.41 and must reimburse Peru USD 754,152.21, with 3% interest compounded annually. Each side bears its own legal costs (claimants had claimed USD 17,522,014.25–23,318,729.25; Peru USD 4,804,833.80).

The dispute

Latam Hydro LLC, a Delaware company, and its Peruvian subsidiary CH Mamacocha S.R.L. (CHM) developed the Mamacocha Project, a 20 MW run-of-the-river hydroelectric plant and transmission line near the Mamacocha Lagoon in Arequipa. CHM won Peru's Third RER Auction and signed the RER Contract with the Ministry of Energy and Mines (MINEM) on 18 February 2014. Under that contract, commercial operation had to start by 31 December 2018, and the termination date of 31 December 2036 could not be changed. MINEM granted two extensions (Addenda 1 and 2) for permitting delays attributed to the State. The project then faced several obstacles: a lawsuit by the Regional Government of Arequipa to annul its environmental permits, a criminal investigation, delays in the civil works authorisation, and an amparo judgment annulling the permits. In December 2018 MINEM started a domestic arbitration in Lima to annul Addenda 1 and 2 and refused a third extension. The claimants alleged breach of the RER Contract and Peruvian law, and breach of the TPA's fair and equitable treatment, expropriation and MFN provisions. Peru raised jurisdictional objections and argued that the contract's deadlines were mandatory and that it had acted as a contracting party, not as a sovereign.

Key holdings

Jurisdiction was upheld over Latam Hydro's TPA claims, brought on its own behalf and on behalf of CHM, and over CHM's claims under the RER Contract. The exception: there is no jurisdiction ratione materiae over the claims concerning the Upstream Projects. Award ¶ 1412(A)–(B)
Peru did not breach the RER Contract by rejecting the Third Extension Request. Neither the contract nor Peruvian law gives a right to extend the commercial operation start date or the termination date. An extension would have been inconsistent with the contract and with the binding RER Regulations. Starting the Lima Arbitration was a legitimate use of the contract's domestic arbitration clause. The majority rejected all of CHM's contract claims. Award ¶¶ 1203, 1213
Where Peru acted within the contractual relationship rather than as a sovereign, and the matching contract claim fails, the TPA claim based on the same conduct fails as well. The Lima Arbitration and the denial of the extension were acts of a contracting party. Award ¶¶ 1193, 1202, 1216
No breach of fair and equitable treatment (TPA Art. 10.5). The RGA Lawsuit, the criminal proceedings, the handling of the civil works authorisation, the Lima Arbitration and the denial of the extension were not arbitrary, discriminatory, lacking in transparency or in bad faith. They did not defeat reasonable expectations, whether taken one by one or together. The evidence does not support a concerted plan to destroy the project. Award ¶¶ 1221–1228
No indirect expropriation (TPA Art. 10.7 and Annex 10-B). The measures did not interfere with reasonable investment-backed expectations, and the contractual measures could not be expropriatory. An adverse economic effect alone is not enough, so the Tribunal did not decide on economic impact. The MFN claim (Art. 10.4) also failed: there was no breach of Art. 3(2) of the Paraguay–Peru BIT, and with no breach of contract there was nothing an umbrella clause could protect. Award ¶¶ 1253–1259, 1270–1278
Peru breached Clause 3 of the 2017 Confidentiality Agreement through the testimony of its witness Mr. Ampuero about the settlement talks. The breach was not material and did not end the agreement under Arts. 1428–1429 of the Peruvian Civil Code. The claimants' request to declare the agreement terminated was rejected. Award ¶¶ 1306–1317
Costs: under Clause 11.7 of the RER Contract and the principle that costs follow the event, the claimants jointly bear the arbitration costs of USD 1,508,304.41 and reimburse Peru USD 754,152.21, with 3% interest compounded annually. Each side bears its own legal and other costs, because the claimants defeated all but one of Peru's jurisdictional objections and their claims were not frivolous. Award ¶¶ 1380–1390
Dissent: Tawil found that Peru breached Clauses 1.4.26, 1.4.37 and 6.3 of the RER Contract and the fair and equitable treatment standard under Art. 10.5. In his view, refusing the third extension despite delays not attributable to the concessionaire, and disavowing Addenda 1 and 2, destroyed the contract's financial-economic balance. Dissenting Opinion ¶¶ 8–10