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International Arbitration Forum

Kaloti Metals & Logistics, LLC v. Republic of Peru

Case summary

At a glance

Parties
Kaloti Metals & Logistics, LLC (United States, Florida) v. Republic of Peru
Case no.
ICSID Case No. ARB/21/29
Forum and rules
ICSID Convention arbitration; ICSID Arbitration Rules 2006; place of proceeding Washington, D.C.
Treaty
United States–Peru Trade Promotion Agreement (in force 1 February 2009), Chapter 10
Tribunal
Prof. Donald McRae (President), Prof. Dr. José Carlos Fernández Rozas, Prof. Dr. Rolf Knieper
Sector
Gold trading; anti-money-laundering seizures
Outcome
Claim dismissed for lack of jurisdiction ratione materiae (14 May 2024): the claimant had no investment in Peru.
Amount
Damages not reached. The claimant was ordered to pay Peru USD 3,509,234.41 for legal fees and expenses and USD 367,949.63 in ICSID costs. Total costs of the arbitration were USD 735,899.26.

The dispute

Kaloti Metals & Logistics (KML), a Florida company based in Miami, bought gold in Peru from 2012 and exported it to the United States, mainly for resale to Kaloti Jewellery (Dubai). In 2013 and 2014 five gold shipments from four Peruvian suppliers (Koenig, Oxford, San Serafín and Sumaj) were held in Callao. Four were immobilised by SUNAT and then made subject to court-ordered precautionary seizures in money-laundering prosecutions of the suppliers. The fifth was attached in a civil suit brought by Sumaj. KML claimed that Peru breached fair and equitable treatment and national treatment, and that it indirectly expropriated both the gold and KML's "going concern" business, which KML said collapsed on 30 November 2018. Peru objected that KML had no covered investment in Peru (no territorial nexus, no ownership of the gold, no characteristics of an investment, no legality) and that most claims were time-barred under Article 10.18.1. On the merits Peru relied on its police powers against illegal mining and money laundering.

Key holdings

  1. KML did not prove that it owned or controlled the gold in the five seized shipments. No sale and purchase agreements were produced. The waybills, payment of transport and the US customs declarations were all in the suppliers' names, and KML's margin-trading terms suggested it acted partly as a broker. At the earliest, title could only have passed in Miami. ¶¶ 334–342
  2. Under Article 10.28 of the TPA, an asset must have the "characteristics" of an investment, not just one of them. The word "or" after "including" only keeps the list of characteristics open. ¶¶ 348–350
  3. There was no substantial commitment of capital to a business in Peru. Buying gold was a commercial exchange of values. The Lima activities (an office within Hermes' premises on a one-year lease, contractors terminable on 30 days' notice, weighing and assaying) were ancillary to a gold trading business run from Miami. No refinery was ever funded, and KML was not registered with the RUC and paid no tax in Peru. ¶¶ 356–369
  4. The Peruvian operations also lacked duration, an expectation of profit of their own (profits arose in Miami from the purchase–resale margin) and any investment risk beyond ordinary commercial risk. The Tribunal did not need to decide on contribution to Peru's development. ¶¶ 371–381
  5. The objection ratione materiae is upheld and the claim is dismissed. The Tribunal did not need to decide the time-bar objection, the legality objection, liability or damages. ¶¶ 383–387, 399
  6. Costs follow the event. KML had no evidentiary basis for its claim to an investment, so there was no reasonable basis for litigating it. KML bears the costs of the arbitration and Peru's reasonable costs of representation. ¶¶ 394–398

Procedural history

  1. 3 May 2016KML sent Peru a letter that Peru calls KML's first Notice of Intent, alleging breaches of Articles 10.5, 10.7 and 10.8 of the TPA.
  2. 30 April 2021Request for Arbitration filed. ICSID registered it on 20 May 2021.
  3. 21 September 2021Tribunal constituted. Prof. Donald McRae was chosen as president by list procedure under the Parties' agreement.
  4. 28 October 2021Procedural Order No. 1 issued: 2006 ICSID Rules, English and Spanish as procedural languages, Washington, D.C. as place of proceeding.
  5. 24 October 2022Procedural Order No. 3 on Peru's request for security for costs. The Tribunal kept the matter open, pending an undertaking from Mr. Kaloti that he did not give in the terms specified.
  6. 26 May 2023The United States filed a non-disputing Party submission under Article 10.20.2 of the TPA.
  7. 24–29 July 2023Hearing on jurisdiction and the merits in Washington, D.C.
  8. 14 May 2024Award: jurisdiction declined ratione materiae and costs awarded to Peru.

Tribunal, counsel and experts

Decided by
For the claimant
WDA Legal
For the respondent
Comisión Especial que Representa al Estado en Controversias Internacionales de Inversión, Ministerio de Economía y Finanzas · Arnold & Porter Kaye Scholer LLP · Lazo Abogados
For other participants
Office of the Legal Adviser, United States Department of State
Experts
Almir Smajlovic (claimant) · Dino Carlos Coria (claimant) · Joaquín Missiego (respondent) · Darrell Chodorow (respondent) · Fabricio Núñez (respondent)

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Keywords

Summary generated with AI from the published documents — refer to the award for the authoritative text.

Case ID
ICSID Case No. ARB/21/29
Country
Treaty
United States of America - Peru Trade Promotion Agreement (2006)
Documents
Section