SMM Cerro Verde Netherlands B.V. v. Republic of Peru

At a glance

Parties

SMM Cerro Verde Netherlands B.V. (Netherlands) v. Republic of Peru

Case no.

ICSID Case No. ARB/20/14

Forum and rules

ICSID Convention arbitration; ICSID Arbitration Rules 2006; place of proceeding Washington, D.C.

Treaty

Netherlands–Peru BIT (in force 21 November 1996)

Tribunal

Ms. Juliet Blanch (President), Mr. Oscar M. Garibaldi, Dr. Claus von Wobeser

Sector

Mining (copper and molybdenum); mining stability agreements; royalties and taxation

Outcome

Umbrella clause claim dismissed by majority. Peru found unanimously in breach of fair and equitable treatment, mainly over penalties, interest, GEM refunds and tax assessments. Oscar M. Garibaldi dissented in part (31 August 2026).

Amount

Claimed: USD 184 million (Main Claim), or USD 141.2 million in the alternative, each inclusive of pre-award interest. Awarded: USD 141.2 million (calculated to 1 July 2022), plus pre- and post-award interest at 7.3% compounded annually. Peru also pays USD 7,600,000 of the Claimant's legal costs and USD 546,740.60 for the Claimant's expended ICSID advances. Peru bears 76% of the USD 2,102,848.46 costs of the arbitration.

The dispute

SMM Cerro Verde, a Dutch company incorporated by Sumitomo Metal Mining and Sumitomo Corporation, acquired 21% of Sociedad Minera Cerro Verde S.A.A. (SMCV) in 2005 for US$265 million. SMCV operates the Cerro Verde copper mine in Arequipa under a 1998 15-year Stability Agreement with Peru. SMCV built a Concentrator from December 2004 within its existing Beneficiation Concession. From 2009 SUNAT treated the Concentrator as not stabilized and assessed royalties, taxes, penalties and interest, which the Tax Tribunal and the Peruvian courts upheld. The Claimant argued that the Stability Agreement covered the whole mining unit, so that the assessments breached the umbrella clause (Article 3.4). It also claimed that the assessments, the refusal to waive penalties and interest, and related conduct breached fair and equitable treatment and the non-impairment standard (Article 3.1). Peru argued that the Claimant was not party to the Stability Agreement and that stability covered only the leaching project in the feasibility study, as the Peruvian Supreme Court had held. It also argued that SMCV failed to mitigate its loss.

Key holdings

1. No breach of the umbrella clause (Article 3.4), by majority. Levying royalties on the Concentrator did not breach the Treaty because the stability guarantee covered only the investment described in the feasibility study (the Leaching Project). The Main Claim for damages therefore fails. Award ¶¶ 1065–1066, 1150(1)
2. Imposing and refusing to waive penalties and interest was arbitrary. There was objectively a reasonable doubt about the scope of stabilisation agreements, Article 170(1) of the Tax Code barred the penalties and interest, and the Tax Tribunal and courts failed even to consider a waiver sua sponte. Refusing the CPI interest rate after twelve months of Tax Tribunal delay, the long delays themselves, and the refusal to hear SMCV's interest-rate challenge were also arbitrary. Award ¶¶ 949, 960–961, 967, 985, 996, 1000
3. Refusing to reimburse the Q4 2011–Q3 2012 GEM overpayments was arbitrary. The four-year Tax Code limitation period began on 1 January 2017, so the request of 28 December 2018 was in time. Applying the non-stabilized regime to leaching-facility assets was also arbitrary: Article 22 of the Mining Regulations did not require separate accounts within the same concession. Award ¶¶ 1016–1018, 1032–1034
4. Considered as a whole, Peru breached the FET clause of Article 3.1 through failures of transparency, procedural propriety, non-arbitrariness and due process. By majority, the due-process failings of SUNAT and the Tax Tribunal, including President Olano's conduct, did not on their own reach the threshold of an FET breach. By majority, there was no breach of the non-impairment clause. Award ¶¶ 906–908, 1048–1049, 1054
5. Damages follow the Alternative Claim: 21% of the lost cash flows SMCV would have paid out as dividends each April. These include USD 616.6 million in penalties and interest, the tax corrections, the GEM overpayments and the outstanding liabilities. SMCV did not fail to mitigate (by majority), and there is no double recovery with the Freeport case. Pre-award interest runs at SMCV's cost of equity. Award ¶¶ 1078–1080, 1090, 1113, 1122–1123, 1134
6. Costs: the Claimant's reasonable costs are capped at USD 10 million, because its legal costs were about fifteen times Peru's and overlapped with the Freeport arbitration. It recovers 76% of that cap, in line with its success, and Peru bears 76% of the costs of the arbitration. Award ¶¶ 1145–1149
7. Partial dissent of Oscar M. Garibaldi. The stability guarantee extended to all authorised projects in the same concessions, including the Concentrator, so Peru breached Article 3.4. The Supreme Court decision deserves no weight because its reasoning is unsound. He would also have found breaches of FET on due process and of the non-impairment clause. Partial Dissent ¶¶ 10–11, 52, 97–100

Procedural history

1. 30 April 2020Request for arbitration received by ICSID; registered on 13 May 2020.
2. 31 March 2021Tribunal constituted after Juliet Blanch accepts appointment as President under a ranking protocol shared with the Freeport-McMoRan v. Peru case.
3. 15 June 2021Procedural Order No. 1: ICSID Arbitration Rules 2006, English and Spanish, place of proceeding Washington, D.C.
4. 6–17 February 2023Hearing on jurisdiction and merits in Washington, D.C.
5. 13 November 2023Peru appoints Baker Botts LLP and Stanimir A. Alexandrov PLLC as new external counsel.
6. 20 June 2024Procedural Order No. 13 admits the Freeport Award into the record for limited purposes.
7. 20 September 2024ICSID registers an application for partial annulment of the Freeport Award.
8. 25 June 2026Proceedings closed.
9. 31 August 2026Award: FET breach found and USD 141.2 million awarded; umbrella clause and non-impairment claims dismissed by majority; partial dissent by Oscar M. Garibaldi.

Tribunal, counsel and experts

Decided by

• Juliet Blanch President — appointed by the institution
• Oscar M. Garibaldi Co-arbitrator — appointed by the claimant (dissented in part (Article 3.4, due process, non-impairment))
• Claus von Wobeser Co-arbitrator — appointed by the respondent

For the claimant

Debevoise & Plimpton LLP · Nagashima Ohno & Tsunematsu · Estudio Rodrigo

For the respondent

Comisión Especial que Representa al Estado en Controversias Internacionales de Inversión, Ministerio de Economía y Finanzas · Stanimir A. Alexandrov PLLC · Baker Botts LLP · Estudio Navarro & Pazos Abogados · Sidley Austin LLP

Experts

Pablo T. Spiller (claimant) · Carla Chavich (claimant) · Alfredo Bullard (claimant) · Luis Hernández Berenguel (claimant) · James M. Otto (claimant) · María del Carmen Vega (claimant) · Francisco Eguiguren (respondent) · Rómulo Morales Hervias (respondent) · Jorge Bravo (respondent) · Jorge Picón (respondent) · Stephen F. Ralbovsky (respondent) · Isabel Santos Kunsman (respondent)

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Keywords

• Cerro Verde
• Sumitomo
• copper mining
• stability agreement
• contrato-ley
• umbrella clause
• privity
• fair and equitable treatment
• arbitrariness
• due process
• non-impairment
• mining royalties
• penalties and interest
• reasonable doubt
• GEM payments
• Netherlands–Peru BIT
• Freeport-McMoRan
• cost of equity

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