Case Overview

In Freeport-McMoRan v. Peru, the U.S. investor Freeport-McMoRan Inc. brought claims on its own behalf and on behalf of its Peruvian subsidiary, Sociedad Minera Cerro Verde S.A.A. (SMCV), against the Republic of Peru. The dispute, administered by the International Centre for Settlement of Investment Disputes (ICSID), arose under the United States-Peru Trade Promotion Agreement (TPA). The core of the case concerned Peru's imposition of mining royalties and other taxes on the Concentrator project at the Cerro Verde copper mine. Freeport alleged that these measures breached a 1998 Stability Agreement that it claimed provided tax stability for the entire mining operation, as well as the minimum standard of treatment (MST) under the TPA and customary international law. The Tribunal, in its May 2024 Award, dismissed all of the Claimant's claims on the merits. It found that the 1998 Stability Agreement was limited in scope to the original Leaching Project and did not extend to the new Concentrator project. It also found no breach of the TPA's fair and equitable treatment (FET) standard, concluding that Peru's actions were not arbitrary, did not frustrate legitimate expectations, and did not involve a denial of justice. One arbitrator, Guido Santiago Tawil, issued a dissenting opinion.

Procedural History

The Claimant filed its Notice of Arbitration on February 28, 2020. The Tribunal was constituted with Inka Hanefeld as President, Bernardo Cremades as the Respondent's appointee, and Guido Santiago Tawil as the Claimant's appointee. The proceedings involved extensive written and oral submissions, including a non-disputing party submission from the United States of America on the interpretation of the TPA. The hearing on jurisdiction and the merits took place from May 1 to May 12, 2023. The Tribunal rendered its final Award on May 17, 2024.

Key Issues and Positions

Jurisdiction

The Tribunal largely affirmed its jurisdiction over the claims but carved out one specific area. It determined that claims based on penalties and interest related to the disputed tax assessments constituted "taxation measures" under Article 22.3.1 of the TPA. As such, these specific claims were excluded from the Tribunal's jurisdiction.

Merits - 1998 Stability Agreement

The central merits issue was the scope of the 1998 Stability Agreement. The Claimant argued that the Agreement's tax stability guarantees applied to the entire Cerro Verde "mining unit" or concession, and therefore covered the new Concentrator project developed after the Agreement was signed. Consequently, Peru's imposition of royalties on the Concentrator's production constituted a breach of contract. Peru countered that the Agreement was explicitly and exclusively limited to the specific investment project detailed in the 1996 Feasibility Study—the Leaching Project—and did not extend to the separate and distinct Concentrator project.

Merits - TPA Article 10.5 (MST)

Freeport alleged that Peru's conduct breached the MST standard under the TPA by: (1) frustrating legitimate expectations that the Concentrator would be covered by the stability regime, based on the legal framework and alleged assurances from officials; (2) acting arbitrarily and inconsistently, driven by political pressure, by reversing its long-held position on the scope of stability agreements; and (3) committing serious due process violations in the domestic Tax Tribunal proceedings that reviewed the tax assessments. Peru argued that the MST standard under the TPA is a high threshold, requiring egregious conduct amounting to a denial of justice or manifest arbitrariness. It contended that its interpretation of the Stability Agreement was consistent, based on its domestic law, and publicly known. It denied making any specific representations that could have created a reasonable expectation and asserted that its Tax Tribunal proceedings complied with due process.

Tribunal/Court Reasoning and Holdings

Merits

The Tribunal conducted a detailed analysis of the 1998 Stability Agreement and the underlying Peruvian Mining Law and Regulations. It concluded that the scope of the stability guarantees was unambiguously limited to the Leaching Project. The Tribunal's reasoning was based on a literal, systematic, and contextual interpretation, finding that the Agreement's text repeatedly and exclusively referred to the "Leaching Project" as defined in the 1996 Feasibility Study. The Tribunal found no textual basis for extending these guarantees to the entire mining unit or to the subsequent, separate Concentrator investment. Therefore, it held that Peru did not breach the Stability Agreement. On the TPA claims, the Tribunal rejected each of Freeport's arguments. It found no basis for legitimate expectations, holding that the legal framework itself did not support the Claimant's interpretation and that any alleged oral assurances from a mid-level official (Ms. Chappuis) were unproven, inconsistent, and contradicted by higher officials and the public record. The Tribunal noted that SMCV and its parent company, Phelps Dodge, had demonstrated their own doubts about the scope of stability, which undermined the claim of reasonable reliance. It also found that Peru's conduct was not arbitrary or inconsistent, as its legal position was based on a consistent interpretation of its domestic law. Finally, the Tribunal examined the allegations of procedural irregularities in the Tax Tribunal and concluded that the Claimant had failed to demonstrate that the conduct rose to the level of a serious procedural shortcoming or a denial of justice required to establish a breach of the FET standard.

Disposition / Relief

The Tribunal rejected all of the Claimant's claims on the merits. It found it lacked jurisdiction over claims related to penalties and interest on the tax assessments. All other claims and pleas for relief were rejected. The Tribunal ordered each party to bear its own legal costs and to share the costs of the arbitration equally. Arbitrator Guido Santiago Tawil dissented from the majority's decision on both the jurisdictional carve-out and the merits, opining that the Stability Agreement should have covered the Concentrator and that Peru's actions were arbitrary.