[Page 1870]
BEFORE THE INTERNATIONAL CENTRE FOR THE SETTLEMENT
OF INVESTMENT DISPUTES
- - - - - - - - - - - - - - - - - - - x
In the Matter of Arbitration between: :
:
FREEPORT-MCMORAN INC., :
:
Claimant, : Case No.
: ARB/20/8
v. :
:
REPUBLIC of PERÚ, :
:
Respondent. :
:
- - - - - - - - - - - - - - - - - - - x Volume 7
HEARING ON JURISDICTION, MERITS, AND QUANTUM
Tuesday, May 9, 2023
The World Bank Group
1225 Connecticut Avenue, N.W.
Conference Room C1-450
Washington, D.C. 20003
The Hearing in the above-entitled matter
came on at 9:28 a.m. before:
MS. INKA HANEFELD
President of the Tribunal
MR. GUIDO SANTIAGO TAWIL
Co-Arbitrator
MR. BERNARDO M. CREMADES
Co-Arbitrator
[Page 1871]
ALSO PRESENT:
On behalf of ICSID:
MS. MARISA PLANELLS VALERO
ICSID Secretariat
MS. CHARLOTTE MATTHEWS
Assistant to the Tribunal
Realtime Stenographers:
MS. DAWN K. LARSON
Registered Diplomate Reporters (RDR)
Certified Realtime Reporters (CRR)
B&B Reporters/Worldwide Reporting, LLP
529 14th Street, S.E.
Washington, D.C. 20003
United States of America
SR. LEANDRO IEZZI
D.R. Esteno
Colombres 566
Buenos Aires 1218ABE
Argentina
(5411) 4957-0083
Interpreters:
MR. CHARLES ROBERTS
MS. SILVIA COLLA
MR. DANIEL GIGLIO
[Page 1872]
APPEARANCES:
On behalf of the Claimant:
MR. DIETMAR W. PRAGER
MS. LAURA SINISTERRA
MR. NAWI UKABIALA
MR. JULIO RIVERA RIOS
MR. SEBASTIAN DUTZ
MR. FEDERICO FRAGACHÁN
MS. MICHELLE HUANG
MS. ASTRID MEDIANERO BOTTGER
MS. LUCIA RODRIGO
MR. PEDRO FERRO
MS. MARY GRACE MCEVOY
MR. REGGIE CEDENO
MR. THOMAS MCINTYRE
MR. ORRIN CASE
MR. GREGORY A. SENN
MR. CHRISTOPHER V. TRAN
Debevoise & Plimpton LLP
66 Hudson Boulevard
New York, New York 10001
United States of America
MR. LUIS CARLOS RODRIGO PRADO
MR. FRANCISCO CARDENAS PANTOJA
MR. LOURDES CASTILLO CRISOSTOMO
MR. JOSÉ GOVEA
MR. ALEJANDRO TAFUR
Rodrigo, Elias & Medrano
Av. Pardo y Aliaga 652
San Isidro 15073
Perú
Party Representatives:
MR. DAN KRAVETS
MR. SCOTT STATHAM
Freeport-McMoRan Inc.
MS. PATRICIA B. QUIROZ PACHECO
Socied Minera Cerro Verde S.A.A.
[Page 1873]
APPEARANCES: (Continued)
On behalf of the Respondent:
MR. STANIMIR A. ALEXANDROV
Stanimir A. Alexandrov, PLLC
1501 K Street, N.W.
Suite C-072
Washington, D.C. 20005
United States of America
MS. JENNIFER HAWORTH MCCANDLESS
MS. MARINN CARLSON
MS. MARÍA CAROLINA DURÁN
MS. COURTNEY HIKAWA
MS. ANA MARTÍNEZ VALLS
MS. VERONICA RESTREPO
MS. ANGELA TING
MR. NICK WIGGINS
MS. NATALIA ZULETA
MR. GAVIN CUNNINGHAM
MR. KEVIN DUGAN
MS. ARA LEE
MS. SADIE CLAFLIN
MR. NOAH GOLDBERG
Sidley Austin LLP
1501 K Street, N.W.
Washington, D.C. 20005
United States of America
MR. RICARDO PUCCIO
MR. OSWALDO LOZANO
MS. SHARON FERNANDEZ TORRES
MS. ANDREA NAVEA SÁNCHEZ
MR. RENZO ESTEBAN LAVADO
Navarro & Pazos Abogados SAC
Av del Parque 195
San Isidro 15047
Lima
Perú
[Page 1874]
APPEARANCES (Continued)
Party Representatives:
MS. VANESSA DEL CARMEN RIVAS PLATA
SALDARRIAGA
MR. MIJAIL FELICIANO CIENFUEGOS FALCON
Ministry of Economy and Finance
MR. EDMÓSTINES MONTOYA JARA
SUNAT, Republic of Perú
[Page 1875]
C O N T E N T S
PAGE
PRELIMINARY MATTERS..................................1876
WITNESSES:
ZORAIDA ALICIA OLANO SILVA
Direct examination by Ms. Hikawa................1879
Cross-examination by Mr. Prager.................1890
Questions from the Tribunal.........1948, 1983, 1993
JORGE ORLANDO SARMIENTO DÍAZ
Direct examination by Ms. Hikawa................2002
Cross-examination by Mr. Rivera.................2017
Questions from the Tribunal.....................2024
GARY SAMPLINER
Direct presentation.............................2029
Cross-examination by Ms. Haworth McCandless.....2053
Questions from the Tribunal.....................2082
Redirect examination by Mr. Ukabiala............2087
JAMES OTTO
Direct presentation.............................2090
Cross-examination by Ms. Haworth McCandless.....2113
Redirect examination by Mr. Ukabiala............2141
Questions from the Tribunal.....................2144
STEPHEN RALBOVSKY
Direct presentation.............................2163
Cross-examination by Mr. Ukabiala...............2188
[Page 1876]
P R O C E E D I N G S
PRESIDENT HANEFELD: Good morning to
everyone. Welcome to Day 7 of our Hearing, and
welcome also to Ms. Olano.
Before we start talking with you, I just
briefly address the Parties.
Our Secretary has circulated the time block
yesterday and asked whether the Parties have reached
any agreement on the timing of the next three days.
Claimant, do you have any comments on that?
MR. PRAGER: Yes. Good morning, Members of
the Tribunal.
The Parties did discuss.
So, Friday is set aside for the Closing. If
you don't count in the closing time, then we have in
the next three days, which includes today, allocated a
total of 18 hours and 47 minutes left for Witnesses
and Experts. That's jointly. If we continue down the
regular schedule, we would have 16 hours and
30 minutes. So, we have a slight surplus.
We would suggest jointly that, subject to
the Tribunal's availability, of course, that, to make
[Page 1877]
up some of the time, we would reduce the lunch breaks
to 40 minutes on all three days--today, tomorrow, and
on Thursday; that today and tomorrow we would
sit--and, again, subject to the Tribunal's
availability--until 6:00 p.m., but I think it's the
strong preference of both Parties on Thursday to
finish at 5:30, since we have some homework to do for
the Closings on the following day.
That may not catch up all of the time, but
hopefully a substantial amount of the time.
PRESIDENT HANEFELD: And does Respondent
agree with this proposal?
MS. HAWORTH MCCANDLESS: Yes, with the
precisión--there's no equivalent in English, so--the
Thursday 5:30 is a hard stop. That's from
Respondent's perspective.
So, everything else, we are in accord.
PRESIDENT HANEFELD: We are fully fine with
this, so we can do it exactly as the Parties have
proposed.
Our question would be whether you would like
to start, in addition, in the morning earlier at 9:00.
[Page 1878]
MS. HAWORTH MCCANDLESS: Not from
Respondent's perspective.
PRESIDENT HANEFELD: Okay. Understood.
So, then we will proceed like the Parties
have proposed, and we will from now on reduce our
lunch break to 40 minutes, and we will end the Hearing
day today and tomorrow at 6:00 and sharp at 5:30 on
Thursday. This is understood.
ZORAIDA ALICIA OLANO SILVA,
RESPONDENT'S WITNESS, CALLED
PRESIDENT HANEFELD: And then we can turn to
you.
Welcome, Ms. Olano. This is a Tribunal. In
this case, I am here with my co-arbitrators Professor
Tawil and Dr. Cremades. My name is Inka Hanefeld.
I'm the presiding arbitrator in this case.
You should have in front of you a
Declaration under Article 35(a) of the Arbitration
Rules. Would you please be so kind to read out this
Declaration?
THE WITNESS: Yes. Certainly. Good
morning.
[Page 1879]
I solemnly declare, upon my honor and
conscience, that I shall speak the truth, the whole
truth, and nothing but the truth.
PRESIDENT HANEFELD: Thank you very much.
Let's turn to your two Witness Statements.
It is Exhibit RWS-5 and RWS-12.
Do you have the Witness Statements in front
of you?
THE WITNESS: That is correct.
PRESIDENT HANEFELD: Can you confirm that
these are your Witness Statements that correspond to
your recollection, or is there anything that you wish
to amend or correct?
THE WITNESS: No. They are fine. I
confirm.
PRESIDENT HANEFELD: Perfect. Then we turn
to Respondent for questions.
MS. HIKAWA: Thank you.
DIRECT EXAMINATION
BY MS. HIKAWA:
Q. Good morning, Ms. Olano.
Your Witness Statements, are they based on
[Page 1880]
your personal knowledge and experience?
A. Yes, that is correct.
Q. Please describe your educational background.
A. I am attorney specializing in administration
and tax technique. I graduated in 1995 at the
Pontificia University of Perú.
Q. What is your current position?
A. I am currently President of the Tax
Tribunal.
(Overlapping interpretation and speakers.)
(Interruption.)
(Stenographer clarification.)
BY MS. HIKAWA:
Q. How long have you been in that position?
A. Starting November 14, 2006.
Q. What are the responsibilities of the
President of the Tax Tribunal?
A. Well, I have various responsibilities. On
the one hand, I plan budgets, operational plans. I
represent the Tax Tribunal. I preside over the
Plenary Chamber, and I also oversee Management Plans,
operational plans. I also verify issues that have to
[Page 1881]
do with the "vocales" and the staff. I also need to
create the Specialized Chambers and appoint the
Presidents.
I supervise and coordinate the technical and
administrative tasks of the Tax Tribunal.
Q. I understand that the Chambers of the Tax
Tribunal have law clerks--in Spanish,
"asesores"--assigned to them.
What is the role of a law clerk?
A. Yes. The Specialized Chambers have law
clerks. A law clerk is a support staff that helps
"vocales" in resolving case files. The person has to
look into the background, arguments, the various
positions, and also prepares a draft resolution,
together with the presiding "vocal," "vocal ponente,"
that is the one that has the case file record
assigned.
Q. What is a substitute law clerk, or, in
Spanish, an "asesor suplente"?
A. Well, formally, a substitute law clerk does
not exist, but what does it mean? It is a temporary
law clerk that is assigned to a Chamber or to a
[Page 1882]
different area, depending on the needs.
Q. Do temporary asesores have the same
functions as "asesores"?
A. Whenever they are in the Chamber, they do
have the same function, whenever they are in the
Chamber that they work at.
Q. And do law clerks decide cases?
A. No, they don't. The law clerks are support
staff. The law clerks do not make any decisions.
They do not have any responsibility. The "vocales"
are the one that make a Decision.
First, the vocal ponente, the one that has
the case file assigned, who has to review the draft,
the one that has to review whether they are working
along the same lines, who has to make all the
adjustments, observations and comments because
finally, that is the vocal that will be supporting in
the session with the other "vocales," because, at the
end of the day, the ones that have to decide are the
three "vocales."
Q. Who is Ms. Úrsula Villanueva?
A. Úrsula Villanueva was "asesor de
[Page 1883]
Presidencia." And also, specialized law clerk. She was
the chief of the technical office. She had several
positions. She's currently a "vocal."
Q. Was she your assistant?
A. No, she was not. She was "asesor de
Presidencia."
Q. Why did you assign Ms. Villanueva to act as
temporary law clerk to Chamber 1?
A. Well, when she was assigned to Chamber 1,
that was at the request of the presiding "vocal" that
also had these case files assigned to her, and this
was the presiding "vocal," and we were in a situation
in which we had no law clerks, and that's the reason
why she requested the support.
Q. On the basis of which of your
responsibilities as President did you assign
Ms. Villanueva as temporary law clerk?
A. Well, I have a very broad mandate under the
Manual of Operation and Functions that established
that I need to supervise, coordinate,
administrative-technical work, and that is translated
as me having to manage resources whenever needed.
[Page 1884]
Q. Claimant in this Arbitration has submitted
Statements from a Mr. Estrada, a former law clerk in
the Tax Tribunal.
Have you read those Statements?
A. Yes.
Q. Claimant and Mr. Estrada have alleged that
you interfered in the cases of Cerro Verde that were
before the Tax Tribunal by assigning Ms. Villanueva,
whom Claimant alleges was your assistant, as temporary
law clerk to Chamber 1 and directing her in the
drafting of the Resolution in the 2008 Royalty Case.
What is your response to that allegation?
A. Well, that is completely false. As I
explained before, if Úrsula Villanueva was assigned to
Chamber 1, it was at the request of the "vocal," in a
context in which there were no law clerks. And I
never interfered with the resolution of the dispute,
and I never guided her to make one decision, for that
Resolution to be one way or the other, because it
would be the "vocal ponente," the one making a
decision.
The three "vocales" are the ones that make
[Page 1885]
the decision at the Specialized Chamber level. I do
not make a decision.
Q. Mr. Estrada has also alleged that there was
a Legislative Decree in 2012 that, if implemented,
would have provided performance bonuses to "vocales"
and to the President of the Tax Tribunal, and that the
prospect of bonuses motivated you to push "vocales" to
resolve Cerro Verde's cases quickly and in SUNAT's
favor.
What is your response to that allegation?
A. The same, but it is completely incorrect at
the very least. There was a legal provision that, as
part of some strengthening standards for the Tribunal,
established a bonus for the "vocales," and also a
bonus for the other practitioners within the Tax
Court. But it was never implemented.
But those bonuses have nothing to do with
the assignment of the records of cases or the decision
on those records or files.
Within the Tribunal, we follow goals and
objectives, and, based on that, we assign the case
records, and we also resolve those case records. So,
[Page 1886]
one thing is not related to the other one.
Q. We understand that there's a process by
which "vocales" are confirmed or retained in their
employment, which, in Spanish, is called
"ratificación."
Please describe this process.
A. Yes. There is a confirmation process for
the "vocales" that takes place every so often and that
is regulated. There is a Supreme Decree that
establishes the phases and also the characteristics of
this process.
This ratification process is in the hands of
a specialized commission that is presided by a
representative of the Minister, and it is also
integrated or it's also composed of two members of the
civil society. They are the deans of the--the oldest
national and private universities, and I am also part
of that commission. I am another member.
The confirmation process has several phases.
One of them is the assessment of the academic activity
during that period. There is another phase that is
the assessment: there is a psychological exam as well
[Page 1887]
as an exam on competence.
There is also a third phase, which is the
quality assessment, and it is carried out by tax,
legal or juridical experts who have nothing to do with
the Tribunal, and they assess the structure of the
Resolutions, three resolutions are chosen by the
"vocales" and the other three are chosen randomly in
presence of a Notary.
So, there is another phase that has to do
with the Management Report that is my own
responsibility under the Regulations.
This Management Report does have some
objective portions. These are objective--this is
objective data. What do we measure? We measure the
performance of the "vocal" given the average; also,
what the contribution is to reduce the number of case
files that still have to be decided. What is the
number of older case files that are decided, given the
average of the "vocales"? Also, how much do they
participate in the analysis committees to take some of
the topics to be considered by the Tribunal's Plenary
Chamber?
[Page 1888]
So, this is statistical data; and the
conclusion is a description of the result. And,
finally, we say the "vocal" is above average, average,
below average, and we also highlight or point out the
areas that are where that person excels. That is all
the Management Report, and, finally there is an
interview.
Q. When is the next confirmation process?
A. Well, there is no specific date right now.
We are currently having a competition.
There was one in which the candidates did not pass the
exam, so we have initiated another process. The
Ministerial Resolution was just passed while we are
here that has approved the basic terms drafted by the
Commission for that competition. That will take four
or five months; then the Commission will determine the
ratification process and when it will take.
Q. Thank you.
MS. HIKAWA: No more questions.
ARBITRATOR CREMADES: I would like to ask
you: Who appoints the President of the Tax Tribunal?
THE WITNESS: Well, it is an appointment.
[Page 1889]
It is appointed by Supreme Resolution, a Supreme
Resolution by the President and also the Minister of
Economy and Finance.
ARBITRATOR CREMADES: Who may revoke the
appointment? How?
THE WITNESS: In principle, it was an
appointment based on trust. That is, there could
be--if there was no agreement, the position as
President could come to an end, but then currently
there is also a ratification process, but it hasn't
taken place.
ARBITRATOR CREMADES: Do you consider that
yours is a political position, or are you part of the
judiciary?
THE WITNESS: No. This is not a political
position, and I am not with the judiciary. I am a
public servant. I have a career in the public sector.
I worked before in the Economy and Finance Ministry.
I was part of the Tax Policy Department that now is
Public Revenue, I was director of Fiscal Studies and I
started early in the Ministry of Finance.
ARBITRATOR CREMADES: Thank you very much.
[Page 1890]
PRESIDENT HANEFELD: Thank you very much.
Please, go ahead, Claimant.
CROSS-EXAMINATION
BY MR. PRAGER:
Q. Good morning, Ms. Olano. It's a pleasure to
see you again. I hope it's mutual.
Let me ask you a few questions, and let's
just start with a big-picture question.
The Tax Tribunal, would you agree, is the
last administrative instance when it comes to tax and
royalty matters? Is that right?
A. Yes. The Tax Tribunal is the last
administrative instance. Hence, the Code provides that
if there is disagreement with the Resolution issued,
there could be a contentious-administrative action
before the judiciary.
Q. And the Tax Tribunal forms part of the
Ministry of Economy and Finance; right?
A. Yes. It is part of the executive.
Q. And specifically of the Ministry of Economy
and Finance; right?
A. Yes. But we do have functional
[Page 1891]
independence. Administratively, we report back to the
Ministry, but we have functional independence, and
that's the way it is established.
Q. Well, I just remember from seeing the
building in San Isidro which has written "Ministry of
Economy and Finance" under "Tax Tribunal."
Is that so?
A. Clearly it does say "Ministry of Economy and
Finance" because, yes, we are part of the Ministry of
Economy and Finance, but what I am telling you is
that, since it is an Administrative Tribunal, the law
establishes that we have functional independence.
Right? Yes, we do depend administratively on the
Ministry, but there is functional independence.
(Overlapping interpretation and speakers.)
(Interruption.)
(Stenographer clarification.)
BY MR. PRAGER:
Q. Is it correct that you are serving as the
liaison of the Tax Tribunal with the Ministry of
Economy and Finance?
A. I do not understand the question. What do
[Page 1892]
you mean by "liaison"?
Q. Let me be more specific. When it comes to
your administrative functions, you are reporting on
those matters to the Ministry of Economy and Finance;
right?
A. Let me see. What is it that we report back
to the Ministry of Economy and Finance? We have an
operational institutional plan that includes general
goals for all of the public sector. That is reported
right? That is the only thing that we report to the
Ministry, or let's say we request for the IT system,
for its update. It is reported to the Ministry of
Economy and Finance.
Q. When Arbitrator Cremades asked you a
question earlier, you replied that your position is
one that is called, in Spanish, "cargo de confianza."
Do you recall that?
A. Yes. I told him that it was a trust
position, but that currently there is a confirmation
process that has not taken place. That's what I said;
right? I'm saying that because I was appointed. Yes,
it is true, I was appointed.
[Page 1893]
Q. And "cargo de confianza" also means that the
Minister of Economy and Finance could remove you
without cause; is that right?
A. It could be, but now, as I said before,
there is a confirmation process that has not taken
place yet, but there is a process that has been
established and that has been issued for the
President, and also for the administrative "vocales."
Q. Well, we are less interested in now. What
we are interested in is 2013, for instance.
In 2013, your position was one of "cargo de
confianza," where the Ministry of Finance had the
authority to remove you without cause if she or he
deemed so fit?
A. Yes, as in any other trust position. Yes.
Q. And we were talking about Ms. Úrsula
Villanueva, and I'm going to come to her later, but
her position was also one of "cargo de confianza";
right?
A. Yes.
Q. So, the same would hold true for her; she
was reporting to you as the President of the Tax
[Page 1894]
Tribunal; right?
A. Yes. She was the "asesor de Presidencia."
Clearly, she depended on me, reported to me. That's
the way it was established in the job classification.
Yes
Q. And since she had a "cargo de confianza,"
you could have removed her without cause? You had the
authority to remove her without cause; right?
A. Yes. It is not what usually happens;
right?
Q. Yeah, you had the authority to. I know you
didn't, but you had the authority to.
A. But I don't really understand your question.
Q. You directly listed a number of functions
that you had as the President of the Tax Tribunal. I
wrote them down in Spanish, and I don't want to
translate them now, but is it fair to say that none of
those functions involves deciding cases before the Tax
Tribunal, with the exception of your role as the
presiding--as the President, if there is a Plenary
Chamber?
A. Yes. I totally agree with you, if I
[Page 1895]
understand correctly.
So, as President, I do not decide on
Resolutions in Chambers. My intervention is at the
Plenary Chamber. Yes, there I do see topics. Right?
If that's what you are trying to ask me. Is that what
you asked me?
Q. Yes. Let me put it differently.
In your function as the President of the Tax
Tribunal, you cannot interfere in the decision of
cases that are pending before Chambers; is that right?
A. Of course I cannot interfere.
Q. So, let's discuss the Royalty Cases of Cerro
Verde. Is it correct that the 2006-2007 Royalty Case
and the 2008 Royalty Case were the first cases before
the Tax Tribunal that involved the new Royalty Law
from 199--sorry, from 2004?
A. Yes. I think it was one of the very first
cases.
Q. Well, I think in the SMM Case, you told us
they were the first cases that involved the Royalty
Law.
Is that still your recollection?
[Page 1896]
A. Yes, but--well I think it was one of the
first cases. Clearly, I do not have that fresh in my
mind, but if it was not the first one, it was one of
the first ones; right?
Q. And at the time the 2006-'07 and 2008
Royalty Cases were pending--well, let me reformulate
that.
You were aware that the 2006-'07 and the
2008 Royalty Cases were pending before the Tax
Tribunal?
A. Let me see. I do not understand. There is
a timing issue here, because I may know that something
is pending, when they are ready to be decided. I don't
always know what is still pending to be resolved.
Q. Fair enough.
A. Right?
Q. Fair enough. In 2013, you were aware that
the 2006-'07 and the 2008 Royalty Cases were pending
before the Tax Tribunal?
A. In 2013, yes, because I was told.
Q. You described the two Royalty Cases of Cerro
Verde as "particularly controversial" in your Witness
[Page 1897]
Statement.
Do you remember that?
A. Yes. Yes, I do recall that.
Q. Can you explain to us why you thought that
the two Royalty Cases were particularly controversial?
A. Let me see. What I recall what I said, the
time before, precisely because of the especially
controversial issue, is that I was referring to the
various case files that have different matters to be
resolved. For example, some of them have to do with
sector laws, different issues.
So, that's what I was saying in particular
when I said that they were especially controversial.
They could also be called "especially complex," or
whatever terminology you deem appropriate or
understand better, but that's what I was referring to.
There are some complex case files, others
that are less complex, and others that are simple;
right? Our IT system establishes already the case
files that are complex, because whenever they are
classified at the level of the Technical Office, the
descriptors are attached. The descriptors are
[Page 1898]
attached, and then they determine which ones are
complex, which ones are less complex, and which ones
are simple. That is what I was referring to.
Q. You also knew--well, would it be a fair way
of describing the two Royalty Cases as involving large
amounts of money, compared to other cases before the
Tax Tribunal?
A. I do not know the amount exactly, but it
could be. Yes, it could be. In general, the most
complex cases, yes, they do contain more amounts in
arrears.
Q. When I asked you whether you knew whether
the cases were pending in 2013, you answered that:
"Sí, me lo hicieron saber." If "they let me know about
it," who would have let you know about those cases?
A. No, no, I don't understand. I Don't know if
it's the translation, but I don't understand your
question.
Q. When I asked you about whether you were
aware in 2013 that the 2006-'07 and the 2008 Royalty
Cases were pending, you said: "If they let me know
about it," "Sí, me lo hicieron saber" in Spanish, "Sí,
[Page 1899]
me lo hicieron saber.
A. Umm-hmm.
Q. And you-
A. That's what I just said.
Q. And you-I just wanted to follow up on that
and ask you: Who is "they"? Who let you know about
it?
A. The "vocal," the "vocal," the ones who were
handling the case.
Q. Okay. In your Witness Statement, you also
mentioned that there were lists of the important cases
pending before the Tax Tribunal that involved large
amounts of money.
Do you recall whether those two cases were
included in one of those lists?
A. In which Statement did I say that?
Q. In your Second Declaration.
A. Could you show me, please?
Q. One second. It's in Paragraph 64 of the
Second Declaration. Maybe we can put it on the
screen.
A. Could you put it on?
[Page 1900]
Q. Yeah, we're going to put it on the screen.
It's also in your tab--if you look at the
small--it's in both of your binders, but probably the
more comfortable one is the smaller one. If you look
in your Second Statement--
(Overlapping interpretation and speakers.)
A. No, I prefer to read it.
Q. -It is paragraph 64.
And I wanted to point your attention to the
last sentence, which says in English--let me see
whether we have it on--can we also put on the next
page? Yeah, like this is good.
"Accordingly, the lists were means by which
the Tribunal could accelerate the adjudication of
certain cases on the Tribunal's list of case files."
Do you see that?
A. Let's see. In principle, it was a statement
by this Mr. Estrada, who spoke of certain lists that
were drawn up to rule in favor of SUNAT, and what we
have responded is that we don't draw up lists so as to
be able to rule in favor of SUNAT. No. We are guided
by goals and objectives, and what was presented, well,
[Page 1901]
there was, let's say, a list of cases which spoke of
seniority; right? and the amount of the debt.
Why? Well, I have said, we are guided by
goals and objectives. When we came in in 2010, we had
a case backlog that was huge. We had about 30,000
cases; right? That's why the Specialized Chambers
were begun. The backlog was reduced, right? and we
began to see the question of the main controversies,
yes.
Why? Well, we would--it was being said that
we were resolving the easy cases, but not the
difficult ones, not the complex cases.
So, we saw that there were some big and old
cases, and that list that is mentioned speaks of
seniority and the amounts in controversy, because it's
a case management approach. That's what we're doing.
Now, what that gentleman, who has never had
a managerial experience--he's a professional who came
through the Tribunal--well, there's no major--that's
not really right. Obviously I need to look at the
statistics of where we stand and manage on that basis.
So, we are managing for the main or larger
[Page 1902]
controversies to be resolved as well, but in no way
for them to be resolved in one way or another.
Moreover, we send a table indicating that
the main controversies tended to be more favorable to
the taxpayer than to SUNAT; right?
The thing is that, when we say that they're
especially controversial or especially complex, well,
the case files need to be reviewed carefully to make
sure that no point is omitted, nothing to be called
into question, so that the Decision can be defended,
because, at the end of the day, it's going to be
challenged, either by the taxpayer or by the
Administration.
Oftentimes, we've also been questioned by
the Administration. They've gone to the judiciary.
They've gone even to the Constitutional Tribunal
because of Decisions that have not been favorable to
the administration, but rather to the taxpayer, right?
And so, the situation is the same.
Q. You mentioned the goals and the objectives
of putting the cases on that list. What are those
goals?
[Page 1903]
A. Uh-hum.
Q. --and objectives?
A. Well, let's see. We have output goals,
backlog reduction goals, and also goals when it comes
to looking at the main controversies.
Why? Well, there are specialized Chambers.
Initially, since there were so many cases, we had to
set up two Chambers for municipal taxes. They were
smaller cases, but they were a huge part of the
backlog. And so, that was reduced.
Once that's reduced, let's look at the
backlog of the heavier cases, and that involved SUNAT.
We look at cases that come from municipalities
nationwide, cases that come from SUNAT, customs cases
as well, and cases from other smaller Administrations.
And so, we need to see to it that everything is moving
forward.
At this time, we have reduced the municipal
taxes to a single Chamber, and they're up to date. We
are no longer bothered by the backlog. Customs is
also up to date, right? So, we are focusing on cases
involving SUNAT, and with SUNAT, one has to look at
[Page 1904]
the major cases.
In 2010 we saw that major cases were
beginning to be resolved, right? And that was also a
complaint lodged by the taxpayers, because the
taxpayers are saying: "My cases aren't being
resolved. The easy ones are being resolved, but
you've not gotten to mine."
Q. And in your direct, Ms. Olano, you said:
"We follow goals and objectives, and, based on that,
we assign case records and we also resolve those case
records."
So, are you saying that you assign case
records to Chambers based on those goals and
objectives that you just explained?
A. Let's see. Let me explain. The assignment
is random, right? The cases come in, and they are
assigned every fifteen days, except for the urgent
ones. There are some cases that have summary terms,
much shorter time frames, say, a closing. Those are
assigned on a daily basis. Or enforcement case files.
What do we call enforcement case files?
Well, when it's already gone to the administration, it
[Page 1905]
comes back and one needs to issue a resolution, or it
comes from the judicial branch and we need to resolve
it in the short time frame that the judicial branch
has indicated. Normally, they are assigned on a
random basis every fifteen days. That is the
assignment.
And the assignment, why do I say based on
goals and objectives? Well, it goes out based on the
Specialized Chambers. There are Chambers for
municipal taxes, as I was saying. Now there's one.
The Chamber for municipal taxes, for customs taxes,
those that look at SUNAT taxes. There are some that
look at the Lima Region and the other one that looks
at IPCN, which is the main Intendency for National
Major Taxpayers, and Lima as well. That's how they
are determined, and that's why I was telling you that
it's in function of the goals and objectives. Each
specialization has a goal and objective, and they're
different ones.
Q. So, let's move on to the Cerro Verde Royalty
Cases. So, there were several Cerro Verde Royalty
Cases before the Tribunal. Now, once a Chamber
[Page 1906]
renders the first Decision in one of those cases, is
it correct that the other Chambers that are hearing
Cerro Verde Royalty Cases have the following choice:
They could either follow the same criteria that is set
forth in the first Decision, or if the "vocal"
disagrees with that criteria, the "vocal ponente,"
that "vocal ponente" could request that the case be
brought before the Plenary Chamber of the Tax
Tribunal.
Is that a correct description?
A. Yes. Let's see. The Tax Tribunal also has
a function of ensuring uniformity of criteria. So,
when a Chamber resolves a case, and then another case
comes along with the same situation, it will either
decide in the same manner or it will not be in
agreement with how it was decided. If it's not in
agreement with how it was decided, then it has the
power to bring it to the Plenary Chamber in order to
request a change in criteria. We don't know the
outcome, but they do have that power.
Was that your question?
Q. Yes. Thank you.
[Page 1907]
And the Plenary Chamber is comprised of 33
"vocales" and yourself; right?
A. At that time, yes. It was 33, plus myself.
I am also a member of the Plenary Chamber.
(Comments off microphone.)
Q. In 2013, right. In 2013, there were 33
"vocales" and yourself in the Plenary Chamber; right?
A. Yes.
Q. And if the Plenary Chamber took a position
and took a decision on a particular case, it would
then be binding on all subsequent Royalty Cases?
A. Yes. If the Plenary Chamber adopts a
criterion, it is binding for future cases; right?
Q. So, in other words, the first Chamber that
would decide the Cerro Verde Royalty Case would have
the advantage of deciding it according to its own
criteria without having to face that dilemma of having
either to adopt a criteria of a previous Chamber or
having to put the case in front of the entire Plenary.
Is that a correct description?
A. It's not exact, well, what you're saying,
because actually--well, I would not speak of an
[Page 1908]
advantage. Actually, each "vocal" manages their
cases, right? So each one sees at what moment they are
going to decide it; right?
The ideal thing is that when there are
similar cases, that they coordinate; right? But it is
not that one has an advantage, obviously. It could be
in various situations that a criterion has already
been adopted or there might be one that has been
adopted in the past, and the "vocal" is not in
agreement, and so he brings it to the Plenary Chamber
in order to change the criterion because he believes
that is called for. And then the Plenary Chamber
takes a look at it and they see whether or not they
agree with the "vocal" or not. That is what happens.
Q. Well, let's take a Chamber that--the Second
Chamber that decides a Royalty Case of Cerro Verde.
It faces the situation that the first Chamber has
rendered a decision that employs certain criteria, and
it now can either follow those criteria or it has to
go to the Plenary Chamber and has a decision taken by
the entire Plenary; right?
A. Are you talking hypothetically or about this
[Page 1909]
actual case?
Q. I'm talking about the case--hypothetically.
Let's take the hypothetical Royalty Case. There are a
series of Royalty Cases. The Second Chamber to render
a decision already faces a decision by the first
Chamber that has certain criteria, so it can either
adopt those criteria or it can go to the Plenary
Chamber and have the entire Plenary Chamber vote on
this issue. But it cannot on its own take different
criteria; right?
A. It is not correct because independently they
make a decision. Let's take the hypothetical; right?
A criterion was adopted, and then there's another
Chamber--and I can tell you this because I have worked
in the Chambers as well--and I am not in agreement
with the criterion. The first thing they need to look
at is whether they are in agreement or in
disagreement, that's the first thing, because they may
not be in disagreement necessarily. If there is
agreement, then they will adopt the same criterion.
If they are in disagreement, then they are going to
decide to take it to the Plenary Chamber. That's how
[Page 1910]
it works; right?
But the first thing they have to do is see whether they agree or disagree. In a hypothetical case. And in the specific case, here there was no disagreement, and that is why the matter was not taken to the Plenary Chamber.
Q. I was talking about the hypothetical. And you just confirmed that a second Chamber cannot take--if they disagreed with the criteria of the first, they cannot, by themselves, issue a resolution with different criteria. They have to take it to the Plenary Chamber; right?
A. That's right. Because when it goes to the technical office for dispatch, we need to double-check whether there's any observation that would be conflicting, because, as I say, the Code establishes that it needs to be uniform criteria. So, we make an observation.
If there's a conflicting criteria, we in the technical office--when I say "we," it's not me. It's the Technical Office. But the Technical Office makes the observation, I take a look at it, and then it goes
[Page 1911]
to the Chamber. And there the Chamber evaluates and, in any event, if they want to take it to the Plenary, they do so.
Q. The first Chamber to render the Decision does not face that situation because it itself--let's assume in our hypothetical there are no preexisting criteria. It itself decides a case, either in favor of SUNAT or in favor of the taxpayer. It sets its own criteria, and whatever those criteria are, it does not have to follow a previous decision, and it also does not have to go to the Plenary Chamber when it renders its decision; right?
A. Yes. That's what normally happens. A decision is adopted. It goes through the Technical Office. If there's no observation, then it is issued.
Q. Okay. So, let's look what happened specifically in the Cerro Verde Royalty Cases and who got to render the first Decision and who got to render the second Decision. For that, since we are going mention a number of names of "vocales," we have prepared a demonstrative that we put here on the screen and that we can also distribute in hard copy
[Page 1912]
and that shows the two Chambers involved in the 2006-'07 and 2008 Cases. So, if you confirm that the 2006-'07 Case was pending before Chamber 10; is that correct?
A. Yes, it is.
Q. And the 2008 Royalty Case was pending before Chamber Number 1; correct?
A. Yes.
Q. You see here the names of the "vocales" sitting in those Chambers in the year 2013. To the best of your recollection, that's the--does the demonstrative have an accurate representation of the names of the "vocales" that were in those two Chambers in 2013?
A. Yes, that's correct.
Q. So, in Chamber Number 1, the "vocal," the President of the Chamber and the reporting "vocal," "vocal ponente," was Ms. Licette Zúñiga Dulanto; right?
A. Yes.
Q. And in Chamber Number 10, the position of President and reporting "vocal" did not coincide, the
[Page 1913]
President of the Chamber was Mr. Carlos Moreano Valdivia; right?
A. Yes.
Q. And the "vocal ponente" was Luis Cayo Quispe; right?
A. Yes.
Q. The 2006-'07 Case was filed in May 2010. Do you recollect that?
A. It was filed--I'm sorry? You're saying a session was held?
Q. No. Cerro Verde filed the 2006-'07 Case before the Tax Tribunal in May 2010; right?
A. I don't actually remember the date of when the appeal came in. Is that what you're talking about, when the appeal came into the Tribunal? I don't remember. What I remember from the last Hearing is that there was an oral hearing before May, so it must have come in before then.
Q. So, I represent to you that it was filed on the 12th of May 2010, and that's in Exhibit CE-40 in your Tab 17. We don't have to go there. I just say this--
[Page 1914]
A. Uhhm.
Q. --as a reference.
The 2008 Royalty Case was filed nine months later on 10th March 2011. That's--and again, I represent it to you, and it's in Exhibit CE-49, Tab 19.
You mentioned at the SMM Hearing that Mr. Cayo, who was the "vocal ponente" of Chamber Number 10, requested the file of the Royalty Case in 2011; right?
A. Yes. According to the information system of the Tribunal, yes.
Q. Would you agree with me that when a "vocal ponente" requests a file, she or he typically does so because the "vocal" was to review the file, wanted to review the file?
A. I understand that, yes, and that's what I also said. Because--according to the way the system works, "Vocal" Cayo asked for the record in 2011, before it was in the archive to be delivered. That's what it is called. So, normally when they ask for the file it's because they are going to review it. Now,
[Page 1915]
whether or not he reviewed, that I don't know. I have no way of knowing, right?
All I have is what the information system says, which is that it was asked for in 2011.
Q. And then in--sorry, on 6 March 2013, Chamber Number 10 announced that it would hold an oral hearing; right?
A. Well, according to the latest action, I don't recall the dates so well, right? Because the oral hearing was in March, you say, right? It must have been in March, the Parties must have been given notice about it, and there is the date.
Q. And we will look it up. It is Exhibit 79 in your Tab 22. It was on the 6th of March that Chamber Number 10 announced that there would be a hearing in the 2006-'07 case on 5th of April.
Do you see that?
A. Yes. When you say "announced," you're referring to the notice; right? Because that's the notice to the taxpayer. There is no announcement, let's say, public announcement, but rather, notice is given.
[Page 1916]
Q. And would you agree with me that once "vocales" go to an oral hearing, in most cases they would already have a preliminary draft of their decision?
A. Let's see. I recall very well what I said the last time, and ideally when there is an oral hearing, there should be a draft at least; right?
If there's not a draft, because I have no way of knowing that; right? Then, there is at least an explanation by the "vocal" to the other "vocales," about the case there's going to be, because there is going to be an oral hearing where one is going to listen to the Parties. And obviously, one goes into the hearing well-informed about what it's all about so as to be able to better understand what the Parties have to say. That is what I said.
Q. Now, Chamber Number 1 was the--sorry, Chamber Number 10 was the first one to hold the oral hearing. Is it typical practice of the Tax Tribunal that the Chamber--isn't it the typical practice of the Tax Tribunal that the Chamber that was first seized with a particular case would decide the case first?
[Page 1917]
A. I'm sorry. I don't know what you're referring to.
Q. Well, isn't it typically the case that, if a Chamber is first seized with a case, if there are a number of cases, such as in the royalty matters, the Chamber that's first seized with the case would first render the first resolution?
A. Let's see. The thing is that there are different Chambers; right? Each Chamber manages, and I have no way of knowing that. Each one determines the errands, the oral hearing, and what they do in their own timeframes. There may be a Chamber that even though there has been an oral hearing, may take more time; right? Or one might take less time. I cannot know that; right? What I said is that normally, or what should be is that in an oral hearing, they already go with a draft or at least they should be familiar with the issue. That is what happens. And I say this based on my experience, for I too have been a "vocal" in a Chamber. That is the situation.
Now, what actually happens in reality? That
[Page 1918]
I cannot say. Now, it's not that there is an exact track: "This file entered first, I carry out the oral hearing and I resolve first." That doesn't exist. It depends on how the given "vocal" or the Chamber handles their cases. There are some who work more quickly. There are others who do not work as quickly. So, it depends on them.
Q. Ms. Olano, we can agree that the--at least with regard to the 2006-07 Case. That was the case that was first filed of the Royalty Cases, and Chamber Number 10 hearing the case was the first Chamber to schedule an oral hearing for a Royalty Case; right?
A. It scheduled the oral hearing, but I don't see how that is relevant. Yes, it did schedule the oral hearing.
Q. Okay. So, this scheduled it on March 6. So, let's see what happened with the other case, the 2008 Royalty Case.
So, in the 2008 Royalty Case, in March-- after Chamber Number 10 scheduled the hearing, Ms. Úrsula Villanueva starts working on a resolution for Chamber Number 1; is that correct?
[Page 1919]
A. What's the date that you said?
Q. I was saying that after March 6, after Chamber Number 10 scheduled a hearing for the 2006-'07 Case, Ms. Úrsula Villanueva starts working on a resolution for the 2008 Case that is pending before Chamber Number 1; right?
A. I could not tell you the date. What I can tell you is that she began to work on the case with "Vocal" Zúñiga. The exact date, I don't know.
Q. Okay. I'm going to come back to the date. Let me ask you still a few questions about Ms. Úrsula Villanueva.
So, I think you already mentioned that she was your advisor. So, if I understand correctly, you had one such advisor, and you had one administrative assistant; right?
A. Yes.
Q. And Ms. Úrsula Villanueva was your advisor; right?
A. Yes.
Q. And her function was to assist you in conducting your various functions that you had at the
[Page 1920]
Tax Tribunal?
A. Yes. Well, she would issue Technical Reports, she would carry out several tasks in coordination, and during that period, she was in several places, because she was entrusted to the areas that needed her. She was entrusted as a one who resolves complaints (resolutor de queja). She was in charge of the Technical Office when no one else was there, and she also helped in the Chambers when needed.
ARBITRATOR TAWIL: Sorry. Mr. Prager, before you follow your line of questions, in order to understand better the chronology. Good morning, Ms. Olano.
When was Ms. Villanueva called to work in Chamber 1?
THE WITNESS: I don't remember the date so well. I think it must have been in March, which is when the "vocal ponente" and Chamber 1's President, Licette Zúñiga asked for it.
ARBITRATOR TAWIL: Is that the date of the email that you brought here, approximately?
[Page 1921]
THE WITNESS: It must be approximately because, as of that date, she was working on the case apparently. I don't remember the exact date.
ARBITRATOR TAWIL: And you had assigned Ms. Villanueva to other Chambers?
THE WITNESS: She supported different Chambers.
ARBITRATOR TAWIL: Had you assigned her to other Chambers in specific cases?
THE WITNESS: When other Chambers have asked for my support, yes. When it was required from other areas as well. Because, unfortunately, we were short on personnel.
ARBITRATOR TAWIL: I understand that we don't have any document in connection with the request by Ms. Zúñiga or your instruction. You said everything was done verbally?
THE WITNESS: No, I don't have an email, no.
ARBITRATOR TAWIL: And the cases in which Ms. Villanueva had been involved before-let's see. She was involved before in other cases; right?
THE WITNESS: She provided support in other
[Page 1922]
cases. Yes, yes.
ARBITRATOR TAWIL: And in those other cases, did she liaise with you in connection with the case files?
THE WITNESS: No. She provided support in the Chambers and then she had to work with the "vocal ponente," with the "vocal" she was helping.
ARBITRATOR TAWIL: But she knew that she didn't have to have any relationship with you about the case file?
THE WITNESS: Yes, she knew that perfectly well.
ARBITRATOR TAWIL: And she had done so in other cases?
THE WITNESS: Yes, she provided support in other cases.
ARBITRATOR TAWIL: Then, how do you explain this email in which she told you "Read the arguments and then we can talk about it."
THE WITNESS: I don't know what she was thinking, really. Simply, I think, it was a concern of hers, and that's what I've stated. I don't know
[Page 1923]
exactly what happened to her and why she stated what she stated.
ARBITRATOR TAWIL: Did you reprimand her in any way. Like "No, I cannot intervene, you know that that doesn't correspond to me." 'The only thing we saw was your email saying "Okay."
THE WITNESS: Yes, because I gave a formal reply, simply as "received," and she knew perfectly well that I am not involved in the cases. She knows that.
ARBITRATOR TAWIL: However, she knows that, but she told you: "Read the arguments and we can talk about it," after having intervened in other cases.
THE WITNESS: Yes, I cannot answer that, because I do not know what Úrsula Villanueva wanted; right? But I imagine that this was a concern of hers to work on this case file in a proper manner, right? That was entrusted to her.
ARBITRATOR TAWIL: Thank you.
BY MR. PRAGER:
Q. Let me follow up with the questions that Professor Tawil asked.
[Page 1924]
So, first of all, you mentioned that Ms. Úrsula Villanueva was regularly assigned to Chambers to assist as an "asesor suplente."
You have not presented a single email that would show that Ms. Villanueva was assigned to another Chamber, did you?
A. Yes. I have not submitted emails because I have not found emails. These are old emails. So, I can indeed say that she had provided support to other Chambers. I didn't say regularly, but she has supported other Chambers. Yes, when there's a shortage of personnel. In this context, in 2013, we were short on personnel, and in my Statements, I submitted all of the memoranda that showed that we were short about 30 professionals.
On this basis, when we were short on personnel and somebody needed support and there was no other professional available, then I had to allocate the professional we had at hand, and more so in a large and complex case because she had that experience; right?
Q. Ms. Olano, you had to produce the emails,
[Page 1925]
all your emails, from the relevant time period here, 2013, in response to a transparency request, didn't you?
A. Yes.
Q. So, you had the emails from that time period; right?
A. Let's see. The emails that were requested via the transparency request had to do with a long period of time. We have done--well, I say "we" but, finally, it was the General Office of Technology and Information, the one that was asked to help to back up all the information requested and to provide all the emails that they found in the computer. That was asked after a certain time went by. I don't know what may have happened because sometimes they change the computers and they erase them. But, indeed, it was requested to the general IT office to conduct a search on backup information, well, I don't know the technicalities of it all, but they were asked to look for all of the emails on the basis of the transparency request. Because Transparency requested a specific period of time, specific set of addressees and that is
[Page 1926]
what they found and what was provided.
Q. And when you wanted to show that Ms. Villanueva was appointed to other Chambers, you produced a couple of emails that show that law clerks from other Chambers were appointed to different Chambers. You found those emails; right? But you did not find any email in your collection which Ms. Villanueva was assigned to any Chamber as an "asesor suplente"?
A. Let's see. I showed those emails as an example of the resource management. That's not all the supports that existed. Those were the ones that we were able to find. Those were not the only supports. There were other supports from other Chambers, but I don't have them in email either or I haven't found them. They haven't come out in the search.
Q. Ms. Olano, the 2008 Resolution has Úrsula Villanueva's initials on it.
If you wanted to show us that Úrsula Villanueva was assigned to other Chambers, you could have given us resolutions that have her initials on
[Page 1927]
it, but you didn't produce a single resolution, other resolution than the 2008 Royalty Case that has Úrsula Villanueva's initials on there, probably because they don't exist; right?
A. Let´s see. In principle, I have not conducted that search. But, in this case the topic was about the initials, and that's a matter of transparency; right? That she participated there. Not all of the Chambers put their initials there. That depends on the style of each of the Chambers. If you tell me that I have to find resolutions with the initials, well, I didn't even conduct that search. I think, I don't know exactly what you're trying to refer to.
Q. Ms. Olano, you wrote in your Second Report several paragraphs on how Ms. Villanueva was assigned to other Chambers. You did, apparently, a diligent search because you came up with other emails, although they don't relate to Úrsula Villanueva. So, you clearly searched. Isn't it the case that you just didn't find any other resolution and any other email that would show that Ms. Úrsula Villanueva was ever
[Page 1928]
appointed as an "asesor suplente" to another Chamber?
A. Let's see. If I haven't shown them, it's because I haven't found the emails. These are old emails, as I tell you. And we don't even have there all of the supporting emails from the other law clerks, they are some that we have found. I remember very clearly that she provided support to other chambers. I have not submitted other emails because I haven't found them.
Q. Well, there is no evidence of that other than your Statement. You also have not presented a single document that would show that Ms. Zúñiga requested you to have Ms. Villanueva as her "asesor suplente," did you?
A. Well, as I said last time, the requests could be telephonic or oral. At the time we were all in person, then I didn't really have to submit emails that I don't even know whether they existed or not.
Q. Let's look at--just to confirm, Ms. Olano, you have access to all the resolutions; right?
A. Let's see. I do not have access to all of the resolutions. Why? Because once the Chamber hands
[Page 1929]
down its Resolution, when the Resolution is sent out, then it is put into the system, and then it is placed on the web page. That's what happens.
Q. So, you testified that as the President of the Tax Tribunal, you don't have access to the resolutions of the Tax Tribunal, Ms. Olano?
Is that what you're saying?
A. I have access to them after they have been issued. Is that the question?
(Overlapping interpretation and speakers.)
BY MR. PRAGER:
Q. Ms. Olano, I'm not asking you about Tax Tribunal resolutions that are pending right now.
We are talking about the past 10 years while Ms.--no, we are talking about the time period in which Ms. Villanueva was your "asesor," during that time period. You have access to the resolutions that were issued during that time period. And sitting here today, can you name us one other resolution that has the initials of Úrsula Villanueva on it?
A. No, I don't have that committed to memory to determine whether there's a resolution that bears the
[Page 1930]
initials of Úrsula Villanueva.
Q. So, let's look at the email that we have here on the screen. The email is dated March 22nd; right?
A. Yes.
Q. And that was about more than two weeks after Chamber Number 10 announced that it would have an oral hearing at the beginning of April; right?
A. According to the date you have shown me and well, I don't understand about this that was announced. If there is a notice, it is sent to the Parties. It is not a public announcement. It is not that we all know that an oral hearing will come to being. The Party knows it, the taxpayer knows it and the Administration knows it.
Q. You would agree with me on 6th of March, Chamber Number 10 notified the Parties that it would hold an oral hearing at the beginning of April; right?
A. Umm-hmm.
Q. And this email, we can agree that, is more than two weeks after that date; right?
A. 22 March. Yes, okay. I'm looking at the
[Page 1931]
email.
Q. Can we also agree that on that email there is no mention of Ms. Zúñiga. She is neither copied on the email nor is that email directed to Ms. Zúñiga, the President and "vocal ponente" of Chamber 1; right?
A. Not in that email. What else could have happened? If the email was sent to her? I don't know, but it is not in that message.
Q. We can agree she's not copied on that message; right?
A. Well, not in this message, is what I see on the email. But more--if it was sent later, I can't know that.
Q. Ms. Olano, is there any reason we only have your reply and not the original email from Ms. Úrsula Villanueva to you?
A. Let's see. As I was explaining to you before, when there was this request for transparency, the request covered quite a long period for emails and certain addressees. And we asked the IT office to provide support, for the IT office to look at the backed-up information and to extract all of the
[Page 1932]
emails. That is what the General IT office did, they extracted all of that and that's what they found.
Q. Ms. Olano, you told us last time that you reviewed the emails and you were withholding emails on what you said were for personal information; isn't that right?
A. Yes.
Q. And Ms. Olano, we have a total of nine emails from you that relate to the 2006-'07 and 2008 Royalty Cases. They are all from your outbox except of one.
Is there any reason that you did not provide emails from your inbox, with one exception, but only from the outbox? Did you withhold emails that were in the inbox and forgot to check the outbox?
A. Let's see. I explain this to you again. As there was an old period of time, who assisted us was someone from the General IT office. Because, of course, I wasn't able to look at all those emails. I did say that, yes, because I was the responsible one. Because I was the one who had been requested. These were my emails. So, I asked for the backup of all my
[Page 1933]
emails, and that is what was found, the email messages that were found in my machine. And what I also said is that this is an old period of time, so the time went by, there have been computer changes, computers erased. I don't know if all of the emails were there, but it was what was found. We have provided what was found.
Q. Ms. Olano, can you confirm here again today what you told us at the SMM Hearing, that you were withholding emails that were not produced?
A. Health-related is what I said. It was health-related.
Q. Ms. Olano, you personally made that selection; right? You determined which emails relate to what you say "health"; right?
A. Let's see. When I say that I did it, it is because I was the person responsible for that. Because they were asking for the emails from the President of the Tax Tribunal addressed to the "vocales" and, well, addressed to other addressees, and they did that for a given period of time. But obviously we are talking about a large number of
[Page 1934]
emails. I don't know. The period covered five or six years. Something like that, I don't recall exactly. And then there was a brief period of time for us to provide the information. I couldn't really afford to look at all of these emails. I was responsible; that's why I said "I." But, let's say, that in the transparency requests, you know, it was sent also to the office...
Q. Ms. Olano.
A. --IT Office.
Q. Ms. Olano, I asked you a very specific question. We are going to go on the whole day if your answers aren't more precise. So, try to be more precise. Your counsel can then ask you follow-up questions to elaborate, but we need shorter answers from you.
My question was, did you withhold emails that were responsive to the request? Did you or did you not? Did you personally select emails to withhold? Yes or no?
A. I did not provide emails related to health-related matters. And as I said last time, I'm
[Page 1935]
not even sure if 100 percent of those health-related emails were not provided.
Q. Did you select emails that you were to withhold or not--that were withheld or not? Did you personally select them? That was my question. And I want an answer to that question.
A. I selected them with an IT assistant.
That's the exact answer. I had done the selection with an IT assistant.
(Overlapping interpretation and speakers.)
BY MR. PRAGER:
Q. Is it a coincidence that all the emails we have from you on these matters, which are not many, that they all come from your outbox except of one?
A. I cannot answer that question. I haven't looked if it was in the inbox or outbox. What was found was provided and delivered, and that's that. I cannot say whether this is a coincidence or not. I don't know. I have tried to explain to you in all manners possible; that this happened long ago and that the emails were delivered. And now I explained it to you with more clarity, because when I say that "I
[Page 1936]
delivered," as I speak as the responsible person, well, I delivered those with the assistance of an assistant. Obviously, I cannot do all that search myself.
Q. Let's take this concrete email.
So, Ms. Olano, what you're telling us is that the email with the attachment that Ms. Villanueva sent you got lost in the course of time, but that your response, which doesn't have the attachment, was still in your outbox.
Is that what you're telling us?
ARBITRATOR TAWIL: Sorry, could you identify that, maybe, for the record?
MR. PRAGER: Yes. I'm talking about Exhibit CE-648, which is the March 22 email.
THE WITNESS: Is that the one on the screen?
BY MR. PRAGER:
Q. Yes. Let me ask the question again.
With regard to CE-648, is it your testimony that the email from Ms. Villanueva, which had attachments on it, got lost in the course of time; whereas, your response, without the attachments,
[Page 1937]
happened to still be in your outbox?
Is that your testimony, or did you purposefully not submit the first email and forgot about checking your outbox?
Which one of the two options is it?
A. I state what I already said, that I reviewed all of these email messages with the assistance of a specialized person from the IT Office of the MEF, and that is what was found, and that is what was provided, and that is what I state.
Q. So, Ms. Olano, in this email, Ms. Villanueva tells you that she is sending you the arguments of both sides.
Do you see that?
A. I do.
Q. Arguments of both sides here means arguments made by SUNAT and by Cerro Verde in their submissions to the Tax Tribunal in the 2008 Royalty Case; right?
A. I assume that that's the case, yes.
Q. And Ms. Villanueva also tells you here she's sending you the main clauses of the Stability Agreement; right?
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A. Yes. That's what the email says.
Q. And then she goes on and says, there are good arguments for both sides, but she was leaning in one direction.
So, Ms. Villanueva--you surely understood Ms. Villanueva, here, as having assessed the Merits of the 2008 Royalty Case; right?
A. She must have. I don't know.
Q. And to analyze the arguments of both Parties, Ms. Villanueva must have had the case file in her office; right?
A. Probably. Otherwise, how else was she going to provide support to the Chamber.
Q. And just to be clear, her office was not at Chamber Number 1; her office was next to yours. Right?
Across the aisle.
A. The question is if Villanueva's office was across from mine?
Q. Yes.
A. Yes, it was across from mine.
Q. And then she goes on and says: "Please read
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the arguments when you can, and we can talk about it."
Do you see that?
A. Yes, I do see that.
Q. So, she wanted you to review the arguments. And so, you understood that as her wanting you to review the arguments of the Cerro Verde Case, and to have a conversation with her about it; right?
A. Well, I cannot say what she wanted. I am not able to know what she wanted, but what I said is what I said before. For me, it was a concern of hers in order to say that she was doing a good job Nothing else.
Q. And in your First Witness Statement, you say that-your response was a solitary "thank you"; right?
Do you recall that?
A. Yes. Yes, I do recall that.
Q. But that's not really her response here, your response here. I mean, what you said is "Okay. Thank you"; right?
A. I don't see the difference, really. In my opinion, it was solely a thank you, nothing else.
Q. Okay. When you said "okay," it means that
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you agreed with her suggestion, didn't you?
A. That is your presupposition, but, to me, it was simply a formality.
Q. Well, Ms. Olano, you didn't tell Ms. Villanueva that it was inappropriate to discuss cases with you, did you?
A. As I said, she knew that I did not intervene in cases.
Q. Apparently, she did not, because she wrote you that email.
So, you didn't-you didn't reply, like: "Úrsula, after 10 years of working in the Tax Tribunal, you should know that you cannot ask me such questions," did you?
A. Well, like I said, it was simply a formalistic answer acknowledging the receipt of the email. I received lots of emails every single day, so it was just a formal answer.
ARBITRATOR TAWIL: Ms. A question. We do not have the attachments. Do you know what attachments were sent to you by Ms. Villanueva?
THE WITNESS: No, 'I don't have the Annexes.
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ARBITRATOR TAWIL: Did you not find out later on what those attachments were?
THE WITNESS: No. I have not found out what those attachments were.
ARBITRATOR TAWIL: Thank you.
THE WITNESS: Because once the case file is decided, it is sent to the Administration. We no longer have the case file.
ARBITRATOR TAWIL: Well, we're talking about before the Resolution is made and after when this was submitted to the Tribunal; right? When it was sent to this Arbitral Tribunal, and we do not have the Annexes. We would be interested to know what those attachments were.
THE WITNESS: But I don't have them. I didn't have them. That's why I haven't submitted them.
ARBITRATOR TAWIL: Okay. Thank you.
BY MR. PRAGER:
Q. You didn't tell Ms. Villanueva that she should send that question to Ms. Zúñiga; right?
That's not your reply; right?
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A. Again, I simply provided an acknowledgement, a receipt answer. It was formalistic. She knew very well that she had to talk to the "vocal" Villanueva. And she should had done it like that, because the "vocal" Villanueva is finally the one that had to define the draft with the other two "vocales" that were going to agree or disagree on a certain position.
Q. Ms. Olano, apparently she did not know that. You testified that you actually met with Villanueva in response to that email, didn't you?
A. Let's see. I do not recall exactly. What I did say is the only thing that may have happened is that I told her to be exhaustive in her answer, which I repeated before, to be exhaustive, to look at both Parties' arguments very well, and to prepare a good draft so that the Tax Tribunal vocales can define, can assess and discuss about the situation.
Q. Well, let's see what you said in your First Witness Statement. Let's pull up Paragraph 49. That's in Tab 1, and you can also look at it in your binder. So you said, this email simply indicates that I met with Ms. Villanueva, to recommend to her that
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she be exhaustive in the research preparation of the legal foundation for the decision in the 2008 Case.
Do you see that?
A. I do see that.
Q. Ms. Olano, you told us that Ms. Villanueva worked already for a long number of years at the Tax Tribunal, that she was, before, a legal clerk, in various Chambers, that she headed the Technical Office of the Tax Tribunal. At that time, she has been working at your--as your "asesor" for a number of years. You think you had to tell Ms. Villanueva that she needs to be exhaustive in her research and prepare the legal foundation for her decision?
You're telling us Ms. Villanueva didn't know that, that you needed to tell her that?
A. Yes, because this is just a recommendation that I always give. It does not hurt, regardless of how specialized she is. Well, there could be a very good law clerk, but you have to give to them that recommendation still; right? Because these are very large files with different controversies and we have to look at it very carefully, precisely, because we
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know that once a decision is made, a challenge will be placed, whether the taxpayer or the Administration.
So, the resolution has to be well-founded regardless of the position adopted. It has to be well-founded.
As I said before--
Q. Ms. Olano--I have to wait for the translation.
So, Ms. Olano, you testified--and tell me whether you still agree with that. You testified in--at the SMM Arbitration, that Ms. Villanueva had great technical skill and experience.
Is that still your view?
A. Yes.
Q. And you testified that Ms. Villanueva prepared high quality draft resolutions.
Is that still your view?
A. Let's see. What I have said about her is that she is an "asesor"--a well-prepared professional, right? Who started very young at the Tax Tribunal, and then she went to the private sector. She went to law firms, she worked for other institutions, and came back to the Tax Tribunal. Then, yes, she is a
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well-prepared professional. That is what I've said.
Q. And, yet, you still needed to remind her--or you're telling us that the purpose of the meeting after Ms. Villanueva asked you to discuss with her the Cerro Verde Case, and the arguments of the Parties, your response is that when you met her you told her: "Please draft a thorough decision." Is that still your testimony? Notwithstanding that Ms. Villanueva had all that experience in drafting decisions already, and you described her as being very thorough?
Is that what you're telling the Tribunal?
A. Yes. Because a recommendation never hurts. Even when you talk to a "vocal," well, I was in the Chamber, and we always knew that. That is a recommendation that never hurts. The fact that she is a specialized "asesor," as I say, it doesn't mean that I cannot make a recommendation that bears in mind all of the items. Otherwise there wouldn't be a resolution, whenever there is, for example, a request to expand or elaborate on the grounds, and, in that case, these are resolved by vocales, who are specialized professionals that have all the
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experience. So, you cannot tell me to not make a recommendation in that case. Nevertheless, we do get clarification requests, where there is an omitted point that they have to resolve. Even if they are specialized professionals, they miss something, so the recommendation never hurts, in my opinion.
Q. Ms. Olano, you didn't tell Ms. Zúñiga that she had to draft a thorough decision, did you?
A. Let's see. I didn't tell her she had to draft. She had to support the "vocal" because the draft of the final resolution will be something finally seen by the "vocal ponente." She may prepare a draft. She may analyze the background to support. She may have--if there are two positions, one position, whatever it is, to look for all of the grounds for the "vocales" to be able to discuss and define, but the one that will look at the final draft resolution will be the "vocal ponente." That person will say, yes, or no, follow that path or the other path, because he has to provide support with the other two "vocales," because the ones who decide are the "vocales."
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Q. Ms. Olano, please keep your answers short. I know you want to speak long, but you have the chance to do it afterwards. Keep the answers short. We need to move on.
You also testified that one your obligations was to ensure that Chambers that had similar cases pending coordinate.
Do you recall that correctly?
A. Yes, that's what they should do.
Q. Would you agree with me that in March 2013, while Ms. Villanueva was working on the draft resolution for the 2008 Royalty Case, you did not inform Chamber Number 10 that Ms. Villanueva was working on the draft resolution?
A. That was not what I had to do. What I said is that whenever there are similar pending proceedings, the "vocal" is the one that has to do that, not myself. I do not need to participate in this. I am just a liaison. I am told, look, there is another "vocal" who is looking at the same topic, and I may say "Okay. Coordinate." Or I may say, yes, they're looking at the same topic, when I'm told. But
[Page 1948]
I do not need to report to another "vocal" that someone is doing a draft. This corresponds to the "vocal ponente," to the "vocales" that are looking, to the Chambers. They are the ones who coordinate between Chambers.
Q. Ms. Olano--
QUESTIONS FROM THE TRIBUNAL
ARBITRATOR CREMADES: I'd like to ask you, within the Tribunal, there is collegiate work, and therefore it is logical that among the "vocales" and those who participate in decision-making may have some sort of communication because, at the end of the day, there is an action in solidarity.
So, my question is, within the Tribunal, are there any rules preventing that type of communication, or, quite the contrary, is it normal?
THE WITNESS: Let' see. If I understood correctly, in the chamber--
ARBITRATOR CREMADES: Sure.
THE WITNESS: --the "vocal ponente" prepares its draft, and clearly discusses this with the "vocales," or explains to the "vocales" on the
[Page 1949]
contents of the draft because, at the end of the day, the three would need to make a decision. A resolution comes to fruition with two votes, at least, with two votes. There could be a dissenting vote, but you need two votes to have a resolution. So, he has to provide support and talk to the other vocales of the Chamber.
ARBITRATOR CREMADES: But that is not my question.
My question is that as President, you said you have to coordinate even the activity of various Chambers, and to coordinate, you need to have some sort of information from those three "vocales," or one of them, or whoever it is with the President. So, leaving aside this case, in other cases, is this the norm?
THE WITNESS: Yes. Sometimes the "vocal" tells me I am looking at a case, and there is another pending case, or sometimes the Technical Office, there are two cases. So, let's say two cases with similar situations. So, whenever we have that, I told them to coordinate with the other vocal, to coordinate with the other Chamber, that it is what they normally do. I
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am sort of a liaison, a link in between Chambers so that they can coordinate their position, or if something that has to be dealt with the Plenary Chamber. They make the coordination.
ARBITRATOR CREMADES: I do not understand the scandal behind the email from Úrsula Villanueva asking you, because Úrsula, at any rate, is advising "Vocal" Zúñiga, and within the Tribunal whether it is the "vocal" or the assistant, it is logical for them to coordinate with the President. This, then, may seem normal to me, doesn't seem to be for the Tribunal. Is it the way it works, or there are some ethical rules that maybe prevent you from doing that?
THE WITNESS: Let's say that, usually, there is support staff that coordinates with the Chamber, with the Chamber, with the "vocal ponente" that is looking at the topic. Not with myself. I am not the one that is in charge of decision-making. And, in my opinion--or my opinion would not be valid either because, at the end of the day, you have three who make the Decision, three who will see whether they agree or not. So, that is what usually happens; that
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is, there is coordination with a "vocal ponente."
ARBITRATOR CREMADES: But if there is a complicated case, such as this one, there might be consultation, or they may make some comments because, at the end of the day, the Resolution to be made by the three "vocales" might entail that it is a complicated case, and that they may need some sort of information that is part of the solidarity that the Tribunal may have.
Is this normal?
THE WITNESS: This is not what we usually see, but whenever there are plenaries, I do participate. Whenever we have a Plenary Chamber, when a "vocal" has something in the case file, or a topic that needs to be taken to the plenary, even though I do not see the case file, I do see the topic that is part of the analysis conditions, and that's how I see the topics, and I offer a position because I also sign. So, here, whoever signs has the responsibility.
I also sign and I share my opinion, whether I am in favor, against, or whatever it is. In the Resolutions the ones signing are the ones that have
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the responsibility for the Resolution. The law clerk does not have the responsibility because the "vocales" are the ones who will be defending that Resolution, not only in the case of an amparo but also in the case of a contentious administrative proceeding, so in some cases the "vocales" need to defend the Resolution.
ARBITRATOR CREMADES: Thank you very much.
PRESIDENT HANEFELD: May I ask a follow-up question to Dr. Cremades. It also concerns the assignment of Ms. Villanueva and the email that we now already saw.
Do I understand correctly that your testimony was that there was a lack of personnel, you were lacking, more or less, 30 people, so you had to substitute for law clerks?
THE WITNESS: Yes. In 2013, we didn't have staff. Even in my Statements, you will see all the memoranda sent to the office, the General Office of the Ministry, requesting hirings, new hire-ups. So, in that context, without staff, I was asked for support. And other times we have also had support from other areas.
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So, if there is a shortage of staff, it is my function to manage those resources, and I need to send an individual wherever that person needs to be. In this case it was Úrsula Villanueva, to send Úrsula to that Chamber. And at some point, there was also a Complaint Office that had been recently created, and there wasn't anyone to make decisions as to the complaints presented. So, she also had to go to that office or also go to the Technical Office.
So, let's say that it would have been ideal to have full staff, but whenever there is--that is not the case, the law clerks get moved around to the areas based on the needs, and I think that that is part of my function.
PRESIDENT HANEFELD: At that point in time, in 2013, had Chamber Number 10 a law clerk, or were they also short of staff?
THE WITNESS: They did not request a law clerk. Whoever the "vocal ponentes" were the ones who requested the law clerk. So, based on my examples, the one I found, there were some "vocales" that requested support, and sometimes we sent from the
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Technical Office whenever support staff was needed, but it had to be requested. I had to be told.
If they didn't ask me, it was because it wasn't necessary, and I do not participate in each Chamber. Each Chamber sees their own management, but if I am asked for support, I try to see what I do and how I manage that.
PRESIDENT HANEFELD: But had Chamber 10 a law clerk, or do you not remember? I heard you saying they had not asked you for a substitute law clerk, but had they one or not?
THE WITNESS: They had law clerks. I do not know whether they required someone with a higher level, but they did have law clerks.
PRESIDENT HANEFELD: Thank you. Understood.
And when you assigned Ms. Villanueva, who was your personal law clerk, to a Chamber, this meant you, then, missed her assistance; right?
I mean, the day has only 24 hours, so it was a work allocation decision from your end?
THE WITNESS: Yes. As I said before, I did not only send her there. I also had to send her to
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the Complaint Office whenever it was necessary, to the Technical Office. Right now, I do not have an "asesor de Presidencia." So, in some situations I do need to look into the issues, and I get the support of the Technical Office, but whenever it was necessary we had to do it. There was no other option.
PRESIDENT HANEFELD: And did you discuss with her for, example, the time budget, how much time she was supposed to be--spend on this assignment, and the other assignment, and also on your specific assignments, or was she, then, simply assigned to Chamber 1 for this Decision, without any further instructions on time budgets and duration, whatever?
THE WITNESS: She was appointed to Dr. Zúñiga, Chamber 1, full-time. Once she finished and once the "vocal" didn't need her, she would go back to the position of "asesor de Presidencia."
PRESIDENT HANEFELD: This I do not yet fully understand. I saw in Paragraph 46 of your Witness Statement that Ms. Villanueva was assigned by you also to other cases in Chamber 1. So, how was her time period at this Chamber 1 limited, or how--because you
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lost her, so to say, as your right hand. And I just want to better understand, for how long you lost her, or wanted to lose her, or gave her permission to not to work for you.
THE WITNESS: I lost her many times because we also had a shortage of staff also in other areas. So, whenever she was not available, I resorted to the Technical Office. There is a Technical Office that also helps me.
So, whenever she was not available, I got the support of the Technical Office, but whenever she worked there, she was there in the Chamber, and then she was also the one addressing complaints in the specific Complaint Office, and right now I do not have an "asesor" that is, for example, and I get the support of the Technical Office. That's what I do.
PRESIDENT HANEFELD: Thank you.
ARBITRATOR TAWIL: I have a few questions in connection with this. Is there any type of record of the assignments of the law clerks?
THE WITNESS: In the case of the law clerks, there is no record because, in general, they have a
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temporary regime that is called "CAS." C-A-S. Currently, they have a better regime. But they are hired, and based on the number of law clerks in the various Chambers, they are assigned. But law clerks may move from one Chamber to the other one whenever needed. For example, in some case we also had the Complaint Office, that--and we established shifts.
ARBITRATOR TAWIL: But how do you know how many law clerks you have, if there is no centralized record? How do you know, for example, if there are four in Chamber 3, five in Chamber 2?
THE WITNESS: It is not--I guess I didn't understand your question when you said the record.
ARBITRATOR TAWIL: Whenever the Chambers are put together--well, you are saying that the Chambers are put together, but law clerks are moved from one Chamber to the other one. There needs to be some sort of record as to see who is where.
THE WITNESS: Yes. There is a composition of those Chambers with the vocales and the rapporteurs. In the case of law clerks, we see how they are doing and we appoint them. The
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administrative "vocal" sends the Chamber composition with the law clerks assigned, and I understood you whether, when you talked about a "record," whether there was a written document.
ARBITRATOR TAWIL: But this is related to the same thing. For example, I was Secretary of the Supreme Court of Justice, which was something similar when I was young. At that point, there were permanent allocations. There were no substitute allocations, as you are saying, but if the Justices wanted to know the Secretary working for each "vocal," that was written somewhere.
So, how could you know who was working with these substitute law clerks?
THE WITNESS: The law clerks are established in each Chamber.
ARBITRATOR TAWIL: But the substitute law clerks?
THE WITNESS: The substitute law clerks are assigned just to provide some support at that specific point in time, and then they go back.
ARBITRATOR TAWIL: So, those are not
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recorded anywhere, formally; correct?
THE WITNESS: I do not understand "formally." Unless they stay for a long time, because there is no law clerk and there would be--
ARBITRATOR TAWIL: So, there is no record that would allow us to know that the substitute law clerk would be assigned to Chamber 3 or 4 on Day 3. That there is no way that we could see?
THE WITNESS: Not with substitute law clerks, you wouldn't be able to know that.
ARBITRATOR TAWIL: You also said that--and this was striking--that you could have required a higher level law clerk. Are there different level law clerks? So, these permanent law clerks are not enough? Is that what you are saying? What do you mean a "higher-level law clerk," and who determines--for example, I understand that you thought that Ms. Villanueva was a higher level law clerk; is that correct?
THE WITNESS: The Chambers have junior law clerks, the ones that have less experience. You have analysts and you have specialists. Specialists are
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Experts. So, that's what I was trying to imply. Those that are of a higher level. What I said is that, in that case, it wasn't requested.
ARBITRATOR TAWIL: And Dr. Villanueva was the highest--was the law clerk that provided the highest possible level; is that correct?
THE WITNESS: Úrsula Villanueva was an asesor de Presidencia. She was also an expert asesora. So, she had seen--she had been junior, an analyst, and she was now asesora de Presidencia.
ARBITRATOR TAWIL: So, in your opinion, it was the logical person to be assigned to big cases and she could be moving from Chamber to Chamber?
THE WITNESS: Yes, she could have been if it was necessary.
ARBITRATOR TAWIL: You also said in--to answer a question by the President, that she worked with Ms. Zúñiga for a while. I understand that they worked together on some case files. I understood that she had only been assigned to this case file, but, in answering a question by the President, I understood that she was in the Chamber for some time.
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Could you please clarify whether she only worked on Cerro Verde, as I think I read it in writing? Or did she also work in other--on other files with Dr. Zúñiga, during that period?
THE WITNESS: To be honest, I do not recall whether there was any other case file, but based on--but Dr. Zúñiga requested it for this case file.
ARBITRATOR TAWIL: So, it is not that she worked at that Chamber for some time.
THE WITNESS: Only for some time until the case file was completed. What I wanted to tell you is that during that time she was in the Chamber, and then she went back to the President's Office.
ARBITRATOR CREMADES: President Olano, I have a question, and please answer by going back to your First Statement, that you were only going to say the truth and nothing but the truth.
In this Arbitration--or in this file, case file, we are discussing whether there was a change in the legal, in tax criteria based on political pressure. We even heard that SUNAT in Arequipa could assess or not, and it was discussed--and this is
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something that was discussed yesterday--addressed not only the specific case but also the global situation in Arequipa.
My question is very specific. Would you please tell us whether you have received any sort of call, link, political pressure in your professional activity? And that Law Clerk Villanueva may be considered as a "parachuter," that you launched to the Chamber, along the same lines of political pressure to resolve the issue one way or the other?
THE WITNESS: Let me answer. I have not had any political pressure. Here, there was only a Resolution based on the technical and legal issue. At any time, did we have any political pressure of any type.
ARBITRATOR CREMADES: Are you aware of having received any call, any intervention by someone that may move the decision one way or the other?
THE WITNESS: No. I have not received any phone calls, and I can say that throughout my tenure as President, the Ministers were very respectful of the independence, of the operational independence of
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the Tribunal. I never received any call regarding the resolution of a case.
PRESIDENT HANEFELD: Many thanks. Please go ahead.
(Comments off microphone.)
PRESIDENT HANEFELD: Yes, we can take a break. 15 minutes.
(Brief recess.)
PRESIDENT HANEFELD: Then let us continue.
MR. PRAGER: Thank you, Madam President.
BY MR. PRAGER:
Q. Ms. Olano, you said that Ms. Villanueva had a "cargo de confianza," she reported directly to you, and you had the authority to remove her without cause, but with regard to law clerks, law clerks did not have a "cargo de confianza," so they only could be laid off if there was cause, and they do not report directly to you, but to the President of the Chamber; is that correct?
A. No, it's not correct, and I can explain why.
Most of the professionals that are on the Tax Tribunal are under the CAS Regime. Up until last
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year, there was a change in the CAS Regime, which now means that they are permanent, but before the CAS, hiring regime would last six months or one year. So, you could simply not renew the contract without expression of cause, so it's not true that it was only for cause or anything of the sort. It was the same situation.
And, as regarding the CAS personnel, the one who sends the documentation to hire and to determine whether or not there's a renewal is me, obviously with the opinion of the Chamber.
Now, I don't know all of the law clerks. I only know them by reference. So, I ask the Chambers for their opinions to determine whether or not to renew the Contract.
Q. And we can agree that the law clerks did not have a "cargo de confianza"; correct?
A. It was not a position of trust. It was different, because the position of Úrsula Villanueva is a directing or managerial position.
Q. Well, you said before that Úrsula had a "cargo de confianza"; right? You still--
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A. Yes. She had a management position.
Q. And that was a "cargo de confianza"; right? You had the authority to remove her without cause. That's what you testified.
Is that still your testimony? Right?
A. Yes. What I say is that she was designated. Like any other designation, it's a position of trust.
Q. Ms. Olano, you could have assigned, instead of Ms. Villanueva, another law clerk to assist Chamber 1, couldn't you?
You provided us with emails in which you showed that, when other Chambers had a staff shortage, you appointed law clerks from other Chambers, and you could have done that with Chamber 1 as well, couldn't you?
A. Now, let's see. As I explained, in principle, the scenario was one of a shortage of personnel, and my Witness Statements include all the memoranda.
Second, Ms. Zúñiga was the one who sought the support, the support of Úrsula Villanueva. So, when they asked me for her support--I don't have the
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emails, it's true, but on several occasions, I've been asked to provide Úrsula Villanueva's support because of her experience, precisely. So, it was not possible in every situation.
In that case, "Vocal" Zúñiga asked for Villanueva's support because she wanted to make sure her case file would be well-reviewed, or she wanted her to take a look at it.
Q. You could have--you could have told her that she should take the--borrow the law clerk of Chamber 10 that were hearing a similar case. They were hearing another Royalty Case; they already worked on it.
You could have told her that the clerk of Chamber 10 could assist her instead of Ms. Villanueva, couldn't you?
A. No, because I was not involved in the Chambers. I would not go and remove a law clerk from one Chamber to another. That would have to be coordinated with the "vocales."
At the Complaint Office, which was created in 2013, there was a system of terms which was
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discussed with the Presidents of the Chambers, that every so often a law clerk would go to that Chamber. But it's not that I can take away a law clerk from one Chamber and put them in another one. There has to be coordination.
Q. Well, you testified in Paragraph 9 of your First--Second Witness Statement that it was a well-established practice that when staff is needed, the Chamber requests the assistance, and that you assigned them law clerks from other Chambers, and you provided us two emails in which you appointed law clerks from other Chambers.
You could have done the same thing in this case, couldn't you?
A. The examples that I showed you, which had to do with resource management, yes, in effect, I showed you the issue of the complaints office, where there were terms.
And the other one was the law clerk in the Technical Office. Obviously, I had to talk to the Director of the Technical Office for her to be able to lend her law clerk.
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Q. Did you ask Chamber 10 whether they could lend their law clerk for Chamber 1? You didn't; right?
A. I did not do so because I had no reason to do so. I don't go into the Chambers and ask whether a law clerk can be placed on loan. I don't even know quite what they are doing.
Q. Ms. Olano, you kept on repeating that you assigned Ms. Villanueva several times to Chamber 1 or to other Chambers.
Again, you have not found a single Resolution that bears at the end the initials of Úrsula Villanueva in order to prove that point?
A. Well, I already answered.
Q. So, let's come back to the point where we left it.
So, we said Chamber 10 had scheduled at the beginning of March a Hearing for the beginning of April; on 23rd of March you had that email exchange with Ms. Villanueva. And I followed up with the question that, in that time period in March, you did not inform Chamber 10 that Ms. Villanueva was not
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working on the case. And let me show you that part of the Transcript from the SMM Hearing where we talked about your functions of coordinating.
That is Tab 3, CE-1139.
And we don't have the right page. I'm sorry. I have it here as 1769, 2-6. That's in the English version. And in the Spanish, 1841, 6-11.
And, it's Line 2-6 in the English and in Spanish Line 6-11.
And you said: "Yes, what I said was that, yes, I do coordinate among the Chambers when they're looking at similar cases, precisely so that they can either reach agreement or see whether it's a matter that's going to have to go to the Plenary Chamber."
Do you see that?
A. Yes.
Q. Is that still your testimony?
A. Yes.
Q. And--in the time period, again, until--in the time period of March 20--what are we in?--2013, you did not contact Chamber Number 10 to tell them that Ms. Villanueva is working on the draft resolution
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for Chamber Number 1, did you?
A. Yes, but I already explained that I don't have an obligation to inform anyone about that matter. I didn't have any reason to know. I do--I am a link I coordinate when they tell me "I have a case file and someone else is looking at it." But it's not that I need to be looking so closely and saying: "Look, you coordinate with this." That I don't do.
Q. And you're not aware that anyone else contacted Chamber 10 to tell them that Úrsula Villanueva is working on a draft, are you?
A. I don't know. I don't who has communicated or if there's been any communication.
Q. So, in April, at the beginning of April, Chamber 10 holds the oral hearing, and we now go to May, May 21. Okay?
On May 21, Chamber Number 1 passes the Resolution that Ms. Villanueva drafted; right?
A. Let's see. As I have explained to you on several occasions, I can't decide that they adopted what was drafted by Úrsula Villanueva, because Úrsula Villanueva was providing support.
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The final draft, I don't know who did it, because it had to be looked at by the vocal Zúñiga. So, I cannot know that, I can't affirm that.
Q. But you do recall--I mean, we can show it to you. It's in Tab CE-80--it's Exhibit CE-83, Tab 20.
But you do recall that on the 21st of May 2013, Chamber Number 1 passed a Resolution in the 2008 Case; right?
A. Yes, you have the date of the session. In effect, what I can say is that on 21 May, as per the date of the Resolution, the case was taken up in Chamber 1.
Q. And that means that at that date, Chamber Number 1 approved the Resolution; is that correct?
They had a session in which they voted to approve that Resolution; correct?
A. Yes, that's right.
Q. And at that point in time, before they approved the Resolution, Chamber Number 1 did not have a copy of the draft resolution; correct?
A. Let's see.
Q. Sorry. What did I say? Sorry. I'll
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restate my question.
So, before Chamber Number 1 approved this Resolution, Chamber Number 10 had not received a draft of that Resolution; correct?
A. I cannot say what I don't have personal knowledge of. The only thing is that there are some emails, and what I can say is what is said there.
Q. Well, we worked through it in the last Hearing.
Let me show you an email that Mr. Moreano wrote on the 28th at 10:05 in the morning. That's in Tab 6, CE-650.
That's an email from that day, May 22; he wrote it at 10:05 p.m.
Just to recall, again, Mr. Moreano was the President of Chamber Number 10; right?
A. Yes, vocal Moreano was President of Chamber 10.
Q. So, he wrote at 10:00 in the morning--where is that--is this a question--that's the wrong email, I think. That's from the next day. That's the 21st of May, the email. CE-650.
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Here we have it. That's the second one from here.
He writes: "Zoraida, a question regarding the Cerro Verde file. We were informed that Úrsula Villanueva made a draft that was returned to Chamber Number 1. Dr. Cayo tells me that he will coordinate with Licette, since we have the same subject matter."
Do you see that?
A. Yes, I see it.
Q. So, it's at that time on Tuesday, March 21 that Mr. Moreano finds out--he says "we were informed"--that Ms. Úrsula Villanueva had made a draft; correct?
May--sorry. May 21.
A. Well, what you have there was that, at that time, he wrote that email, and I answered saying, "I spoke with Licette and she told me she already coordinated." That's what was my answer to him.
Q. Right. And Mr. Moreano at that point in time informs you that he just heard that Ms. Úrsula Villanueva made a draft and that Mr. Cayo will
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coordinate with Licette, will in the future, in future tense; right?
A. Of course, he speaks in the future tense, and the "vocal" from the Chamber 1 speaks in the past tense.
Q. Well, you write the email at 10:47 a.m.--so, apparently Mr.--it will be reasonable to infer that Mr. Cayo had what he called the coordination between 10:05 and 10:47; right?
A. Well, you are speculating, because here there is simply an email that indicates that "Vocal" Moreano, he says that he recently found out and that he's going to coordinate.
So, I asked "Vocal" Zúñiga, who said that she already coordinated with the "vocal ponente," because normally one coordinates with the "vocal ponente."
Now you are speculating that, in the interim, he's coordinated. Well, that I don't know.
Q. Ms. Olano, you were not present at that coordination; right?
A. No.
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Q. And the following day Mr. Moreano sent you another email. That's Tab 13, CE-992. That's an email from the 22nd of May. He writes it at 11:00 in the morning. And he writes to you: "Zoraida, that coordination was done by Luis Cayo"--the 'vocal ponente'--"with Licette because I told him to call her, since we found out extra-officially that Úrsula Villanueva had already delivered the draft, and that Chamber Number 1 was going to take up the Cerro Verde Case file yesterday. Chamber Number 1 did not previously inform us that it was going to meet yesterday morning, let alone hand us its draft to coordinate, which only reason us today"--that's May 22, the day after the Resolution was approved--"in which I find out that the Chamber 1 case file was taken up yesterday morning. With all due respect, I don't think that was the right thing to do."
Do you see that?
A. Yes, I see it. That's why I immediately forwarded the email to the President of Chamber 1, Ms. Zúñiga, to see what had happened, because I didn't understand.
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And then she answers, saying that, yes, she had spoken with "Vocal" Cayo and had said that they were in agreement, and they had left it that she was going to send the draft after the session.
Q. Well, yes, she spoke with him after Mr. Moreano told him to call Licette because they just had found out the day before that Úrsula Villanueva had already delivered a draft; right? That's what he says here. Any--
MS. HIKAWA: I'm sorry to interrupt.
The email that she's referring to below is not translated into the English translation. Could you read it into the record so it can be translated for everyone else?
MR. PRAGER: You can do that on redirect, if you want.
BY MR. PRAGER:
Q. Mr. Moreano here says Chamber Number 10 found out yesterday that Úrsula Villanueva had a draft; he told Mr. Cayo to call; they had that--what you call the coordination, and the draft reached him only this morning.
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So, he received--he received the draft of the Resolution only after it had been passed; right?
A. Let's see. That is what the vocal Moreano says, and the vocal Zúñiga indicates something different, that she had already coordinated things with the "vocal ponente," and that she was told that all the "vocales" were in agreement and that the draft was going to be sent after the session. They had agreed on that.
Q. Ms. Olano, the email that you mentioned from Ms. Zúñiga, let's take--let's take a look at it because Mr. Moreano replies to that email, he replies to Ms. Zúñiga's email. Ms. Zúñiga said: "Zoraida. According to my conversation with Luis Cayo before this session, they were in agreement with confirming things, and we thought that the terms of the decision were quite clear and that they would not bring about any discussion. And so, we said that after the session, we are going to send a copy of the draft to coordinate any kind of adjustment, which I said yesterday immediately after the session. I'm sorry that this brought about some discomfort, but that was
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not intentional."
So, she confirms here that she--
(Overlapping interpretation and speakers.)
(Interruption.)
(Stenographer clarification.)
BY MR. PRAGER:
Q. --So, she confirms that the draft of the resolution was only sent after the session; correct?
A. Yes.
Q. And Mr. Moreano then replies to that email and clarifies. He says, wait a second, that coordination was done because I told Luis Cayo to call her, Ms. Zúñiga, who is the President of Chamber Number 1, since we found out extra-officially that Úrsula Villanueva had already delivered the draft and that Chamber Number 1 was to take up the file yesterday. Chamber Number 1 did not previously inform us. So, he clarifies here. He clarifies here that the call took only place the day before and that he actually did not receive the file after on May 21st, after the session, but he only received it this morning; right?
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So, he corrects Ms. Zúñiga. Isn't that what he says?
A. Let's see. I'm not sure whether he's correcting or not. There is two assertions here. The truth is, that Mr. Moreano is nowhere here saying that he is not in agreement with the draft. He says he is uncomfortable with a formal matter, but what Ms. Zúñiga did was coordinate things with the "vocal ponente;," that's what she says. And she also says that Mr. Cayo, who was the "ponente" seeing the case file, said that the other "vocales" were in agreement.
Now, how the final draft of the resolution is, that's something different. They said after the session as it was their agreement.
Q. Ms. Olano, what happened here is that Mr. Moreano and Chamber Number 10, they held an oral hearing, they had a draft prepared of the Resolution. They suddenly find out that actually Úrsula Villanueva had drafted a decision in the 2009 Case, and that that resolution was actually voted on and they only received the draft after that resolution. That's what happened; right?
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A. No, you are speculating that there was a prior resolution. I cannot assert that because I don't know that. He never said here that he had a draft. He was not the "ponente," Cayo was the "ponente."
Q. Ms. Olano, you testified today that any diligent Chamber that goes into a Hearing has a draft prepared or has, at a minimum, carefully thought about the issue.
Since that hearing, a month and a half had passed. You're telling me that they didn't have a draft.
Do you know that?
A. I'm not saying that they had a draft or that they didn't have a draft. Because, I cannot assert something that I have no personal knowledge of. What I said is that the ideal would be that, but if there is no draft, then discussions are had amongst the "vocales" because they are going to go to an oral hearing. They should have knowledge of the matter when they're going to an oral hearing, because, obviously, they are going to be listening to the Parties and they
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maybe have to ask questions; right? So, you can't go there without knowing what's it about.
So, I cannot know whether they had it or not. Moreover, you are speculating that there was a draft and there was a draft that said something that was different. That's your speculation. That's where you are imagining it.
Q. Ms. Olano--Ms. Olano--you just testified that you don't know whether they had a draft or not. You do not know that they did not have a draft, do you?
A. I do not know. I do not know whether they had or they didn't have a draft. I have spoken hypothetically.
Q. Ms. Olano, Chamber Number 10 had the file since 2010. You testified that Mr. Cayo, who's the reporting judge, got the file in 2011. They had the oral hearing at the beginning of April, and you testified that--in Spanish: "Ideally, when there is an oral hearing, there must be at least a draft."
Another month and a half have passed.
Chamber Number 1 clearly had a draft ready, and that
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is why Mr. Moreano was so upset with. Chamber Number 10 had at least a draft ready, and that's why Mr. Moreano was so upset when he wrote the email. Isn't that the case?
A. That is not true, sir. At least I cannot assert what you are imagining. Again, what I said is that generally when there is an oral hearing, and I cannot say whether there was or there was not a draft, well, the ideal thing would be for a pre-draft to exist. If there is not, at least the "vocal" that has the case file has to let the other two "vocales" know what it's about. So, when they hear the Parties, they know what the case is about. This is the only thing I have said. If there's a pre-draft or a draft, well, if there was one there or not, I cannot assert that. That is your imagination.
If Moreano, who was not the "ponente"--I don't know why he would be upset for not having the draft. He was not the "ponente." There was another "vocal" that was the "ponente." And he said that he had spoken to them. And you're saying that the vocal presidente that did not have the file had a different
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draft and he was bothered by that. That's what you are saying. But that's your imagination.
I cannot know that and I cannot assert that.
It would be strange to me that the President of the Chamber be so upset and that he has a draft, when the one who handles the draft is the "ponente," who has to provide support before the other two "vocales."
Q. Ms. Olano--
QUESTIONS FROM THE TRIBUNAL
ARBITRATOR TAWIL: Mr. Moreano also voted. He also signed and he wanted to know what was in there?
THE WITNESS: Yes. He voted, yes. I understand that, but the one that explains the draft is the "ponente." I look at what Counsel has said. He assumes that the "vocal ponente" had a draft and that he was upset because it was another draft in there. I am not able to know those things. The presiding "vocal," who was not the "ponente" had another draft at hand, but generally the "vocal ponente" generally is the one that coordinates things.
ARBITRATOR TAWIL: So, there were two
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Chambers with a similar case of two different periods, and they were deciding at the same time. Apparently the Chamber called the oral hearing, and there was a law clerk there, and then the Resolution was made by Chamber 1.
THE WITNESS: What we are not taking into account is what Mr. Cayo says. The draft includes the Decision. What I've said here and in other Hearings is that the "vocales" in the Chamber surely knew about the matter because if there was an oral report that took place two months before, then they knew what this was about. And according to Ms. Zúñiga, Cayo had told her that they agreed. So, the language includes the decision made.
Perhaps he was upset formally: Why didn't you give me the draft before, because I wanted to correct something here or there? Perhaps he was just formally upset, but not substantially upset.
ARBITRATOR TAWIL: What it says here is that they were coordinating, but Moreano hadn't seen the draft apparently and that the draft was sent to him when the Decision was already made.
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THE WITNESS: But Cayo was the "vocal ponente," and he said that the "vocales" were in agreement, and that is included in that email. And he tells Zúñiga that there was agreement. At no time did Moreano say, I disagree. We had another draft. Nowhere in the email it says that. He expresses that he is upset, as presiding "vocal" you should have coordinated this with me as well, there was no coordination, but nothing else. I cannot assert that there was something else different from that.
BY MR. PRAGER:
Q. So, Ms. Olano, the Chamber 10, now is suddenly put in front of the following dilemma: It either has to accept the criteria of the Decision that Chamber 1 had just rendered without letting them know, or it can go to the Plenary Chamber if it disagreed with that criteria. Isn't that the case?
A. Well, if Chamber 1 has already held sessions, then Chamber 10 had the option, if it disagreed, if the three "vocales" disagreed, and also the "ponente" was in disagreement, to go to the plenary session to ask for a change in criteria, or at
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least to express their disagreement. If I am so mortified because I had another position, I can show my discrepancy. That resolution was rendered without any dissenting vote. Mr. Moreano was a "vocal" that usually submitted dissenting votes in resolutions in the Plenary Chamber. So, if he wanted to show his disagreement, he could have rendered a dissenting vote.
Q. You said that the Royalty Cases should all be decided according to the same criteria, wasn't it?
A. It's not only my position is. It's what the Tax Code says. There is uniformity of criteria, so if there is a criteria that the Tribunal has, the next one has to be decided in a similar manner. If there is disagreement, this has to go to the Plenary Chamber, and the criteria has to be changed, and the "vocales" will decide whether it will be changed or not.
Q. Ms. Olano, your position was not that the Plenary Chamber should decide what the right criteria was. Your position was that once a first Decision in a Royalty Case came out, which was the 2008 Royalty
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Case decision, that all the other Royalty Cases should follow that criteria of the Chamber 1 Decision, wasn't it?
A. Sir. I insist; it is not that that is my position. That is what the Code provides. According to that, if there's a certain criteria in the Tribunal, the next case has to follow that criteria, otherwise there will be a conflicting decision observation and this has to be taken up to the Plenary Chamber.
Now, if there's a disagreement, nothing prevents you from taking this to the Plenary Chamber. There are no impediments.
ARBITRATOR TAWIL: And in the Plenary Chamber you intervene and you are the one that directs the Plenary; right?
THE WITNESS: Yes. I am one more member with vote.
ARBITRATOR TAWIL: And you direct the Plenary Chamber?
THE WITNESS: Yes, I direct the Plenary Chamber. That's in the Code.
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BY MR. PRAGER:
Q. Well, Ms. Olano, on the 24th of May, which is two days after you received the email from Mr. Moreano, you arranged for a meeting with "Vocal" Cayo from Chamber Number 10, and with Ms. Zúñiga from Chamber 1; right?
A. Yes.
Q. And you testified that the purpose of the meeting was for you to coordinate between the two Chambers; right?
A. Yes.
Q. What was there to coordinate given that Chamber Number 1 already had voted on its resolution? That coordination came too late, wasn't it?
A. No. We had to see what had happened. As you've explained on the emails, what Mr. Moreano said--and there is another email in which Ms. Zúñiga says something different, so I wanted to know what had happened. That is why vocal Cayo also informed that the "vocales" were in agreement. That is why I said to you that he was upset only in form. It is not that there was a disagreement. I wanted to know what had
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happened. There were two vocales presidentes and one said A and the other one said B. So, I wanted to know what had happened in connection with the coordination.
Q. Ms. Olano, after you held that meeting, which was on a Friday, the following Monday, the 27th of May, the Tax Tribunal notified the 2008 Decision to SUNAT, and three days later, on the 30th of May, Chamber Number 10 votes on its 2006-2007 Royalty Case Resolution.
Do you recall that?
A. Let's see. The exact dates, I'm not sure. But, let's say, once the Decision is rendered, it goes to the Technical Office. If there are no objections, it follows the procedure, and back then--now things are different, the notices are given electronically--because of an agreement with SUNAT, two resolutions were sent to SUNAT in order to notify the taxpayer.
(Overlapping interpretation and speakers.)
BY MR. PRAGER:
Q. And I will show you now a demonstrative that compares the 2008 Resolution of Chamber Number 1 with the 2006-'07 Resolution that was rendered by
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Chamber Number 10-
MS. HIKAWA: I'm sorry.
MR. PRAGER: --few days after your meeting.
MS. HIKAWA: I'm sorry. This isn't cited in
her Witness Statements.
MR. PRAGER: I'm sorry. This--the whole
Witness Statement is about the 2006-'07 and 2008
Cases.
MS. HIKAWA: No, it's not. She did not
decide either of those Cases, and she wasn't involved
in the drafting of the Resolution--
(Overlapping speakers.)
MR. PRAGER: The whole Witness Statement is
about the process of how those Resolutions came about.
MS. HIKAWA: And we have one of the
"vocales" from Chamber 10 who was involved--
(Overlapping speakers.)
MR. PRAGER: You can ask him. You can ask
him questions.
BY MR. PRAGER:
Q. Ms. Olano--
MS. HIKAWA: It's outside the scope of her
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testimony.
(Comments off microphone.)
PRESIDENT HANEFELD: Please go ahead.
BY MR. PRAGER:
(Comments off microphone.)
Q. Ms. Olano, you see here the text in black
without underlining is identical in the 2008
Resolution and the 2006-'07 Resolution.
Do you see that?
A. Yes.
Q. You can feel free to take a look at the
actual Resolution.
You would agree with me that the vast
majority of the text between the 2006-'07, 2008
resolution is identical?
A. Let's see. I think that in the last Hearing
I also said that if the cases were similar and there
were similar arguments, obviously the Resolutions will
look alike. Or is it that the appeals submitted by
the taxpayer were different, and the arguments were
different. Were the arguments by the Tax Authorities
different? No, they were similar. That's what I
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understand. Normally, what happens in similar cases is
that the arguments are similar as well.
(Overlapping interpretation and speakers.)
BY MR. PRAGER:
Q. Ms. Olano, this cannot possibly be the
Resolution that Chamber Number 10 had drafted without
coordinating previously with Chamber Number 1. This
is the Resolution that Chamber Number 1 received on
May 22 from Chamber Number 1, with some amendments?
A. That is your statement, not mine. I'm not
going to qualify these Resolutions. Because,
ultimately, what's important is the discussion and the
Agreement. The drafting really shows in evidence as
the Agreement. There are arguments-because right
there you say they do this in conformity, they do this
in conformity with the Regulations. And the other is
not alleging the same thing? So, because these are
similar texts, there must be similarities, but this
does not impact the substance of the matter.
Q. Ms. Olano, the discussion about adopting
this text took place at your Friday meeting on
24th May 2013, that let Chamber Number 10 to adopt the
[Page 1993]
draft that Úrsula had prepared for Chamber Number 1.
Isn't that the case?
A. No. I don't know.
MR. PRAGER: Thank you. I don't have any
further questions.
QUESTIONS FROM THE TRIBUNAL
PRESIDENT HANEFELD: Before we continue with
questions from the Respondent, in redirect, I would
like to better understand one aspect that you have
mentioned earlier. You mentioned some transparency
requests, as to which you produced emails or,
according to Claimant, was old email.
Can you explain to us who made this
transparency request and when?
THE WITNESS: Yes. Well, there are some
transparency procedures that have to do with access to
information by the public. Then, any individual can
submit a request. In this case, there were several
requests by Cerro Verde and some others that were not
Cerro Verde, but they asked for a number of emails.
Emails that covered long periods. If memory serves, I
think first period was from 2010 to 2015, then from
[Page 1994]
2016 to 2020, something like that.
They asked for emails from the President to
the "vocales," to the Technical Office, to different
addressees. Then, we're talking about a large number
of emails. I wasn't the only one asked to provide
emails, others were as well, and also other documents
that were asked according to a request for
transparency.
So, as it was a large number of documents,
and old emails, we asked the IT Office of the Ministry
to provide support so that they could look for in the
backup for those old emails that sometimes you don't
see.
They provided to me an assistant, and with
the assistant, we were able to determine--well, the
assistant extracted all the backup of those emails,
and I told him, look for the word "health" and take
everything out that has to do with "health."
Because this is a private matter. Sometimes
I received medical certificates and things like that
that I didn't want to make public, because nobody had
to find out about that. And, finally, a large number
[Page 1995]
of emails with a lot of information was what was left.
And this was, I think, sent out via a link. That is
handled by a different office. We sent this to the
office, and the office sends this to the interested
Party.
PRESIDENT HANEFELD: And do you remember
when these requests were made?
THE WITNESS: In a number of years.
PRESIDENT HANEFELD: Was it in '19 or '20?
THE WITNESS: 2018, 2020. We have had
requests in a number of years. I don't remember the
dates exactly.
PRESIDENT HANEFELD: And you say you had
requests in a number of years? So, but not only
related to Cerro Verde, but also related to other
taxation proceedings?
THE WITNESS: Well, we got a number of
requests under the transparency regulations. In that
specific case, we were asked to provide emails. Other
documents were also requested from us under the
transparency rules. I remember that Cerro Verde,
well, there were specific requests in connection with
[Page 1996]
Cerro Verde, and also there were other requests made
by people who I didn't know, that were related to
Cerro Verde, but they also asked for emails.
PRESIDENT HANEFELD: So, in Perú, and if a
taxpayer has questions as to the irregularity or
regularity of the proceedings within the Tax Tribunal,
would he or should be able to file such a request
under the transparency rules right away, or now--when
is such a request founded?
What does the Applicant needs to establish?
THE WITNESS: There is also a procedure to
provide complaints before the Tax Tribunal. There are
complaints against the Tax Administrations and against
the Tax Tribunals. Those complaints are presented,
and they are dealt with by the Ombudsman's Office for
the taxpayer.
PRESIDENT HANEFELD: And is there some sort
of time bar for complaints or for such a request for
transparency, or can the taxpayer come whenever he or
she considers it appropriate?
THE WITNESS: In connection with
transparency, things are different. This has to do
[Page 1997]
with access to information. Anybody can ask for any
piece of information. We were asked to provide
information about the IT system and how it works. We
have been asked to provide the procedures manual, all
of the memorandums that we have issued.
We have asked for all documentary and email
information, and we are obligated to provide that
information. There is a special Office of the
Ministry that deals with transparency requests. The
requests are sent to us and then we act accordingly.
In connection with the complaints against
the Tax Tribunal, well, I don't remember if there is
some kind of time bar, but no complaints can be placed
against the Resolution itself because you can then go
to the Courts. Because, if you don't agree with the
Resolution, at the administrative level, then--you
then go to the Courts.
If there is a procedural matter that wants
to be pointed out, then that could be part of the
complaint. I don't know. Perhaps the responsibility
of officials could be something that could be the
subject matter of a request. These are different
[Page 1998]
processes that could have taken place.
PRESIDENT HANEFELD: And
my final question is, since when do
these transparency rule, this access to
information law exists in Perú?
If you don't know, you don't know.
THE WITNESS: 2003 or '04. I don't remember
the date.
PRESIDENT HANEFELD: So, they were already
existing at the time.
(Overlapping interpretation and speakers.)
(Interruption.)
PRESIDENT HANEFELD: So, in any event, these
transparency rules already existed at the time the
Chamber 1 and Chamber 10 Resolutions were passed?
THE WITNESS: Yes, I think so.
PRESIDENT HANEFELD: So, if one had doubts
on the regularity of the proceedings, one could have
submitted a request for existent information already
at that time?
THE WITNESS: Yes. The only thing that
couldn't have been given back then were the draft
[Page 1999]
Resolution or something that was still being looked
at and in process to be resolved. That couldn't
happen. Once the process ends, then, yes, that
information can be provided.
PRESIDENT HANEFELD: Thank you.
MS. HIKAWA: If I could just have one minute
to confer with my colleagues, then I'll let you know.
(Pause.)
MS. HIKAWA: Madam President, just to
clarify, you had asked about a request for
transparency, and there is on the record an
Exhibit CE-1092 dated February 10, 2021, which is
titled "SMCV Request for Access to Information," just
for the record.
PRESIDENT HANEFELD: Exactly. It is dated
2021.
MS. HIKAWA: Umm-hmm, and we have no
redirect questions.
PRESIDENT HANEFELD: Does the Claimant have
follow-up questions to the Tribunal's questions?
MR. PRAGER: No follow-up questions.
Thank you.
[Page 2000]
PRESIDENT HANEFELD: Ms. Olano, the Tribunal
has also no further questions, so you are released,
with thanks, as a Witness. Thank you.
THE WITNESS: Thank you very much.
(Witness steps down.)
PRESIDENT HANEFELD: Would the Parties agree
that this is a good time for a lunch break, or do we
want to continue with the next witness?
MR. PRAGER: I think it is probably a good
time for a lunch break.
PRESIDENT HANEFELD: Okay. Then we will
have a lunch break for 40 minutes, which means that we
will see us again at 1:15.
(Whereupon, at 12:34 p.m., the Hearing was
adjourned until 1:15 p.m., the same day.)
AFTERNOON SESSION
PRESIDENT HANEFELD: Welcome back, and good
afternoon, Mr. Sarmiento.
JORGE ORLANDO SARMIENTO DÍAZ,
RESPONDENT'S WITNESS, CALLED
PRESIDENT HANEFELD: You have been named as
a Witness in this Arbitration.
[Page 2001]
To introduce the Panel briefly, on my left
is Professor Tawil; on my right, Dr. Cremades. My
name is Inka Hanefeld. I'm the presiding arbitrator.
As a Witness in these proceedings, you have
to read out a Declaration under Article 35(5) of the
ICSID Arbitration Rules. Can you please be so kind to
read the Declaration out to us?
THE WITNESS: Thank you.
Witness Statement: I solemnly declare, upon
my honor and conscience, that I shall speak the truth,
the whole truth, and nothing but the truth.
PRESIDENT HANEFELD: Thank you.
And then let us turn to your Witness
Statement.
Do you have your Witness Statement, RWS-15,
in front of you?
THE WITNESS: No.
PRESIDENT HANEFELD: Yes? Do you have it,
or do you need it? Maybe it will be helpful. It will
be handed over by the Respondent's Counsel.
(Comments off microphone.)
PRESIDENT HANEFELD: Just to get a look at
[Page 2002]
your Witness Statement, can you confirm that this is
your Witness Statement and that it corresponds to your
recollection?
Or let us kindly know if there is anything
to amend or to correct.
THE WITNESS: Yes, it is my Statement.
PRESIDENT HANEFELD: Anything to add or to
correct?
THE WITNESS: No.
PRESIDENT HANEFELD: Okay. Then we will
turn now to the Respondent's Counsel for a brief
direct examination.
DIRECT EXAMINATION
BY MS. HIKAWA:
Q. Thank you. Good afternoon, Mr. Sarmiento.
A. Good afternoon.
Q. Your Witness Statement, is it based on your
personal knowledge and experience?
A. Yes.
Q. Please describe your educational background.
A. I am an attorney. I graduated from Lima
Perú University with a master's degree from the
[Page 2003]
University of Barcelona, and I became a "vocal" in
2010 of the Tax Tribunal. In this 2023, I've been
there for 13 years as a "vocal."
Q. Please describe the process of deliberation
by which a Chamber resolves a case that is before the
Tax Tribunal.
A. As you just mentioned, it is a deliberation
process. Since it initiates with knowledge about the
case filed by the "vocal ponente," who is the one that
reviews the case file and points out the arguments and
the controversial issues, as well as the arguments by
the Parties, and then a draft is prepared. That can be
done just by the "vocal" or with the help of a law
clerk. Then, this draft will be communicated to the
other two "vocales." Three vocales that make up the
Chamber to carry out an exhaustive analysis, and also
to see whether on the day of the Hearing we fully
agree on the draft.
And at some times, as we saw in this
particular case, at Chamber 10, the deliberation
process starts much earlier; for example, in our case,
with the oral hearing. The oral hearing was carried
[Page 2004]
out two months before the date of the Session, and, as
part of this hearing, we had the Administration and
the taxpayer, and they presented their arguments, and
also the rules and regulations that they deemed
applicable, and we could see what the controversial
issues were, and from that moment onwards we could
have a clear idea as to what would be the sense, the
meaning behind the Resolution that we would issue.
Finally, after the whole process, we reach
the session day. And in the case of Chamber 10, we
all agreed that that is how we were going to issue our
Resolution. So, after a brief conversation, we would
reach an agreement.
Q. According to Claimant in this case,
Chamber 10's Resolution in Cerro Verde's Appeal of
SUNAT's Resolution on the 2006-'07 Royalty Assessments
is almost identical to Chamber 1's Resolution in Cerro
Verde's Appeal of the 2008 Royalty Assessments, and
that that suggests that there was no deliberation on
the part of Chamber 10.
What is your opinion?
A. It should be stated that there is a
[Page 2005]
universal legal principle that we clearly apply at the
Tax Court. That is the predictability. -According to
this principle of predictability or precedent.
If there is a resolution that resolves the
case of a taxpayer on a controversial issue, and it
turns out that there is the same controversial issue
and the same taxpayer in another case, by application
of the principle, the second resolution should be the
same as the first one. It is the principle of the
case law and predictability, and it wouldn't be
strange that the second one is similar.
But I should also mention that, at the Tax
Tribunal, in spite of this previous case, we could
decide differently, because if the "vocales" thought
that the case law was not the actual interpretation or
solution to the problem, we could present this for the
consideration of all of the "vocales" as part of the
Plenary Chamber.
But this was not the case. We all agreed
with the previous case law. But even though this
could have been a copy-and-paste, which it was not, at
Chamber 10, since the oral hearing, we had some
[Page 2006]
reasoning that we thought was relevant to this case in
particular and that were not applied to the Resolution
of Chamber 1, some ideas that were only applied to the
Resolution of Chamber 10.
Just to mention one among many that we considered in
the Chamber. For example, we have the topic of the
final product. The final product in the investment
project that was stabilized by Cerro Verde was
something that is known as copper cathodes.
This product, Copper cathodes is the
production after a chemical procedure or process that
is known as leaching, and this is what was provided
for under the Stability Agreement, production and
leaching of copper cathodes. But later on there was a
new draft, and this new draft had a different product
that was copper concentrates, with a lower purity and
a different metal, molybdenum, and this process
through which they obtained the new product was not
the chemical procedure called leaching, but it was a
physical procedure called concentration through
crashing and also floating of the minerals.
So, for us, this is one among many elements
[Page 2007]
that are important to be taken into account which make
different our resolution from Chamber 1´s Resolution,
and also that led us to this Decision.
(Comments off microphone.)
Q. In your Witness Statement, you explain that
Chamber 10 independently deliberated in the 2006-2007
Case, and its Resolution is not a copy of Chamber 1's
Resolution.
Claimant has put on the record a comparison
of the two Resolutions, and if you could, please, with
reference to that comparison, explain some examples
that show your independent deliberation.
And we will put it on the screen for you.
A. Okay.
Q. Thank you.
A. Very well. And just to recall--and I will
speak slower--our Resolution from Chamber 10 is not
the same to Chamber 1's Resolution because we have
seen several elements that are different from Chamber
1's, which have been logical to us to reach that
solution and that--or that Resolution, and this is
what we see here.
[Page 2008]
This is the comparison between--the
comparison of the Resolutions in Chamber 1 and
Chamber 10, our Chamber.
For example, at Page 1, I see in blue what
would be the new text included by Chamber 10 instead
of Chamber 1. So, I see three lines in the first
paragraph which mention three issues that were not
addressed at all in the Resolution by Chamber 1.
These are violations by the taxpayer that are thereby
mentioned in connection with Tax Code's article 177-1,
176-1, and article 10.2 of the special royalty law.
This was not addressed in the Resolution of
Chamber 1, only in Chamber 10 Resolution. Clearly,
there is not a copy-and-paste action. Otherwise, we
wouldn't have looked at these aspects.
If we could look at Page 15.
If we look at Page 15, we could see that
some paragraphs are identical, and the identical
paragraphs have to do with the arguments presented by
the taxpayer, which are the same in the draft
resolutions by Chambers 1 and 10.
So, the arguments by the Parties are exactly
[Page 2009]
the same.
ARBITRATOR TAWIL: So, the ones that do not
have changes are the same arguments, but it is a
copy-and-paste - then, the drafting is identical;
correct?
THE WITNESS: Yes, it could not be
otherwise, clearly, because the arguments are the
same.
ARBITRATOR TAWIL: But the drafting of the
Tribunal is identical. Is that copy-and-paste because
the arguments are identical?
THE WITNESS: No. The copy and pasting is
only if all the Resolution is copy and pasted.
ARBITRATOR TAWIL: Doctor, but if the
drafting is exactly the same, there are no two
Tribunals--no two persons that draft identically. So,
I'm asking you: in those parts, you copy-and-pasted,
and you only introduced changes where it is different;
correct?
THE WITNESS: Yes, of course. Those
paragraphs where you see no modification are identical
to the ones of Chamber 1.
[Page 2010]
ARBITRATOR TAWIL: So, that is
copy-and-paste?
THE WITNESS: Yes, that is copy-and-paste.
I was telling you that the logic we worked
with in Chamber 10 was different, different starting
with the first paragraph that I showed you on the
first page, and it was identical in those paragraphs
that you just mentioned, and also it is the same
regarding the legal rules and regulations in the
drafting of the Stability Agreement. There couldn't
be any difference. It is the same Stability Agreement
from the very first to the last word of the paragraph.
It should be the same. There can be a
change--changes.
So, for example, Page 15. At Page 15, we
can see--this is Page 15. If we can look at Page 15.
Here we see an argument that was completely
new for Chamber 10, and that is the
interpretation--restrictive interpretation.
Restrictive interpretation is applied to special rules
and regulations, exceptional rules and regulations,
such as the one conferring benefits, such as in the
[Page 2011]
case instant. In these cases, according to the
national doctrine - in the footnote of the same page,
you see one of the relevant authors in national
doctrine who indicates that in these cases, you should
adopt a restrictive interpretation that is to be
applied only to cases if there is no doubt. Whenever
there is doubt, the benefit rule should not be
applied.
This is a new topic that was not in
Chamber 1--in the resolution of Chamber 1; rather, in
the Resolution of Chamber 10. And if we move on to
Page 32, at Page 32 we have a whole paragraph that is
completely new, and this completely new paragraph,
that is our own reasoning, the reasoning of
Chamber 10, is trying to explain that there was then
another mining company that also had a stabilized
mining project. This different mining company, Minera
Yanacocha, had --as was the case with Cerro Verde--an
Economic-Administrative Unit, and within that
Economic-Administrative Unit there were two or more
Concessions, and this Minera Yanacocha had two
Concessions within this Economic-Administrative Unit,
[Page 2012]
yes? And each of these two Concessions had two
Stability Regimes that were different for each of
them. Then, as part of that Economic-Administrative
Unit, there were at least four different Stability
Regimes.
In our opinion, it was a logic that was
attempting to show that the argument by the taxpayer
was not correct because for the taxpayer in a
Economic-Administrative Unit, if one stability was
approved, it applied to the entire
Economic-Administrative Unit.
It is not consistent with what we are saying
here, which was a confirmation of what had already
been decided by the administrative authorities and
also by the Tax Administration, and also the way it
was done with other mines.
I think that this is enough to explain that.
(Overlapping interpretation and speakers.)
(Interruption.)
(Stenographer clarification.)
BY MS. HIKAWA:
Q. As a "vocal," you are subject to a
[Page 2013]
confirmation process--in Spanish, the
"ratificación"--which we understand is led by a
commission of which President Olano is a member.
Does that affect your independence when
resolving a case at the Tax Tribunal or your testimony
in this case?
A. No, it doesn't. At that time, 2013, there
was no confirmation process pending. Ultimately, it
happened in 2018. And at this time, as far as I know,
there is no ratification process.
And I would also say that Ms. Olano is one
of four members, as I understand it, who make up that
Commission. She doesn't chair it, either. And these
members act as established by the law through
objective indicators regarding the efficiency of the
Tribunals during the years we have been working. So,
there is no sort of influence at all.
Q. After you submitted your Witness Statements,
Claimant introduced to the record a Resolution of the
Tax Tribunal from 2018 in the case of the mining
company Tintaya.
You were "vocal ponente" in that case.
[Page 2014]
Could you please briefly explain that
Resolution, which we'll put on the screen for you? It
is CA-446.
A. Of course. If you would be so kind as to
turn to Page 5.
At Page 5, one finds the discussion that is
relevant for our case, which is the issue of the
Economic-Administrative Units, as one can see.
Now, this is just four paragraphs. There's
no analysis set forth there about the
Economic-Administrative Units. The analysis there is
for a case in which there are being two stabilized
investment projects, and one has profit and the other
has losses. The issue is whether one could offset the
profit on one side with the loss on the other, the
idea being that each investment project has to
calculate their Income Tax separately. That is what
is at issue.
Nonetheless, there being
Economic-Administrative Units, the relevant thing is
in the antecedent which is indicated practically in
the last paragraph, and this is the background of a
[Page 2015]
Resolution of 2013 where, by chance, I also
participated, and where there is an analysis of the
Economic-Administrative Units and the role of a
Stability Agreement in this these.
And we could turn to this, and also the
antecedent that is mentioned in Paragraph--or, rather,
Page 8.
If we go to Page 8--that's it. Page 8.
Now, in the last paragraph, a legal
provision that we think is important is indicated. I
should note that it is one of those provisions that
grants investors tax stability. It's Article 70-80 of
the General Law on Mining, and in Article 82, it says
specifically that, for contractual guarantees, tax
stability will benefit the Titleholder of the mining
activity, and now I note exclusively for the
investments--that is to say, tax stability is granted
exclusively to this concept called "investments."
And, of course, if I continue reading, these
investments may be made in Concessions or
Economic-Administrative Units, in the one or the
other.
[Page 2016]
(Overlapping speakers.)
MR. RIVERA: I'm sorry-I am very
sorry to interrupt, but I think your time is
up. I mean - even like a few minutes ago so.
I'm sorry Madam President. PRESIDENT
HANEFELD: I just don't want to interrupt the
Witness.
MR. RIVERA: I was saying that I didn't--I
don't want to interrupt, but it's already been a
couple of minutes over his time. So, I think it's
due.
MS. HIKAWA: There was the question from the
Tribunal.
MR. RIVERA: But even considering that, I
think it's time.
MS. HIKAWA: Yes. He will finish up.
PRESIDENT HANEFELD: Then we hand over to
Claimant's Counsel to continue.
MR. RIVERA: Thank you, Madam President.
With your permission, I'm go to switch to--with your
permission, I'm going to switch to Spanish.
CROSS-EXAMINATION
[Page 2017]
BY MR. RIVERA:
Q. Mr. Sarmiento, it's a pleasure to meet you.
A. Good afternoon. How are you?
Q. Delighted to see you once again.
A. Likewise.
Q. Mr. Sarmiento, first a clarification. The
Tintaya Resolution that you referred to--for the
record, it is CA-446--is from 2018; correct?
A. Yes.
Q. Fine. Then, in your direct, you spoke of a
principle of predictability.
Do you recall that at the last Hearing we
had an exchange on this topic?
At the last Hearing, I asked you whether, to
carry out the principle of predictability, it's
necessary to cut and paste; right?
And you said: "It is true that, obviously,
one need not copy and paste to carry out this
principle."
Do you recall the exchange?
A. Yes, I do. And I said that there could be a
copy and paste, but that, in our case, there was no
[Page 2018]
such thing.
Q. Okay. So, your position is that there has
never been a copy-and-paste in the Resolution?
A. Of course not.
Q. I also recall that at the last Hearing I
asked you whether Chamber 10 had a draft of the
2006-2007 Royalties Case before receiving the
Resolution from Chamber 1.
And you answered: "There must be a draft,
but it's too many years that have gone by and I can't
remember that. But," you said, "there must have been
a draft that we saw prior to the session to be able to
adopt our Decision."
Do you remember your testimony in that
regard?
(Overlapping interpretation and speakers.)
BY MR. RIVERA:
Q. And I'm sorry for interrupting you, but it's
just a yes-or-no answer.
A. No.
Q. You don't recall having said that? It's up
on the screen.
[Page 2019]
A. Yes, I do remember, but not expressly what
you say.
Q. So, your testimony is that the Transcript is
incorrect? Your testimony is on the screen.
A. If I read the Transcript, I could tell you.
The Transcript is in yellow; correct?
Q. Yes.
A. "There must have been a draft, but it's too
many years, and I can't remember it, but there must
have been a draft that was--that we saw prior to the
session."
"Yes, exactly, prior to the session."
Yes, I remember that, because it's likely that I
received a draft one day before the session.
Q. Fine.
A. But, as I say, it's so many years that have
gone by, I can't say for sure.
Q. And that draft which you mention that you
must have seen before the session could not be the
Resolution that was ultimately issued, because, as we
saw, it was 85 percent similar to what the Chamber 1
had decided; is that right?
[Page 2020]
A. I don't understand your question.
Q. The question is: If there was a draft that
had been prepared by Chamber 10 independently, that
draft could not have been the draft or the same
Resolution as Chamber 10 adopted, because that one has
a high level of similarity to the Resolution issued by
Chamber 1?
A. Yes. The problem is that - the concept you
have of "draft."
This draft that we received prior to the
session was a draft that is provided one or two days
before the session, based on how we normally work, and
this draft that we received includes the draft as the
"vocal ponente" would like it to turn out in the final
Resolution, and we must have had that draft one or
two days earlier.
I repeat, I don't remember if it was one or
two days, but clearly that draft had to include
everything that had been taken as a precedent from
Chamber 1, because that had happened a few days
earlier.
Q. You didn't answer my question,
[Page 2021]
Mr. Sarmiento, because my question--and it's up on the
screen--is: You received a draft, and that's what you
testified to, that you had a draft before you received
the Resolution from Chamber 1. And you said: "Yes,
there must have been one."
That's what you said on that occasion.
A. What I'm saying is that we saw a draft
before the session, but not that it was a draft that
existed prior to the session.
What I said with regard to the existence of
a draft before the session of Chamber 1 is that, in
reality, I don't know if there was or was not a draft
because I was not the "vocal ponente." It was not my
mission to prepare that draft. And if there was a
draft prepared by the "vocal ponente," it was probably
some notes and their logic. That I don't--that I
never saw.
Q. But a moment ago you said that it's likely
that in Chamber 1 you already had a draft before
having received the Resolution from Chamber 1.
We agree on that; right?
A. It's likely that the "vocal" had a draft
[Page 2022]
resolution long before. Nonetheless, I would have had
to have received a draft before the session, which is
the draft that is eventually adopted as the Resolution
of Chamber 10 and which you're all familiar with.
Q. And do you remember having testified at
Paragraph 15 of your Witness Statement, which you have
in front of you as well--you have it right there--you
said that "Vocal" Moreano was upset because Chamber 1
had not shared its preliminary conclusions with you,
Chamber 10, who were already familiar with the same
analysis on the Merits of the case.
In other words, Chamber 1 did not share the
draft or the Resolution with you until after it was
issued.
Do you remember that? Yes or no.
Do you remember having testified to that?
Yes or no.
A. If you allow me to read what it says.
Q. Yes.
A. It says he was simply "upset." Of course he
was upset, and that's why he sent an email.
Q. He was upset for not having received the
[Page 2023]
Resolution from beforehand.
A. But I don't know exactly what he was
thinking...
SPANISH REALTIME STENOGRAPHER: You're both
speaking very quickly, and you're overlapping when you
speak, and so I'm not able to take it down. Apologies.
BY MR. RIVERA: Ok, thank you.
BY MR. RIVERA:
Q. My question was whether you recalled having
testified that "Vocal" Moreano was upset because he
did not receive in timely fashion or before the draft
Resolution from Chamber 1?
A. Well, certainly I must have told you--and
I'm not in the shoes of "Vocal" Moreano, so I don't
know exactly.
I suppose, based on what I read in the
email, that he was upset. That's what I can assume.
And he was upset surely because of what the email
says, because he wanted to take stock of the scope of
the Resolution of Chamber 1 with some lead time.
I must have said something along those
[Page 2024]
lines, "ahead of time."
MR. RIVERA: No further questions, Madam
President.
PRESIDENT HANEFELD: Any questions in
redirect?
MS. HIKAWA: If I could just have one minute
to check with my colleagues.
(Pause.)
MS. HIKAWA: No questions. Thank you.
PRESIDENT HANEFELD: Then just a few
questions from the side of the Tribunal.
QUESTIONS FROM THE TRIBUNAL
PRESIDENT HANEFELD: I heard earlier today
Ms. Olano testifying: "Of course, I cannot interfere
in the resolution of cases."
Did you experience interference by her in
the Decision of the Royalty Case 2006-2007?
THE WITNESS: No.
PRESIDENT HANEFELD: Did you by other means
sense that there was some sort of a political pressure
on the Decision of the Cerro Verde Cases?
THE WITNESS: No, not at all.
[Page 2025]
PRESIDENT HANEFELD: Do you remember in your
time of being in office at the Tax Tribunal occasions
where people attempted to exercise political
influence, or did it never happen in your career?
THE WITNESS: Fortunately, it has never
happened.
PRESIDENT HANEFELD: And are you aware that
Ms. Olano was ever charged of unduly performing her
functions?
THE WITNESS: No. I'm not familiar with
anything along those lines, really.
PRESIDENT HANEFELD: And in the context of
the Cerro Verde Resolutions, are you aware that any
requests under the transparency law were made where
information, further information on these cases, was
requested?
THE WITNESS: No. The truth is, I'm not
familiar with those details.
PRESIDENT HANEFELD: Thank you. That
concludes my questions.
Have the Parties additional questions as
follow-up questions?
[Page 2026]
MR. RIVERA: Not from us. Thank you, Madam
President.
MS. HIKAWA: Not from us. Thank you.
PRESIDENT HANEFELD: Thank you very much,
Mr. Sarmiento. You are then released as a Witness,
with thanks. Thank you.
THE WITNESS: Thank you.
(Witness steps down.)
PRESIDENT HANEFELD: Can we then continue
with the next Expert right away?
GARY SAMPLINER, CLAIMANT'S WITNESS, CALLED
MR. UKABIALA: Claimant would just like to
move to introduce as a Hearing exhibit the privilege
protocol concerning Expert and Witness communications
agreed between the Parties in this proceeding.
We believe that it will help reduce the
incidence of procedural discussions about the proper
scope of cross-examination.
PRESIDENT HANEFELD: Any objections to this
introduction?
MS. HAWORTH MCCANDLESS: Well, I assume this
is something that is already part of the Hearing
[Page 2027]
proceedings, so no objections, but that doesn't
necessarily have--yes, no objections, I guess. I have
to see it, but I think that's something that's already
on--part of record.
I don't know if it's handy. Is it handy?
Do you have a copy handy? Oh, I have a copy handy.
Yes, of course.
MR. UKABIALA: Perfect.
The other housekeeping matter is
Mr. Sampliner's hearing aid has picked a very
inopportune moment to stop working. We think it will
be fine, but he'll use the headphones, even though he
will be testifying in English, and he'll let us know
if he has any AV difficulties.
PRESIDENT HANEFELD: Yes, please let us know
if you experience any difficulties.
Can you hear me well?
THE WITNESS: I'm able to function without
the headphones, but if they're here, I know the
headphones will work if I need them.
PRESIDENT HANEFELD: Then I take this
opportunity to welcome you as an Expert. You are
[Page 2028]
presented by the Claimant in these proceedings.
Here on the side of the Tribunal is
Professor Tawil and Dr. Cremades, and my name is Inka
Hanefeld. We are the Arbitral Tribunal in this case.
And under Rule 35(3) of the ICSID Arbitration Rules,
as you may know, you are requested to make a
declaration.
Can you read it out, what you have on your
desk?
THE WITNESS: I solemnly declare, upon my
honor and conscience, that my statement will be in
accordance with my sincere belief.
PRESIDENT HANEFELD: Thank you. And do you
have your Expert Reports, CER-11 and 14, in front of
you?
THE WITNESS: I do.
PRESIDENT HANEFELD: Can you confirm that
these are your Expert Reports?
THE WITNESS: I can.
PRESIDENT HANEFELD: Do you have anything to
amend or correct?
THE WITNESS: No.
[Page 2029]
PRESIDENT HANEFELD: Then I understand that
you will make a presentation, and we will be glad to
listen to your presentation.
ARBITRATOR TAWIL: I need the presentation.
It has not been uploaded. I don't have it by mail. I
need the presentation. I took notes on the
presentation.
(Pause.)
(Comments off microphone.)
MR. UKABIALA: We are currently having it
circulated to everybody, including the Members of the
Tribunal. Apologies.
PRESIDENT HANEFELD: Then we will wait until
Professor Tawil confirms receipt.
(Pause.)
(Comments off microphone.)
PRESIDENT HANEFELD: Perfect. Then we can
proceed.
EXPERT PRESENTATION
THE WITNESS: Madam President, Members of
the Tribunal, good afternoon.
I am here to testify about my conclusions
[Page 2030]
regarding the certain provisions of the United States-Perú Trade Promotion Agreement, based on my experience in negotiating this Agreement, as well as more than 20 others, during my 20 years of experience in the U.S. Government.
I'll start with a word about my qualifications and experience.
I started at Treasury in late 1998, and from then until 2014 I was the only attorney at Treasury responsible for investment treaty negotiations, including this TPA.
For all of my close to 21 years there, I was the principal Treasury staff member on Investor-State Dispute Settlement submissions from the very beginning, and they started coming very shortly after I arrived. The first case ever against the United States, Loewen, arrived a little over two weeks after I got to Treasury. So, I worked on that, and every other one for the succeeding 21 years.
My time at Treasury turned out to be a key formative period for our U.S. Investment Treaties, and where I was able to help develop the 2004 and 2012
[Page 2031]
U.S. Model BITs, as well as the FTA investment chapter standard template.
I also assisted in resolving investment disputes between U.S. investors and foreign governments. And over time, as I accumulated more experience, a number of my colleagues in State, in the U.S.D.R. and elsewhere, rotated out. I became more of a repository of information for my U.S. Government colleagues.
For example, even after I retired, I was asked to conduct a seminar by my ex-colleagues at U.S.D.R. called "Ask Professor Sampliner" about the evolution and origin of our investor investment treaty and many of their provisions.
Let me go now to a summary of my conclusions.
First, on Article 10.18.1 on the Limitation Period, the Limitations Period cannot begin to run until a breach has occurred and loss has been incurred.
Secondly, a Claimant cannot acquire knowledge of a breach resulting from a Government
[Page 2032]
measure and that it has incurred loss or damage until the Government measure is binding and enforceable in the host country.
Third, that legally distinct injuries have separate Limitation Periods, even if they are related.
Regarding the fork-in-the-road, in Article 10.18.4, this Article of the TPA and similar provisions in U.S. treaties only apply when the same Alleged Breach has been previously submitted for adjudication to a competent forum.
Regarding nonretroactivity, in Article 10.1.3, the rule does not bar claims challenging post-entry into force measures that are actionable in their own right.
And, finally, regarding Investment Agreement claims, under Article 10.28, the definitions, and Article 10.16.1, the gateway to arbitration, investment agreement claims are permitted if either the Claimant or the enterprise relied on the agreement.
Now I'll discuss a little about the negotiation process and about Treasury's role in it.
[Page 2033]
The U.S. negotiates investment treaties through an interagency process where we apply Congress' negotiating objectives through model treaty provisions. If there are departures from these model treaty provisions, they've got to be cleared through an interagency process. The greater the departure, of course, the more debate and higher-level clearance may be necessary, and, importantly, if there is a deviation, once we deviate, our practice was not to deviate further unless there were very compelling reasons to do so, and further clearance often would have to be required.
This picture on the right hand of the screen just depicts my observations of Treasury's role in the process. And often, as in the U.S.-Perú TPA, I found that Treasury took, overall, the second leading role in our investment chapter negotiations, second to U.S.D.R.
Here is an overview of our TPA negotiations. They started as the Andean FTA negotiations with Colombia, Perú, and Ecuador. It wasn't until the very end that we realized there would be just a Perú and a
[Page 2034]
Colombia ΤΡΑ. The U.S. entered these negotiations with a template, and we developed it from, first, the U.S. Model BIT from 1994, and NAFTA, which in many parts were quite different. So, we engaged in what we called a "BIT-plus" exercise from 2000 to 2001, later on in 2003, also, to try to come up with a U.S. best practice that would be applicable for our agreements across the board.
In August of 2002, Congress passed the U.S. Trade Promotion Authority statute with negotiating objectives that we had to comply with. And, finally, before we started the TPA negotiations we had just finished our first post-Trade Promotion Authority negotiations with Singapore and Chile, and so, the provisions we had there were essentially used as our template with a few tweaks that came from a little bit of experience in negotiating that and the next one, which was DR-CAFTA. So, that is the template we started with.
Personally, I was involved throughout the TPA negotiations. I attended three rounds myself, three of the important rounds, but in addition, I was
[Page 2035]
always present, as far as I know, at all of our interagency meetings that we had and intra-agency meetings in between rounds to keep up with what was going on and our strategy on what we would do in succeeding rounds.
Now, let me go to Article 10.18.1 on the limitations period. The Article here is in front of you, and it says that no claim can be submitted--
SPANISH REALTIME STENOGRAPHER: I'm not hearing Interpreters. Now it's fine. Thank you.
THE WITNESS: So, here is Article 10.18.1, and it says no claim can be submitted to arbitration if more than three years have elapsed from when the Claimant had actual or constructive knowledge of the breach alleged as well as that it has incurred loss or damage.
A little background to Article 10.18.1 is in this slide. We have had Limitation Periods standard in our U.S. FTAs since NAFTA. We did not have them in our BITS. So, that was one of the subjects we discussed in our BIT-plus exercise. We concluded, after not that much debate, that it would be very
[Page 2036]
helpful to have them and that the NAFTA formulation should be adjusted--should be adopted and, in substance, that's what we did. The intent of these provisions were to prevent stale claims and promote certainty for possible exposure in litigation or arbitration.
The provisions at the same time were also not intended to encourage unripe claims, and that concept was an important one to us that we emphasized in our negotiations and many of our ISDS submissions and in our intra-U.S. Government discussions on what positions we could take.
The U.S. proposed the Article 10.18.1 in this TPA negotiations early on. It was not much of an issue of contention, and ultimately the Andean Parties agreed to it pretty early also without any substantive change.
Now this slide talks about our U.S. practice on these limitations provisions. My personal experience came from negotiating the limitation provisions and many of the Agreements where I was involved in negotiating them, as well as working on
[Page 2037]
U.S. ISDS submissions, of which there were quite a few on the limitation provisions while I was there.
One of the most common statements that we made in our U.S. ISDS submissions was just on the definition of "incurred." As the screen notes, it means "liable or subject to loss or damage," and the U.S. was consistent in describing that term that way.
In addition, we often stated that loss can be incurred even if the financial impact of a Measure is not immediate, but--and this is in the Mesa submission on the right--another important thing we have always said was that claims can only be submitted for a breach that already has occurred and for which damage or loss has already been incurred and, therefore, that claims cannot be submitted for future breaches or future losses.
Now, here is the logic behind my conclusion that Government Measures must be binding and enforceable to result in breach and loss.
First, the limitation period only begins to run when a Claimant knows or should know of a breach and that loss or damage has been incurred. Second, as
[Page 2038]
in the last slide, "incurred" means that the Claimant is liable or subject to loss or damage; and, third, a Claimant can only be liable or subject to loss or damage from a Measure that is capable of being enforced.
Now, here is some considerations underlying my other conclusion that legally distinct injuries have separate Limitations Periods. There have been a number of U.S. submissions concerning a series of similar and related acts. They emerged in response to concern about continuing breach claims, and in, particular, after the holding in UPS v. Canada that continuing breaches may renew claims period under international law, which both the United States and most commentators felt was erroneous.
So, in these cases, what we've stated--and this is an excerpt from one of the U.S. submissions in Spence, there were several others, that--so we stated that a Claimant cannot evade a limitations period by basing its claim on the most recent act in a series of acts. But what is important to emphasize about these cases--and in this regard they were all the same--is
[Page 2039]
that they related to a single cause of action that could, together, constitute a continuing breach.
What we also said consistently in our U.S. submissions on this point were--and this was said in Spence and all the other cases that are relevant, is that, when there is a legally distinct injury, i.e., a distinct cause of action, there is a new limitations period.
Okay. Let me go to Article 10.18.4 on the fork-in-the-road. Here is the Article, and it says that no claim may be submitted to arbitration for breach of an Investment Agreement if the Claimant or the enterprise, as the case may be, has previously submitted the same Alleged Breach to an Administrative Tribunal or court of the Respondent or to any other binding dispute settlement procedure.
Now, there are two key points that I'm going to emphasize about Article 10.18.4. One of them is that it was not intended to apply to anything other than the same Alleged Breach. This is obvious from the language as well as from its history, that I'll get into next.
[Page 2040]
In addition, the distinct order for this provision to make sense that Courts, Administrative Tribunals, and other binding dispute settlement procedures must be competent to adjudicate claims for breach of an investment agreement.
Now, here is a brief history of our fork-in-the-road in U.S. investment treaties. Our pre-2004 U.S. BITs used a fork-in-the-road for any dispute that it had to--the Claimant had to make a choice about whether to go to a domestic court, domestic administrative tribunal, or other dispute settlement procedures on the one hand, or arbitration under the BIT on the other. And that choice would be definitive. NAFTA was different because it introduced what we call the "no U-turn" approach, under which Claimants can go to arbitration even after they go to any of these other procedures, but they must file a waiver that would prevent them from going back to any of the other procedures for measures alleged to be a breach.
In our BIT-plus exercise we have this difference between the BITs and the NAFTA, and this is
[Page 2041]
one of the most hotly debated subjects internally, and ultimately, our U.S. inner agency group decided to use the no U-turn approach rather than the fork-in-the-road, starting with our first FTAs for Chile and Singapore. Same was later done for the 2004 Model BIT. The intent of this was to promote broad access to ISDS and to encourage resolving disputes in the local courts.
During our negotiations of our initial FTAs, Chile argued that since their courts hear treaty claims, Claimants should be precluded from submitting the same treaty claims in local courts and ISDS. There was a provision we had in NAFTA for this that applied to México, which--whose courts also had similar powers. The U.S. team sympathized with this argument, but provided that the preclusion that might be contemplated only would apply to treaty claims that were raised in the local fora. So, that was with respect to treaty claims.
We were also starting to negotiate Investment Agreement claims with Chile, and they made the same argument, saying there could be the same
[Page 2042]
breaches alleged of an Investment Agreement in the arbitration as was alleged in the local courts or other fora, and therefore, that the same argument for fork-in-the-road should apply to Investment Agreement claims in that circumstance as for treaty claims.
The U.S. agreed, but again, we only agreed provided that the fork applied to the exact same Investment Agreement claims that were raised in the initial fora first.
During our DR-CAFTA negotiations, the same thing, essentially, the same progression happened and we ended up with provisions that had a fork-in-the-road for both Treaty breaches that are alleged, as well as alleged Investment Agreement breaches.
In our negotiation of Article 10.18.4, the U.S. adopted an initial position, as was in our template for no fork-in-the-road provisions and only a no U-turn waiver provision. The Andean States didn't want to have any Investment Agreement claims, so we didn't discuss, initially, a fork-in-the-road for Investment Agreements, but we did discuss a
[Page 2043]
fork-in-the-road for treaty claims. And the language you see was the Andean proposal regarding a fork-in-the-road for treaty claims applying to a breach of the disciplines contained under Section A.
The U.S. considered that much too broad, and we rejected that proposal. But as negotiation went on, the U.S. indicated that we would have flexibility on exclusive forum selection, and we proposed forks in the road that follow the Chile and CAFTA language.
Perú agreed to that language, to both the--at the time the fork-in-the-road was very helpful in getting them to agree to coverage of Investment Agreement claims in the first place. So, they agreed to that, as well as the same fork-in-the-road for treaty claims, and the other Andean Parties followed shortly thereafter.
But during these negotiation, we did make clear to all of the Andean Parties that this Article only applies to claims for the same Alleged Breach. Again, the language, we think, made that quite clear.
Now, moving on to Article 10.1.3, on nonretroactivity, the Article here is in front of you,
[Page 2044]
and, as you'll see, it is identical in substance to the Article 28 of the Vienna Convention on the Law of Treaties, and they both say--I'll read from 10.1.3, that this chapter does not bind any party in relation to any act or fact that took place or any situation that ceased to exist before the date of entry into force of this Agreement, for greater certainty, that I'll explain in a minute.
Now, the key question in trying to apply this provision, or the Vienna Convention provision, to any Treaty is which acts or facts don't bind a party with respect--or can bind a party with respect to retroactivity. And the answer to that question with respect to the TPA is found in Article 10.1.1 because that shows that for the investment chapter, at least, that this chapter applies to Measures adopted or maintained by a party. That's what it regulates. So that it is the Measures that are the relevant facts, or acts or facts that can bind a party for the purposes of Article 10.1.3.
Now, here are the key points that I think have been raised in U.S. submissions regarding the
[Page 2045]
interpretation of this Article.
First is that pre-entry-into-force acts or facts can be relevant as background in assessing whether or not a State has subsequently breached an obligation.
At the same time, a claim that challenges a post-entry-into-force Measure that is itself a breach does not violate the nonretroactivity rule. This is what we have said in the Spence submission and in several other submissions.
Now, as background to what we did in the TPA negotiations, most of our prior BITs, as well as the FTAs you see noted here, had no retroactivity provision. In fact, our template had no retroactivity provision, because our initial position was that no provision was necessary because the nonretroactivity rule, under the Vienna Convention, applied, and under customary international law. But in prior FTAs we had where the U.S. did include this provision, we used a "for greater certainty" formulation just to assure that any reader would know that, in a treaty that didn't have this provision, it was no less--the
[Page 2046]
principle under the Vienna Convention was no less applicable than it was when we laid it out here as in this case, in CAFTA, in writing.
Now, in our negotiation of this Article, the Andean States began by--they proposed a broader nonretroactivity provision that you see on the top of your screen here, and it applied to disputes over facts and acts. And it was something that the U.S. explained we could not accept, that it was too broad, and that we would only accept if we did reiterate the Vienna Convention formulation. That is what we ultimately did. We used the exact same language as was in the DR-CAFTA and that you'll see is--and it was accepted pretty early, in February of 2005, was at the bottom of the screen.
Finally, regarding Investment Agreement claims and the reliance issue under it, the analysis of this starts with Article 10.28, because that is the definition of "Investment Agreements" for the TPA, and it is the only provision we have in there that establishes a reliance requirement. And what it says clearly is that the Investment Agreement is this
[Page 2047]
written agreement between the national authority and a covered investment or investor, but it is on which the covered investment or the investor relies in establishing or acquiring a covered investment. So, this is a disjunctive requirement; either the investor or the enterprise can satisfy it.
Now, under Article 10.16.1, and this is the gateway to arbitration, so this talks about the conditions under which any claim can be submitted, the only condition that Article 10.16.1 adds is this direct nexus condition which you see on the bottom of the screen.
The subject matter of a claim in damages must directly relate to the investment that the investor or enterprise established or acquired in reliance on the relevant Investment Agreement. But again, the nexus is simply between the claim on one hand and the covered investment that happened to be established in reliance on the Investment Agreement, on the other hand.
This shows what was in the 1994 Model BIT, and it shows that this same reliance requirement in
[Page 2048]
substance applied. We used the term "investment national or company" in those days, but it had the same meaning as a "covered investment" or "investor," that either one could rely upon the Investment Agreement, and that was always part of the definition. So, there really was no change, and that's what is illustrated in this slide.
Personally I was involved quite a bit when we updated this in 2004, and we had a very extensive interagency debate about this, and the debate concerned what you see in blue on the screen, and that is, what was the scope of this clause? What rights did it grant? And back in the '94 Model, it talked about "grants rights with respect to natural resources or other assets." Many of our U.S. agencies felt that that was too broad--what other assets?--so we ultimately defined it in the subparts (a), (b), (c) in the 2004 Model BIT that you see in blue there.
However, the reliance requirement in yellow was exactly the same, in substance. It did not change at all into the 2004 Model.
Now, this is what we did in the 2004 Model
[Page 2049]
regarding the direct nexus requirement, and again, all we did was add this nexus between a claim and that the covered investment on which the Claim was being made that that covered investment had to be the one that was established in reliance on the Investment Agreement.
There is nothing else that was in this requirement that we added. And this was done--our ΤΡΑ provisions were identical. We were--decided them right around the same time as we decided what would be in the Model BIT, and, you know, they are identical.
So, there is one other argument that I saw from Perú that I wanted to address, which is the argument that there could be, based on the reliance language, that there might be some temporal limitation for Investment Agreement claims in the TPA and any--there could be any temporal limitation for Investment Agreement claims in the TPA, and the history behind this, in addition to the language, I think, is very instructive on this question.
The U.S. agreed--there was a substantial discussion about a temporal limitation in our initial
[Page 2050]
post-NAFTA FTA negotiations with Singapore and Chile. And at that time these provisions were new to them. They had been in other U.S. BITs, but not to these countries, and their position was they needed some time in order to get the Regulatory Framework and contracts in place in order to be sure that they could accommodate investor-State arbitration overload, and ultimately they insisted on having these temporal limitations.
In Singapore it would apply to any agreement from the time of the entry into force. It would only be those Investment Agreements that would be covered.
In Chile, they insisted on having any--only those Investment Agreements that were entered into two years after the FTA entered into force, and this was a make-or-break issue as far as getting Investment Agreements, and it seemed to us at the time, in the U.S., so we did agree to that. But what we found was, after we agreed to it--and also CAFTA, where shortly thereafter we agreed to something very similar to Singapore--our U.S. industry was very upset with the U.S. Government for doing this, because they had many
[Page 2051]
Investment Agreements that their companies had entered into for a long time that they felt it was critical that our FTAs cover, and as long as there was a breach, of course, after entry into force of the FTAs, they said it was absolutely essential for the Investment Agreement clause that would permit arbitration to have no temporal limitation.
And as part of the compromise that included the scope of the Agreement that I described a few slides ago, this was one other element that the U.S. interagency group agreed on, which was that, going forward, there would be no temporal limitation. So, in the TPA, that was their hard position, and other ones, Korea, Oman, Uruguay, Rwanda after that, that was the same position that the U.S. took.
In addition, with respect to Perú, we actually had concerns about potential breaches of Perú's preexisting agreements derived from the actions of SUNAT, and that was another reason why, in this negotiation, it was very important to the U.S. not to have a temporal limitation.
This matter was discussed, and on the left
[Page 2052]
side you'll see the Andean proposal, which was just like the--what we had agreed to with Chile, that in the definition of "Investment Agreement," it would be only those that took effect two years after the date of entry into force of the agreement. But the U.S. rejected that. It was very much a no-go issue. We did discuss it at length, but it was in that context where we discussed it. And you'll see, as in the bottom of the screen on the right, a clean agreement. It did not have this temporal limitation, and all of our discussion, in this agreement and in my recollection, any other agreement because it was so clear that that is where it would be discussed in the definition of "Investment Agreement," I do not recall any discussion that the U.S. ever had, either internally in the U.S. or with any other country where anyone suggested that the reliance requirement made--would suggest that there was a temporal limitation that would apply because of that language.
So, that concludes my presentation, and I welcome any questions.
PRESIDENT HANEFELD: Many thanks.
[Page 2053]
So, the first questions come from the Respondent's side.
MS. HAWORTH MCCANDLESS: Thank you, Madam President. We have some binders we'll be passing out.
Let's wait a minute or two.
BY MS. HAWORTH MCCANDLESS:
Q. Good afternoon, Mr. Sampliner. My name is Jennifer Haworth McCandless, and I'm part of the legal team representing the Republic of Perú.
A. Good afternoon.
Q. Good afternoon. We have met before. You may not recall. It was about 20 years ago, and we were representing a party in which we were discussing with interagency officials, and you were among those people, but that was, I think about 20 years--I think it was 2004. So, it was a long time ago.
A. I do remember.
Ω. Well, hello again.
So, I'm going to ask you some questions regarding your Expert Reports in this Arbitration.
Although I'll be speaking in English and you'll be
[Page 2054]
answering in English, as you may know, there is simultaneous translation ongoing, and so, we should pause. I will try to pause in between your answers and my questions so that there is time for the translation, but don't take my pauses as an invitation to say more. I'm just trying to wait and be patient until the Transcript catches up.
Please listen to my questions carefully and respond concisely as you can, given that we have limited time in the proceedings. So, initially, with respect to your First Report, you state that you worked at the Treasury Department from October of 1998 until 2019; is that correct?
A. Yes.
Q. And just to understand the employment timeline, you said in Paragraph 1 of your First Report that you served as Attorney Advisor through 2003. So, I assume that you held that position from 1998 to 2003?
A. Yes.
Q. And then from 2004 to June 2019 is the period of time which you served as the Senior Counsel
[Page 2055]
at the Office of the Assistant General Counsel for International Affairs at Treasury; correct?
A. Yes.
Q. And the only reason I ask is, in looking at your--the Appendix 1 to your First Report which contains your CV, you indicate that you held the position of Senior Counsel of the Office of Assistant General Counsel for International Affairs from October of 1998 to June of 2019, but that isn't actually accurate--correct?--because for part of that time you were Attorney Advisor.
A. That is a good point. I did that for brevity, and substantively there really wasn't any difference in what I did, but you're correct.
Q. Thank you.
And you state in Paragraph 5 of your First Report that you based your Report "on your personal experience as a negotiator of the Agreement that became the TPA"; correct?
A. Yes.
Q. And during the time which you were working and negotiating the Agreement, did you take any notes
[Page 2056]
or prepare any memorandum during those negotiations?
A. I took a lot of notes of those negotiations and prepared lots of emails, at least.
Ω. And did you review those notes or memorandum before you prepared your Expert Reports in this Arbitration?
A. No. When I left the Government, I did not bring any documents with me from any negotiation I participated in.
Q. So, when would you say was the last time that you would have reviewed those notes or memorandum with respect to the TPA at issue in this case?
A. I think I did review them from time to time while I was at Treasury because, again, I was even known as someone who kept track of these things. So, I did refer to them from time to time, but not since I retired.
Q. So, at least not since June of 2019?
A. Yes.
Q. And you state in Paragraph 6 of your First Report that, in preparing your Report, you relied on, among other things, drafts of the U.S.-Andean FTA and
[Page 2057]
TPA, which you understand were obtained by a U.S. Freedom of Information Act request; is that right?
A. Yes.
Q. So, you did not make the FOIA request yourself; is that correct?
A. I did not. That's right.
Q. And you relied on Claimant's Counsel to provide you documents, presumably they made the FOIA request?
A. Yes. When I was retained, I was told they already had made the FOIA request and provided me documents that they had.
Ω. But given your experience in the U.S. Government, and indeed, you indicate in your CV that you had defended FOIA lawsuits, both before you went to Treasury--not defending there. You were involved in FOIA litigation before you went to Treasury, and while you were at Treasury you defended FOIA lawsuits, so I assume you were familiar with the FOIA process; correct?
A. Yes.
Q. Did you consider making a FOIA request
[Page 2058]
yourself to obtain some of the contemporaneous documents for the negotiations or meeting minutes or any other notes or memos that would support your assertions regarding the TPA interpretation?
A. I didn't. I know that--for two things: One was that I was told by Counsel for Claimant that they had made a request for the entire negotiating record; and, secondly, I know from my experience at Treasury that my status as former Treasury employee would not make any difference and that I would not--there would be no reason to think I would get anything more from my FOIA request than Counsel for Claimant already received.
Q. But you might have had more specific knowledge of exactly how to structure the FOIA request based on the documents that you knew existed; correct?
A. Theoretically I think that's possible, but I think that, you know, looking in good faith at a request for the entire negotiating record was--my former colleagues would have done that, and I'm not sure that I would have done any better than Counsel for Claimant had done.
[Page 2059]
Q. Did you see the request that they made?
A. No.
Q. You present two Expert Reports in this proceeding; correct?
A. Yes.
Q. And you are presenting yourself as an expert on the issue of negotiations of the U.S.?
A. I am.
Q. You also state in your Report that you were involved as a negotiator in the U.S. TPA and again, today, in direct testimony, you are discussing, in part, your own personal experience while you were negotiating.
So, you are as an expert on international treaties, but also you personally had experience in this TPA; is that correct?
A. Yes.
Q. But you're saying that you--in your Second Report you say that you are basing your opinion on your years of experience drafting and negotiating International Investment Agreements, including this TPA, and you indicate that--but you also indicate
[Page 2060]
that, in your First Report, that the U.S. Trade Representative's Office was the lead agency in negotiations of trade agreements; correct?
A. Yes.
Q. And so, it was the USTR in this particular TPA that took the lead in the negotiations on behalf of the U.S. with respect to the investment chapter of what became the U.S.-Perú TPA?
A. They did. As a formal lead, I think, in particular provisions, the Treasury took at least a co-leading role.
Q. Let's discuss that, because you mention in your First Report in Paragraph 9 that Treasury has a leading role for all financial provisions in FTAs, including taxation; is that correct? And is that what you meant, what you were just saying, they take--Treasury had some kind of specific role, in particular?
A. Yes. In taxation in particular, the responsibilities were divided in terms of the Office of Tax Policy would deal with any straight tax issues, what's a tax measure, or anything that was really an
[Page 2061]
issue of tax law. I was not a tax law expert, but I was--I think they would rely on me as an expert on any tax issues that related to the exceptions, such as the exception for expropriation.
Q. And you stated--actually today you said you were personally involved throughout the negotiations, and I think you said you were involved in three of the--actually present for three of the rounds; is that correct?
A. Yes.
Q. And there were how many total rounds of negotiations?
A. I believe there were 13.
Q. And where were the ones that you were participating in? Were they ones in Washington?
A. They were the--the first one was in Atlanta, Round 2; the next one was in Washington, Round 8; and the last one was actually--it was called one "Round 13," but it was two different functional rounds in November-December of 2005.
Ω. So, you--it's fair to say that you weren't present, physically present for 10 of the 13
[Page 2062]
negotiating rounds?
A. That's true, but as I had also said, I was present for all of our interagency meetings as far as I knew, where we would discuss what had happened and what the U.S. position would be going forward for the next round.
Q. And do you know Carlos Herrera?
A. Yes.
Q. When did you meet him?
A. I met him--I think I may have met him first in FTA negotiations in 19--late 1998, 1999, but I certainly met him, worked with him quite a bit during these negotiations, and then again a little bit in the TPP negotiations.
Q. So, in your Reports you state that--in your First Report, you say that your Reports are based on your personal experience. You say that--the Report is based--your first one, your Report is based on your personal experience as a negotiator of the Agreement that became the TPA, and in your Second Report, you say that the Report reflects your genuine beliefs concerning the matters described therein; correct?
[Page 2063]
A. I don't know if you were intending to distinguish the two, but I certainly wasn't when I said those things.
Q. No. No.
A. Okay.
Q. You also say that you do not purport to speak on behalf of the U.S. Department of Treasury or the U.S. Government in preparing your Reports; correct?
A. Yes.
Q. So, to be clear, in your Statements regarding the TPA provisions in both your Reports, you're not representing the U.S. Government's official position; is that correct?
A. I am not currently representing the U.S. Government's official position, but I am recounting my recollections of what the U.S. Government's official position was during the negotiations.
Ω. But you are saying that you are expressing your personal view and not that of the United States; correct?
A. In terms of any opinion, yes. And, again,
[Page 2064]
I'm not appearing as a representative of the United States, but I was a representative at the time in question. And so, what I'm testifying about were when I was in that capacity.
Q. Okay. But to be clear, because you stated in your Second Expert Report in Paragraph 2: "I do not purport to speak on behalf of the U.S. Department of Treasury or the U.S. Government preparing this Report."
So, I take that to mean that, in essence, you are testifying in your personal capacity?
A. I am currently testifying in my personal capacity, yes.
Q. Okay. Thank you.
And in your Expert Reports, you provide comments on very--and you did today here too--in your direct examination, you provide comments on various provisions concerning the TΡΑ; correct?
A. Yes.
Q. And in particular, you are--you provided comments on the limitations period provision, and you did this also in your direct, on the nonretroactivity
[Page 2065]
provision, which you also did in your direct, and the fork-in-the-road provision; correct? And you also did that in your Direct and the reliance provision; correct?
A. Yes.
Q. And, to confirm, we had just discussed, you stated that Treasury Department played a leading role with respect to all financial provisions in FTAs and those provisions including taxation; correct?
A. Yes. To the extent I just discussed it.
Q. Yes. But you didn't provide in either of your Reports--or today, indeed, in your direct testimony, you didn't provide any comments in--regarding Article 22.3, which discusses Taxation Measures; correct?
A. I didn't. And, as I understand it, the issues in question don't relate really to the exceptions that I am an Expert in, and they relate to the areas where our Office of Tax policy would be Expert.
Q. And was it your choice not to discuss Article 22.3--or were you instructed by Counsel not to
[Page 2066]
discuss it?
A. I was asked to discuss the particular issues you've seen. I don't recall any back-and-forth between us about would I discuss this or not, and I think in--when I described my background to them, initially, when I was retained, I think I made pretty clear that I was not a taxation Expert.
On taxation, per se, other than with respect to, let's say, the expropriation exception.
Ω. So, to be clear, Claimant's Counsel did not ask you to opine on 22.3 regarding Taxation Measures, even though you worked as a negotiator for Treasury, and Treasury played a leading role regarding all financial positions in FTAs; correct?
A. Correct, and my--well, I don't know why they didn't ask me, but my guess would be that because I told them that other people had the expertise and were relied on as the key negotiators there. And I would just add that, if people from that office were here today, they would emphatically confirm that they were the Experts on this subject, and certainly at the time they would say, I was not the right person to
[Page 2067]
represent Treasury on pure Taxation Law Measures, and pure taxational issues.
Q. And you think you did mention something about exceptions with respect to taxation, when you were involved in that?
A. Yes.
Q. Have you seen the--I know you're familiar with U.S. Non-Disputing Party submissions because you've testified to that today in your Reports, and so clearly you know that those exist.
A. Yes.
Q. In your view, are--those submissions are the official word of the U.S. Government on those provisions that they discuss in the submissions?
A. Yes.
Q. Have you seen the U.S. Non-Disputing Party submission in this case?
A. Yes.
Q. And with respect to Article 22.3, you're familiar that the U.S. says--
MR. UKABIALA: Objection. This is not a provision that the Expert has opined on, as Counsel
[Page 2068]
has just established. So, I can't see any legitimate purpose in asking the Expert about the U.S. position in the Non-Disputing Party submission on this clause.
MS. HAWORTH MCCANDLESS: Well, he is testifying as a--based on his experience working as a negotiator of this TPA--
MR. UKABIALA: I'm sorry, Section 35 of PO4 is very clear that the Expert will not be cross-examined on matters beyond the scope of their Expert Report. So, I can't see the possible--
MS. HAWORTH MCCANDLESS: Well, his Expert Report concerns his negotiations. The negotiations of the U.S. with respect to the TPA, which he was involved in, and he went through a great length of telling about his experience with respect to that negotiation. It's completely within the scope.
MR. UKABIALA: Yes, but we're talking about a specific provision, the tax exclusion, which the Expert did not testify about in his Expert Reports, or today during his Direct Presentation. And which Counsel has just gone to great lengths to establish he did not testify about. So, it cannot possibly be
[Page 2069]
permissible under Section 35 of PO4.
PRESIDENT HANEFELD: I would have also asked you the question whether you were involved in the negotiations of this provision, but I understand you are saying, no, it would have been a different colleague from the Office of Tax Policy; right?
THE WITNESS: Well, when you say "this provision," it has exceptions. So, I was involved in negotiations of the exceptions under the provision, but not--not the pure tax issues.
PRESIDENT HANEFELD: Then we can come maybe to this point later, and the Tribunal may have questions on this point.
MS. HAWORTH MCCANDLESS: Look, I was just going to ask, in his professional experience, based on his experience negotiating this TPA, in particular, what his--if he agreed with the U.S. in Paragraphs 32--
MR. UKABIALA: Yeah, that's the exact question that we object to.
MS. HAWORTH MCCANDLESS: And I think we've just determined he said, he's been discussing his
[Page 2070]
1 entire negotiation as a representative of the United
2 States in the TPA, and he just said he did have
3 information about the exceptions of the taxation, and
4 that's exactly what this question goes to. I think
5 it's completely within the scope of his expertise to
6 answer the question, which is a very specific
7 question.
8 MR. UKABIALA: Yeah, that's not the standard
9 in PO4. The standard is matters that were covered in
10 the Expert's Reports or direct testimony.
11 MS. HAWORTH MCCANDLESS: He has been
12 testifying today about his experience as a negotiator,
13 and this is part of that negotiation, so it's
14 completely within the scope of his testimony. If not
15 in his Report, and today, when he's discussing the
16 scope of his experience as a negotiator on this issue.
17 MR. UKABIALA: He has been testifying that
18 he would not have been the person negotiating this
19 provision, and that it would have been his other
20 colleagues at Treasury that would have the expertise
21 to discuss that matter.
22 (Overlapping speakers.)
[Page 2071]
1 MS. HAWORTH MCCANDLESS: Madam President, he
2 just clarified that wasn't the case with the
3 exceptions, and this is an issue of exceptions.
4 PRESIDENT HANEFELD: Yeah. Now, to get this
5 discussion cut short. So, on which provision in this
6 protocol you rely when you say you object to this line
7 of question and the testimony of the Expert?
8 MR. UKABIALA: I'm sorry, Madam President.
9 Are you referring to the privilege Protocol?
10 PRESIDENT HANEFELD: Yes. So, what is
11 your--and now, your PO4, whatever--
12 (Overlapping speakers.)
13 MR. UKABIALA: Yeah, PO4. Section 38 of
14 PO4.
15 PRESIDENT HANEFELD: Can you maybe put it on
16 screen because I do not have it here at my desk.
17 MR. UKABIALA: But I can just read it into
18 the record. It does say: "The adverse Party may
19 cross examine an Expert on matters that were addressed
20 or presented in the Expert Report or during direct
21 examination or presentation."
22 MS. HAWORTH MCCANDLESS: And my response to
[Page 2072]
1 that is he did discuss his negotiations of this TPA in
2 his Direct Presentation, very extensively, and,
3 therefore, it's completely within the scope to ask him
4 a question about this issue, which he has already
5 stated is actually within his scope of knowledge.
6 Even if it weren't in--within his scope of his
7 knowledge of being an Expert, which, of course, it
8 would be.
9 MR. UKABIALA: That can't possibly be the
10 standard. She's asking the Expert about a specific
11 provision, Article 22.3.1, which he first established
12 that the Expert does not have expertise in, and was
13 not involved in negotiating in the TPA.
14 MS. HAWORTH MCCANDLESS: And then he just
15 corrected that and said that he did have that
16 knowledge.
17 MR. UKABIALA: No, he said that he had
18 experience with 22.3.6, which is the exception to the
19 tax exclusion.
20 MS. HAWORTH MCCANDLESS: This is relevant to
21 that issue.
22 MR. UKABIALA: No, because the U.S. does not
[Page 2073]
1 discuss that provision. The U.S. only discusses
2 Article 22.3.1 in its Non-Disputing Party submission,
3 so asking the Expert whether he agrees with the U.S.
4 Non-Disputing Party submission could not possibly be
5 relevant to the exceptions to that provision.
6 PRESIDENT HANEFELD: Please rephrase your
7 question. We want to come to the core of his
8 testimony, and we had the same debate earlier on when
9 Mr. Prager raised some question, and we also said it's
10 the core of the testimony.
11 So, to ask the Expert on his involvement in
12 the negotiation is certainly proper, but what you have
13 just raised, I think, is correct. It cannot be
14 related to the Non-Disputing Party submission.
15 MR. UKABIALA: Yeah, and just--we'll just
16 add that asking the Expert about provisions that he
17 did not testify about is--couldn't be further from the
18 core of his testimony.
19 So, we would just submit that PO4 should be
20 followed, and Counsel should stick to cross-examining
21 the Expert on matters he testified about.
22 MS. HAWORTH MCCANDLESS: Madam President,
[Page 2074]
1 he--what he testified about, he is--as a negotiator,
2 and he had experience with respect to this
3 negotiation; therefore, the fact of what he includes
4 or doesn't include is certainly relevant within the
5 scope of his testimony.
6 Well, we'll just--if you've had--well.
7 All right.
8 Well, I note that he has not, as a matter of
9 fact, then, testified on an issue with respect to
10 taxation Measures, notwithstanding the fact that he is
11 the part of the Treasury, which is the lead
12 negotiating agency, and lead role with respect to
13 taxation in the TPA, which, in and of itself, says--
14 (Overlapping speakers.)
15 MR. UKABIALA: Counsel is testifying.
16 Is there a question?
17 PRESIDENT HANEFELD: I think now we change
18 it a little bit, and maybe you can talk with me for a
19 moment. The Tribunal is permitted to ask questions at
20 any time, and in order to--and now discuss procedural
21 objections on cross-examination, I would like to be
22 educated by you as an Expert on the exceptions to the
[Page 2075]
1 tax exemption.
2 So, maybe we can put the specific Provision,
3 22.3, on the screen and the exceptions, and then you
4 can just educate me on what you can give your Expert
5 testimony or on whatnot.
6 So, if we look at this Article 22.3, with
7 what provisions, or on what provisions were you
8 involved in the negotiations?
9 THE WITNESS: Okay. I wasn't involved in
10 either Paragraph 1 or Paragraph 2. I was occasionally
11 involved Paragraph 3 and 4 on the NTMFN that was one
12 of joint responsibility between me and my colleagues
13 in tax policy because it involved some tax issues and
14 some investment issues. And then, I think you'd see
15 Paragraph 5 and 6 were ones--5 relates to performance
16 requirements, 6 relates to expropriation and
17 Investment Agreements, and I was very much involved in
18 those paragraphs.
19 PRESIDENT HANEFELD: But, do I understand
20 you correctly that in--
21 (Overlapping speakers.)
22 THE WITNESS: They are on the screen.
[Page 2076]
1 PRESIDENT HANEFELD: And what--were you
2 involved in fair and legitimate expectations? Or...
3 THE WITNESS: I don't even see legitimate
4 expectations. But so--right. So, Paragraphs 5, which
5 relates to performance requirements, and 6 on
6 expropriation and Investment Agreements were the main
7 ones that I was Expert on. And I was just saying,
8 above that, Paragraphs, 3 and 4, which pertain to
9 national treatment and Most Favored Nation Treatment
10 were--they had mixed investment issues and tax issues,
11 so often on those paragraphs, our tax people--you'll
12 see various types of tax measures described on
13 purchase and consumption of services and
14 generation-skipping taxes and the like.
15 And we would need our Tax Experts to talk
16 about that. But in talking about national treatment
17 and some of the subparagraphs, I would talk. So, that
18 was just a joint responsibility. But it just was
19 Paragraphs 3 and 4 were joint responsibilities between
20 me and my Tax Policy Office counterparts. 5 and 6
21 were primarily me as the Expert. Paragraphs 1 and 2
22 were--the Tax Policy people were the Experts on that.
[Page 2077]
1 PRESIDENT HANEFELD: And let me just ask,
2 now, a simple question. My understanding, now, of the
3 Parties' submissions, or some positions was that
4 arguably, we, as a Tribunal, have jurisdiction. If
5 the breach of an Investment Agreement is at stake,
6 even on questions that are, then, taxation Measures.
7 So, and now, if, as a consequence of this
8 alleged breach of the Investment Agreement, specific
9 taxes have been charged which are stabilized--or not,
10 whatever, we have jurisdiction, nevertheless, to
11 decide.
12 This is your understanding of the provisions
13 as well, or do I misread something in the TPA?
14 THE WITNESS: That is my understanding. I
15 just thought, though, there is a question, and I
16 thought that the U.S. Non-Disputing Party submission
17 related to the question of what was or wasn't a
18 taxation Measure, and that's an Article 22.3.1 issue.
19 PRESIDENT HANEFELD: Exactly. But--and now,
20 taxes are certainly a taxation Measure?
21 THE WITNESS: Right.
22 PRESIDENT HANEFELD: And nevertheless, my
[Page 2078]
1 understanding is, as long as a breach of an Investment
2 Agreement is at issue, we can--or have jurisdiction to
3 decide also on this the tax consequences of the case.
4 Is my understanding correct? Is this your
5 Expert testimony?
6 THE WITNESS: Yes. And I would say anything
7 that is discussed in Paragraph 6 about the coverage of
8 Investment Agreements is something that I could
9 testify about. But the question--if the question is,
10 what is a taxation Measure, which that term is used in
11 these paragraphs, but the way it is defined, and the
12 question of who negotiates it is--that's the Office of
13 Tax Policy. And that actually--and maybe this would
14 help.
15 In the negotiation of these--of all of our
16 Free Trade Agreements, there would be an investment
17 group, and we would discuss the investment issues and
18 things like what kind of--what kind of Tax Measures
19 might be an expropriation. Or even, you know, to what
20 extent Investment Agreements are covered.
21 We would discuss that in our group, but the
22 tax part in Article 22 generally was a completely
[Page 2079]
1 different group, that I hardly ever attended, and
2 that's our Office of Tax Policy would be the people
3 who would talk about the general coverage, and
4 particularly Paragraphs 1 and 2, as well as 3 and 4.
5 PRESIDENT HANEFELD: And this is understood,
6 and I will definitely not ask you on, now, on these
7 tax specificities, but one other question I would
8 have, and please let me know whether you can testify
9 on that or not.
10 So, we address the issue when an Investment
11 Agreement is breached, we are competent to have
12 jurisdiction, also decide on taxation consequences,
13 whatever, claims that are related to that.
14 But on the Alternative Claim of the
15 Claimant, which goes on the assumption--it's not the
16 breach of the Investment Agreement. It's a breach of
17 other provisions of the TPA. And if, in this context
18 of this Alternative Claim, breach of customary
19 international law, for example, we come across a clear
20 Taxation Measure. It's about whether the taxation
21 regime applied, stabilized or not, or whatever.
22 Are we still competent? Can you testify
[Page 2080]
1 whether, in your view, we have still jurisdiction to
2 decide on these taxation measures included or being
3 part of the Claim?
4 THE WITNESS: Well, I could say that part of
5 your question addresses whether Minimum Standard of
6 Treatment Claims can be raised with respect to a
7 Taxation Measure, and on that one, the article, makes,
8 I think, pretty clear that because Paragraph 1 says
9 all Taxation Measures are excluded, unless listed
10 below, and Minimum Standard of Treatment is not listed
11 below. We would say that if it is a Taxation Measure,
12 that Minimum Standard of Treatment with regard to that
13 Measure is not covered.
14 That we would even talk about in the
15 investment group, but whether it is a Taxation Measure
16 in the first place is the question that our Tax Policy
17 people are the Experts on.
18 PRESIDENT HANEFELD: Thank you very much.
19 This was very clear. And so, please, Respondent,
20 continue with your question.
21 MS. HAWORTH MCCANDLESS: Thank you, Madam
22 President.
[Page 2081]
1 BY MS. HAWORTH MCCANDLESS:
2 Q. So, you said that the Tax Policy people
3 would be the ones to discuss a Taxation Measure, and
4 when the--and you're familiar as we had just discussed
5 about U.S. Non-Disputing Party submissions. If, for
6 putting together U.S. Non-Disputing Party submission,
7 would those Tax Policy people have been consulted?
8 A. Sorry. I lost your question somewhere.
9 Could you repeat it?
10 Q. Sure. You said that the Tax Policy people
11 are the ones who would have worked on the definition
12 of "Taxation Measure," and asking that if in putting
13 together U.S. Non-Disputing Party submission on that
14 issue, would they have consulted with those Tax Policy
15 people?
16 A. Probably, yes. And in my experience, I
17 remember they would normally--the State Department
18 would go to me, and then I would--if the question was
19 whether it was a Taxation Measure, I would then go as
20 the interlocutor to our Tax Policy people, but the
21 substantive discussion would be between the Tax Policy
22 people and the Office of Claims Investment Disputes at
[Page 2082]
1 State.
2 Q. Thank you.
3 MS. HAWORTH MCCANDLESS: Thank you. I have
4 no further questions.
5 QUESTIONS FROM THE TRIBUNAL
6 ARBITRATOR TAWIL: Concerning the taxation
7 issue, and I understand you have not negotiated, and I
8 don't know how much can you speak about this, in
9 particular, but both in the Main Claim and in the
10 Alternative Claim there's a discussion about
11 Royalties, and Royalties have not been considered
12 taxes by the Peruvian Supreme Court.
13 Has that any impact on the issue of 22.3? I
14 mean, what are we speaking about by "Taxation
15 Measures?"
16 THE WITNESS: I think you are getting into
17 an area of depth way above my head on that one.
18 ARBITRATOR TAWIL: Okay. Thanks.
19 ARBITRATOR CREMADES: You have discussed in
20 your presentation about the fork-in-the-road
21 Article 10.18.4.
22 THE WITNESS: Yes.
[Page 2083]
1 ARBITRATOR CREMADES: You are aware that
2 Cerro Verde went through different Administrative
3 Courts and Judicial Courts in Perú, going into the
4 Supreme Court. The fact that the Supreme Court has
5 decided something, to what extent it's in
6 contradiction with this Article, and to what extent
7 the Decision of the Supreme Court of Perú,
8 interpreting Peruvian legislation, is somehow very
9 relevant to our Decision?
10 THE WITNESS: I think that in looking at
11 this Article 10.18.4, the question is not really what
12 any court decided, but, rather, what the cause of
13 action was that was presented to them.
14 And we certainly--in our fork-in-the-road,
15 never thought or suggested or stated that the fact
16 that a particular issue is ultimately resolved by a
17 Court has relevance to--the question under the fork
18 was simply whether this same breach was alleged in the
19 first place in the Court's or Administrative
20 Tribunal's or other dispute-resolution proceedings.
21 And so, that would be the question. And so,
22 ultimately I just don't think I see much relevance to
[Page 2084]
1 the fact that, if a different cause of action is being
2 brought, and a court ultimately decides on that cause
3 of action, there might be a question of deference to
4 that court's Decision. I'm sure there would be in
5 that kind of question, that might be raised. But, it
6 isn't a fork-in-the-road question.
7 ARBITRATOR CREMADES: We might be obliged to
8 enforce Peruvian law, and the question decided by the
9 Supreme Court is either the Concentrator is covered or
10 not by the Stabilization Agreement, and they have
11 decided it's not covered. To what extent it's,
12 really, the same cause of action we are discussing
13 here?
14 THE WITNESS: I might have lost the thread
15 of that question, but, perhaps, this would help, is we
16 would discuss issues such as--and I remember with the
17 Chileans and some other countries, we would discuss
18 the question of--that they would raise to us that,
19 let's say, Chile would say: "We have the same
20 Expropriation Law in substance that the--that is in
21 the FTA, and that, ultimately, we don't want the FTA
22 Tribunal to rule on something that, in substance, is
[Page 2085]
1 the same as the Chilean Court would rule, and this
2 could overturn the Decision of the Chilean Court."
3 And our answer was that the--at least the
4 fork-in-the-road was only intended to preclude--in
5 that case, when we were discussing Treaty claims
6 because we--the only fork-in-the-road question was:
7 "Are you taking the same bite out of the same apple as
8 in the other proceeding as you are in the TPA
9 proceeding?" And if you are, that was something that
10 should be precluded from the outset.
11 If you aren't, and then brings up other
12 questions of the extent of deference and res judicata,
13 collateral estoppel and the like, but those are
14 questions under those doctrines, and not questions
15 under the fork-in-the-road Article. I'm not sure that
16 answered your question, but if not, maybe I didn't
17 understood your question.
18 ARBITRATOR CREMADES: Well, not totally, but
19 thank you very much.
20 THE WITNESS: Okay.
21 PRESIDENT HANEFELD: I have another question
22 relating to 10.16.1 and 10.28, the reliance. I heard
[Page 2086]
1 you stating--and it's also on the bottom of Slide 6 of
2 your presentation, "Investment Agreement claims are
3 permitted if either the Claimant or the enterprise
4 relied on the Agreement."
5 Doesn't your view of our jurisdiction
6 require proof of reliance, or is it the Claim of
7 reliance that is sufficient to establish the
8 jurisdiction of an investment Tribunal under the TPA?
9 THE WITNESS: I think that in any
10 jurisdictional issue, my basic understanding is along
11 the lines of, I think, what the U.S. would say is that
12 it is the burden of the Claimant to establish every
13 jurisdictional condition. So, to the extent that the
14 reliance is necessary to have jurisdiction, then it
15 would be the burden of the Claimant to show that
16 either the investor or covered investment had relied
17 on that Agreement.
18 PRESIDENT HANEFELD: Thank you. So, return
19 to Claimant now.
20 MR. UKABIALA: Thank you, Madam President.
21 Just one very brief question on redirect.
22 REDIRECT EXAMINATION
[Page 2087]
1 BY MR. UKABIALA:
2 Q. Mr. Sampliner, thank you.
3 You were asked by Ms. Haworth McCandless
4 about what you relied on in preparing your Expert
5 Reports, and also about whether you know Carlos
6 Herrera. Do you have any views about the available
7 record of TPA negotiations in this case,
8 including--given your knowledge of Mr. Herrera's
9 testimony in this case?
10 A. Right. I did hear his testimony, and I was
11 struck by the testimony he gave that there were
12 Reports from, I think, four different agencies on what
13 happened in each of the 13 CAFTA negotiations, and I
14 was surprised to hear that, as I understand it, those
15 had not been produced in the arbitration.
16 Q. Thank you, Mr. Sampliner.
17 MR. UKABIALA: Nothing further.
18 PRESIDENT HANEFELD: Any follow-up questions
19 from the Respondent?
20 MS. HAWORTH MCCANDLESS: No. No follow-up
21 questions. Thank you.
22 PRESIDENT HANEFELD: Then this concludes
[Page 2088]
1 your testimony. Thank you very much. You are
2 released.
3 THE WITNESS: Thank you.
4 (Witness steps down.)
5 PRESIDENT HANEFELD: Shall we make a short
6 break or simply continue?
7 Then we do our break now, and then we
8 continue.
9 (Brief recess.)
10 JAMES OTTO, CLAIMANT'S WITNESS, CALLED
11 PRESIDENT HANEFELD: Welcome back, and good
12 afternoon, Mr. Otto. You have been nominated by
13 Claimant in this proceedings as Expert. I briefly
14 introduce the Tribunal Members. To my left is
15 Professor Tawil, to my right, Dr. Cremades. My name
16 is Inka Hanefeld, I'm the presiding arbitrator in this
17 case.
18 Before we turn to your Expert Reports, under
19 Rule 35.3 of the ICSID Arbitration Rules, you are
20 requested to make a declaration that you will testify
21 in accordance with your beliefs. Can you please read
22 this declaration out for us?
[Page 2089]
1 THE WITNESS: I solemnly declare upon my
2 honor and conscience that my statement will be in
3 accordance with my sincere belief.
4 PRESIDENT HANEFELD: Thank you very much.
5 Then let us turn to your Expert Reports.
6 Do you have your Reports CER-4 and 9 in
7 front of you?
8 THE WITNESS: No. These are Gary
9 Sampliner's.
10 PRESIDENT HANEFELD: Wonderful. Then we
11 have identified an issue to solve.
12 So, often my questions are obsolete, but at
13 least now we know why I ask them.
14 So, please, now give Mr. Otto the
15 opportunity to have a look at his Report, and the next
16 question, will you give a presentation?
17 THE WITNESS: Yes.
18 PRESIDENT HANEFELD: Has it been already
19 circulated to Professor Tawil? Ah, everyone has it.
20 Perfect.
21 So, now, another look to your Expert
22 Reports, CER-4 and 9. Do we have them now in front of
[Page 2090]
1 you?
2 THE WITNESS: Yes.
3 PRESIDENT HANEFELD: Perfect. Can you
4 confirm that these are your Expert Reports?
5 THE WITNESS: Yes.
6 PRESIDENT HANEFELD: Do you have any
7 corrections to make or can you just start right away
8 with your presentation?
9 THE WITNESS: No corrections.
10 PRESIDENT HANEFELD: Then please go ahead
11 with your presentation.
12 DIRECT PRESENTATION
13 THE WITNESS: Over the course of the next 30
14 minutes or so, I'd like to talk a little bit about
15 mining fiscal stabilization.
16 Before I get into the Report, let me tell
17 you a little bit about myself. I'm a mineral
18 economist and mining lawyer, and I've got over
19 40 years of experience. I've worked for Governments,
20 the private sector, and multilateral institutions.
21 I've been engaged by Governments in over 30 countries
22 to assist in drafting their mining laws, agreements,
[Page 2091]
1 and mining policies, and I've assisted over 40
2 countries in the development of their mineral sector
3 fiscal strategies and policies. This includes almost
4 all of the major copper-producing countries that
5 compete with Chile for investment and with Perú for
6 investment.
7 I was engaged by the Peruvian Ministry of
8 Economy and Finance in 2002, and I prepared a
9 comprehensive review of the Peruvian Mining Tax
10 system, and I provided recommendations to Government,
11 many of which were incorporated in the Peruvian laws
12 subsequently in the year 2004.
13 In 2011, I was called back to Lima by the
14 Ministry and prepared a report on Mining Royalty
15 reform options and met with the various officers,
16 politicians, and the President's Office on my findings
17 and recommendations, and again, they adopted my
18 primary--some of my primary recommendations a year
19 later.
20 In my talk, I'm going to cover six topics.
21 I'll start with this brief overview, but then I'd like
22 to delve into terminology before talking about how
[Page 2092]
1 governments offer stability to an entire Mining Unit,
2 entire Mining Project, to attract continued mining
3 sector investments. Then I'll briefly discuss how
4 countries that Perú competed with at the time for
5 investment offered Stability Guarantees to their
6 Mining Units as a whole.
7 I will then talk about how Peruvian law in
8 practice was consistent with international practice
9 before coming back to my conclusions.
10 A key question, I think, that we have here
11 today is: Do Stability Guarantees apply to an entire
12 mining operation?
13 And it is my belief that comparative
14 practice in competing nations can help answer this
15 question.
16 The conclusions in my Report are that
17 comparative practice shows that Stability Guarantees
18 apply to Mining Units as a whole, that Perú competed
19 with jurisdictions that applied Stability Guarantees
20 to Mining Units as a whole, and that the SMCV's
21 operation, its leaching and concentration facilities,
22 are part of the same integrated mining operation, the
[Page 2093]
1 Cerro Verde Mining Unit.
2 And that there was nothing in the Peruvian
3 law and regulations at that time that would alter the
4 presumption that Stability Guarantees applied to the
5 entire Mining Unit.
6 And that restricting stabilization to
7 operations described in an initial Feasibility Study
8 is illogical, it fails to recognize that large mines
9 continually evolve, and is counter to the primary
10 purpose of providing stabilization, which is to
11 attract continued investment into the mining sector.
12 First of all, terminology. An integrated
13 mining operation is a common concept in international
14 mining practice. In my Reports, I use the term
15 "Mining Unit," which refers to a single integrated
16 mining operation. Now, what do I mean by that? A
17 mine, a single mine that shares supply administration
18 services. The term for "integrated mining operation"
19 varies from country to country, if you take a look at
20 their laws, and it is often not even defined in the
21 law. Sometimes it is referred to as a "Mining
22 Project," a "mining operation," "an economic Mining
[Page 2094]
1 Unit," a "mine," or a "Project."
2 In Perú, the term that they use is "Mining
3 Unit," "Economic-Administrative Unit," "single
4 Production Unit," they all convey the same concept of
5 an integrated mining operation.
6 Why is this important? Because comparative
7 practice is that stabilization applies to an
8 integrated mining operation, and Perú's practice was
9 consistent with this.
10 Why isn't the term "Mining Unit" defined in
11 the legislation? Well, having drafted mining laws for
12 many nations, I have firsthand experience in deciding
13 which terms get definitions and which do not.
14 Basically, terms that will have a narrower
15 or different meaning than what a professional, such as
16 a mining engineer, would understand the term to mean,
17 those are the ones that get a definition.
18 I don't believe that a mining engineer would
19 have any trouble understanding what is meant by the
20 law when they refer to a "Mining Unit." It refers to
21 an integrated mining operation.
22 Why do miners seek stabilization? Well, it
[Page 2095]
1 is to reduce their risks, which are very substantial.
2 First of all, operations evolve. There will be
3 changes to initial assumptions. For example, about
4 limitations on water, power. Most large mines make
5 substantial investments after initial construction,
6 and it would be difficult to identify a major copper
7 mine anywhere in the world that has not evolved to
8 take into account the varying nature of its orebody,
9 infrastructure development, technology. All the mines
10 I talk about in my comparative analysis report had
11 continued investment, including Cerro Verde. Mining
12 companies know that they are going to be making
13 continued investments in their operations and need to
14 know that that's going to be stabilized.
15 I am not aware of any country anywhere where
16 a company is required to get a written confirmation
17 that stability applies to new investment in a
18 stabilized mine and that it's required to get some
19 sort of written assurance that it does. No country.
20 Coming back to risks, mines have high
21 capital costs. There is a lot of money at stake.
22 Many hundreds of millions of dollars, often billions
[Page 2096]
1 of dollars today. Mines have long pay-back periods,
2 eight, 10, 12 years often, and large mines are
3 financed through loans and lenders will want to see
4 fiscal stabilization during the loan period to reduce
5 inconvertibility and withholding tax risks.
6 Mines are also immobile. If the Government
7 changes the rules of the game, you can't just pick the
8 deposit and mine up and move it to another
9 jurisdiction.
10 Mines are also subject to commodity price
11 cycles. This is a graph that shows copper prices and
12 molybdenum prices over time, and when prices go up, so
13 does the risk that governments will raise taxes, and
14 investors seek stabilization to mitigate this risk.
15 You can see here in around 2002, the copper price took
16 off, and it really peaked around 2012. During this
17 time period, I received numerous requests from
18 Governments to take a look at their tax systems to see
19 how they could get a bigger piece of the pie.
20 Now, most of them were getting a lot more
21 money. Obviously prices went up. Income taxes went
22 up, withholding taxes went up, so their tax take did
[Page 2097]
1 go up, but they wanted a bigger piece of the pie.
2 If we take a look at this graph, Perú
3 introduced a new royalty in 2004 after prices began to
4 rise, based perhaps on my 2002 Report for the MEF.
5 And as prices began to rise even further, a lot of
6 political pressure was brought to bear in the country,
7 and various senators developed various bills to raise
8 taxes on the mines.
9 I was approached by the MEF to come back to
10 Perú to take a look at some of these bills and to
11 model them for the Government, and I did. And I
12 prepared my Report and recommendations and Report in
13 2011, and in 2012 the Government changed its approach
14 to Royalty.
15 In summary, with regard to risks, investors
16 seek stability for their entire Mining Project to
17 protect against fiscal and administrative risks for
18 all of these reasons.
19 I'd like to talk a little bit about the
20 countries that Perú competed with for investment.
21 During this time period, much of the world,
22 you simply could not invest in it. Places like Russia
[Page 2098]
1 and China just closed. The former Soviet States in
2 eastern Europe, you could not invest in those places
3 either. They were in transition. Other countries
4 like Iran and Afghanistan had big copper deposits, but
5 politically you could not go there or there was war.
6 Several other countries had big copper deposits, but
7 they had restrictions in place such as requirements
8 for majority equity ownership held by Government or by
9 nationals, and this simply was not acceptable to most
10 mining sector investors. So, with regard to copper,
11 these are the countries that you could invest in.
12 This is where the action was.
13 My Reports conduct a comparative exercise
14 with all of these jurisdictions to take a look at how
15 they approached, how they approach stability. And you
16 can see the list on the left.
17 In taking a look at their systems--and I
18 have experience in all of these countries, all
19 extended fiscal stability to their entire--to an
20 entire integrated mining operation. All provided
21 stability to continued investments in mining
22 operations covered by an existing agreement. The
[Page 2099]
1 purpose of Feasibility Studies for stabilization
2 purposes was to establish that a minimum threshold was
3 met. That might be an amount or a quantity of
4 capacity.
5 With regard to feasibility, it just doesn't
6 make sense that a Government would limit stability to
7 only a point-in-time project when it knows that the
8 mine is going to continually evolve, investing new
9 money year by year, and it's not realistic to expect
10 that every new thing you add to a Mining Project that
11 is not set out in the Feasibility Study, say a new
12 crusher or a conveyor belt or a new processor, may be
13 subject to a different tax regime. It just doesn't
14 make sense. That is just not the way it was done.
15 I found nothing in the Peruvian Mining Law
16 and Regulations that would alert an investor that the
17 Peruvian approach differed from these findings.
18 Now, the process by which stabilization was
19 granted varied from country to country, but the result
20 was the same.
21 I'm going give to you just one example
22 today. There is others in my Report. This is Chile.
[Page 2100]
1 Chile uses a statutory and form contract approach, in
2 some ways similar to Perú, but it is done under a
3 special Foreign Investment Law, not under the Mining
4 Act. The contract grants stability for a company's
5 expenditures on activities in an area, and in my
6 Report I provide reference to the Candelaria
7 Project--big copper mine contemporary with Cerro
8 Verde, and it covers all the mining activities during
9 the term of stabilization. Just a typical example.
10 In my experience, Perú looked at Chile
11 because of its success in attracting investment into
12 its copper sector, and in Chile the concept was clear:
13 Stability applied to a company's entire integrated
14 mining operation. Again, the approach to
15 stabilization varied in each country, but the end
16 result was the same: Stability for a defined time
17 period for an entire project.
18 Stability agreements in Perú are not
19 negotiated. The Mining Law and Regulations set out
20 the stability benefits that are available to every
21 mining company that meets a threshold and a form
22 Adhesion Contract is used. In my opinion, this is a
[Page 2101]
1 good approach because it's efficient, eliminates
2 bureaucratic discretion and corruption, and makes
3 administration and supervision transparent and
4 effective.
5 An investor that meets the procedural
6 requirements is entitled to a standardized stability
7 agreement. There is no negotiation, no cost-benefit
8 analysis, no restrictions on future investment. This
9 is reflected in Mining Law Articles 72 and 86.
10 Perú obligates itself to enter into a
11 non-negotiated form stability agreement with any
12 mining company that submits a Feasibility Study
13 demonstrating that it will meet the minimum investment
14 requirements.
15 Regardless of the approach, the end result
16 is the same in each of these jurisdictions: The
17 entire Mining Unit is stabilized.
18 In my view, Article 2 is the key scoping
19 article in Perú's Mining Law, and it indicates that
20 stabilization applies to an EAU. This is Perú's way
21 of saying "integrated mining operation." Article 82
22 establishes the concept of an EAU as a single
[Page 2102]
1 production unit sharing supply, administration, and
2 services. And I'd like to illustrate what this means
3 in the next several slides.
4 This EAU definition is consistent with the
5 concept of an integrated mining operation globally.
6 What do they mean by "shared supply, administration,
7 and services?" Well, we've got upstream activities,
8 exploration, mine planning, extraction of the ore,
9 trucking the ore, and various plans that are prepared
10 on an ongoing basis. You've got operational
11 activities, things like administration, employment,
12 electricity supply, water supply, transport;
13 downstream activities, things like sales, market,
14 logistics in EAU. All of these shared costs are
15 associated with the typical integrated Mining Project,
16 an EAU, and they are not attributable to any single
17 part of the operation, such as an individual
18 processing plant.
19 Let's take a look at Cerro Verde, which,
20 like other examples I provide in my Report, is one of
21 the largest--one of the world's largest copper mines.
22 It is obviously a single integrated mine. It
[Page 2103]
1 operates--single mine, single point of ore extraction.
2 Operations are coordinated from a mine office. If you
3 take a look at the figure on the left, you can see the
4 mine pit and the various processing plants, in plural.
5 If you take a look at the figure on the
6 right, this shows infrastructure that is shared by the
7 various processing facilities including things like
8 water, power, roads, security, et cetera. Any mining
9 engineer, whether from Perú, Chile, or Indonesia,
10 would agree that this is an integrated mining
11 operation, a Mining Unit.
12 This is a picture of the orebody. On the
13 figure on the left we can see three types of ore. The
14 green are the oxides that you've heard about; the red,
15 the secondary sulfides; and the yellow are the primary
16 sulfides. You can see all these different ore types.
17 The lower dotted line shows the eventual
18 extent of the mine pit, after which new investment
19 will be required in order to move underground. The
20 ore types overlap each other, and depending on its
21 attributes, the ore will be sent to one of the various
22 processing plants.
[Page 2104]
1 The orebody is part of the integrated mining
2 operation, just like the processing facilities, some
3 of which use leaching and some of which use
4 concentration.
5 Wide space drilling is done to obtain data
6 about the ore, and each year the conceptual plan is
7 developed for the next year using a block model, and
8 that's what you see on the right.
9 This is a picture of the mine pit. Where
10 ore will be delivered is decided pretty much on a
11 daily basis. The little holes you see on the right
12 there, those are for blasting, and samples from the
13 drillhole are assayed to determine the nature of the
14 ore. Based on those assays, waste rock is taken to a
15 waste dump, low-grade oxide is taken to a large
16 material leach pad; high-grade oxides to a crusher
17 facility and then to a leach pad; secondary sulfides,
18 well, they go to a leach pad or concentrator; and the
19 primary sulfides, they go to the Concentrator.
20 According to the other Expert Reports that
21 I've read, if the two Concentrators had not been
22 built, a lot of the oxide and secondary sulfide ore
[Page 2105]
1 would not have been economic to mine.
2 As you can see from these slides, there are
3 not two operations. It's not a concentrator and a
4 leaching facility. It's an integrated operation.
5 Cerro Verde is an EAU: In the international
6 mining lingo, an integrated mining operation. If
7 you're interested in learning more about the mining
8 operation and why it's integrated, I highly recommend
9 that you read Ramiro Aquiño's Witness Statement. He
10 goes into a lot of detail. That's where I got most of
11 this information. He's the chief planning engineer
12 for the mine, and he has a superb description of the
13 mine's operations, which clearly show that the mine
14 has never been conceived of a static investment
15 defined by that initial Feasibility Study.
16 ARBITRATOR TAWIL: Mr. Otto, a question on
17 the picture, is it the sulfides already seen here?
18 Are those in the bottom? Where would be the--I mean,
19 the sulfides, if I understand correctly, are on the
20 bottom, and are they already seen here, where they
21 take the sulfides from?
22 THE WITNESS: What they do is--what you see
[Page 2106]
1 there are--the mine is developed with benches, those
2 layers, and as they mine each bench, they have to
3 break the ore up. They don't know what that ore is in
4 advance. They have a general idea because they have
5 these wide-spaced holes. But each day they will drill
6 these holes, they will prepare a section to be
7 blasted. They will then assay samples that will go to
8 a laboratory, and they will say, oh, this section
9 right here is sulfide. This section over here is
10 oxide. It is not like there is distinct layers like
11 this.
12 ARBITRATOR TAWIL: So, we would not be able
13 to see this in the picture? It will depend on the
14 lab.
15 THE WITNESS: Yes. Yes.
16 ARBITRATOR TAWIL: Okay. Thanks.
17 THE WITNESS: It would be the assays. It is
18 all mixed up. You have a column here that is one, a
19 column here that is another. You really don't know.
20 The ore grade is mixed up.
21 ARBITRATOR TAWIL: Understood. Thank you.
22 THE WITNESS: Okay. Moving on. The
[Page 2107]
1 Peruvian approach was consistent with international
2 practice, and I'd like to talk just a minute about
3 ring-fencing. Nations that offer stabilization
4 usually ring-fence each stabilized integrated mining
5 operation, and that's the case in Perú also.
6 Ring-fencing is where a company that
7 operates several mines must keep separate books of
8 account for each mine. For example, an investor may
9 have started one mine in 1990, and 20 years later,
10 another mine in a different location. If one of them
11 is stabilized, they're going to have different tax
12 systems. Since two respective stability agreements
13 would stabilize different tax regimes, each mine would
14 need to be taxed separately.
15 Like in other countries that offer
16 stability, Perú has taken a similar approach:
17 Operations in different EAUs are calculated
18 separately. Ring-fencing is addressed in Article 22
19 of the Mining Law. Article 22 says that a mining
20 company that has different EAUs must keep separate
21 books for each.
22 The Article includes information how shared
[Page 2108]
1 costs can be attributed for tax purposes where there
2 are two or more EAUs, but this does not apply to Cerro
3 Verde because it's a single EAU according to the
4 definition in the Mining Law.
5 This is the same approach that other
6 countries use. I'd like to briefly talk about
7 separating costs. There's a presumption that
8 stability applies to all activities with an integrated
9 Mining Project--an EAU--and there's no reason to
10 allocate shared costs. However, if separate tax
11 systems apply, the division of shared costs for
12 determining taxes would be inherently arbitrary,
13 uncertain, and discretionary. And Perú did not
14 provide any guidance on how shared costs should be
15 allocated.
16 I'm a Tax Policy Expert, and good tax policy
17 aims to provide certainty and predictability. If a
18 Government is going to require a taxpayer to allocate
19 costs within a mining operation, it should provide
20 detailed guidance to taxpayers.
21 As a fundamental taxation policy, principles
22 of certain and predictability, calculations need to be
[Page 2109]
1 clearly defined.
2 As I mentioned before, after the huge rise
3 in copper prices, and after the introduction of
4 numerous bills by senators, I was invited back by the
5 Ministry of Economy and Finance to analyze bills and
6 make proposals. One of the bills prepared by a
7 senator would impose, individually, a type of tax on
8 each type of metal produced by a company, taking into
9 account revenues and costs attributable to that metal.
10 This would have been an approach that would have
11 required allocating shared costs, in some instances.
12 And in this slide, you can see my advice to
13 Government. It is my understanding when the
14 Government decided that Cerro Verde's Concentrate and
15 Cathode production would be subject to different tax
16 systems, it did not provide any detailed guidance,
17 violating the fundamental tax policy objective with
18 certainty and predictability.
19 Peruvian practice with regard to stability
20 was consistent with international practice. I
21 reviewed the testimony of the Director General of
22 Mining that was in charge of stability agreements, and
[Page 2110]
that of the author of the Consolidated Mining Law.
And you've heard their testimony. Their opinion was
that the scope of the Stability Agreement extended to
the entire integrated Mining Unit, and that's in
accord with international practice.
To me, the Peruvian Mining Law encourages
mine reinvestment, and that stability applies on an
EAU Mining Unit basis. Reinvestment tax schemes are
not all that common, and obviously Perú wanted to
continue to expand and invest. The Government
approved the Application to expand the existing
Beneficiation Concession, and, like other countries,
made no distinction between leaching and
concentration.
If the Government did not intend to extend
stabilization to the Concentrator, why didn't it
require SMCV to apply for a separate beneficiation
concession?
During my many meetings to prepare my
comprehensive review of the Peruvian mining fiscal
system for the MEF, a limitation of stabilization to
only the initial Feasibility Study never came up. It
[Page 2111]
was a nonissue. No one was thinking that way. It
would have been a unique position, worldwide, harming
Perú's ability to compete for investment.
The Concentrator Application was not the
first time that Perú expanded the Beneficiation
Concession. Here, you can see on this slide all the
various changes that took place.
In 2002, SMCV expanded the capacity of its
Beneficiation Concession by around 30 percent. This
expansion was never contemplated in the initial
Feasibility Study, but represented a new investment.
The Government honored the Stability Agreement with
regard to sales from these prior expansions, in line
with international practice. These expansions are the
type of continuing investment that are typical of all
large copper mines.
Finally, my conclusions: Comparative
practice shows that Stability Guarantees apply to
Mining Units as a whole. Perú competed with
jurisdictions that applied Stability Guarantees to
Mining Units as a whole. SMCV's leaching and
concentration facilities are part of the same
[Page 2112]
integrated operation, the Cerro Verde Mining Unit.
There was nothing in the Peruvian Mining Law
and Regulations that would alter that presumption. And
restricting to stabilization--restricting
stabilization to operations in an initial Feasibility
Study is illogical, and it fails to recognize large
mines continually evolve, and is counter to the
primary purpose of providing stabilization, to attract
continuing investment.
In my over 40 years of experience, in over
60 nations, this is the first time that I've seen a
Government try and limit stabilization in the way that
Perú did following the completion of Cerro Verde's
$800 million investment.
I urge the Tribunal to reread my First
Report. If they want additional details, in
particular, Paragraphs 15, 31, and 34--31-34, which
set out my main conclusions in reasoning.
Thank you.
PRESIDENT HANEFELD: Thank you very much,
Mr. Otto.
Respondent will now make the
[Page 2113]
cross-examination.
MS. HAWORTH MCCANDLESS: Thank you, Madam
President.
Q. Good afternoon, Mr. Otto. We have seen each
other before. This is a case of a repeat.
A. Deja vu.
Q. Deja vu. Exactly.
And some of the questions you will--will be
familiar to you, and some will be different, but
because this is a new Tribunal, it's important to
address the issues before this Tribunal.
And as in the Cerro Verde Case, and as you
are testifying in English and I am speaking in English
as well, we'll just have to pause between our
statements so that we don't--so, that we're allowed to
have the simultaneous translation into Spanish.
And thus, if I pause after a question, I'm
not--or after you testify a little bit, and I ask a
question, it's not necessarily I'm inviting you to
continue to speak. It's a matter of just waiting for
[Page 2114]
the translation to catch up.
And in light of the fact that we are limited
in time, I ask that your answers you provide, they be
short so that we don't have to--I don't have to
interrupt you, which wouldn't be pleasant on my part,
from my end.
So, to go over briefly your background, you
state in your First Report that you're an Expert in
Mining Law and Taxation; correct?
A. Correct.
Q. And you have 40 years of experience, or over
40 years of experience in the study and practice of
natural resources law and mineral economics on behalf
of Governments, the private sector, and multilateral
institutions; correct?
A. That is correct.
Q. And you were a research professor at the
University of Denver School of Law for about 12 years,
from 1996 to 2008; is that right?
A. That's correct.
Q. And for--
A. And Director of the Natural Resources Law
[Page 2115]
Program.
Q. Okay. At the University of Denver?
A. Correct.
Q. And for about four years, from 1992 to 1996,
you were a senior lecturer at the University of Dundee
Center of Energy, Petroleum, and Mineral Law and
Policy; is that right?
A. Yes. That's the largest natural resources
law program in the world. I was also Acting Director.
Q. And you have worked as an independent
contractor advising Governments on natural resources
law and economics; correct?
A. That is correct.
Q. So, for your professional career, you have
been a professor and served as a consultant for
Governments on natural resources law and policy; is
that right?
A. That's correct.
Q. And I didn't see on your CV, and I didn't
see your Opening Presentation, your Direct
Presentation, that you have any experience working for
an accounting firm; is that correct?
[Page 2116]
A. That is correct.
Q. And you didn't mention anything in your
Reports which indicates that you have ever advised
private mining companies on how to file their taxes;
correct?
A. No. I have not advised companies on filing
their taxes.
Q. No, you have not, just to be clear.
A. Just on strategies of where not to invest,
based on tax matters.
Q. Thank you. And, indeed, you stated in the
Cerro Verde Hearing, that you had no accounting
experience and that you never advised private mining
companies on how to file tax returns. And that--we
have that--it's Day 7, Page 1--1941, Lines 9-13. The
question was: "And I don't--similar to what I just
asked, I don't recall you saying in your Direct
Presentation, nor do I recall seeing in your Reports,
that you have--or on your CV that you have experience
working for an accounting firm; is that correct?"
And you answered: "No accounting
experience."
[Page 2117]
And I asked: "And neither have you said,
either in your Direct Presentation or in your Reports,
that you have advised private mining companies on how
to file tax returns; is that correct?"
And you said: "That's correct."
And then I further asked: "Is to just
confirm that you--your earlier answer you, yourself,
haven't--you don't have any experience preparing or
advising companies, mining companies, on how to
prepare tax filings; is that correct?" And you
answered: "That is correct."
And I assume you confirm those answers
today?
A. Yes.
Q. Now, you state in your Reports that
Stability Guarantees presumptively apply--and you
mentioned this in your direct testimony today as
well--to an entire mining unit. So, I first want to
discuss the allegation, of a presumption that you
mention.
And in your Reports, you give examples of a
limited number of jurisdictions in the world that you
[Page 2118]
assert provide stability benefits to all investments
within a mining unit, but you don't cite in your
Reports, and you don't cite in your Direct--you didn't
state in your direct testimony any support for the
general idea of the existence of a worldwide
presumption regarding the scope of stability
agreements, and that they presumptively apply to
mining units; isn't that correct?
A. No, I would say it's not correct.
Q. You cite to something in your Reports?
A. Well, my Report cites examples of every
major copper-producing developing country that--with
the exception of México, that--and they all provided
stability to the entire Mining Unit, including new
investments. So, when you say "you don't cite," well,
I've got all the citations demonstrating that each of
these countries, they provided stability to the entire
integrated mining operation, including new
investments, during the period of stability. Those
are very specific cites.
Q. Let's take a look at some of the--when you
make a certain assertion. So, in Paragraph 15 of your
[Page 2119]
First Report, you make an assertion: "Governments
presumptively apply stability benefits to all
investments within a mining unit," and you don't cite
anything in that Statement, do you? You don't have a
footnote there, do you?
A. No, not in that Statement, no.
Q. And then if we turn to Paragraph 32 of your
First Report--we'll put that on the screen,
momentarily. 32. And you assert there: "All of the
stabilization schemes that I am familiar with are
granted to either the mining company or a mining unit
of that company without regard to the content of the
Feasibility Study that it initially submitted to
secure a Concession or stability benefit."
And you say: "I'm not aware of any
jurisdiction, law, or agreement that grants stability
to just part of the activities performed within a
mining unit."
For that first sentence, in particular,
you're not citing to anything there, are you? Like
citing to a particular document; correct?
A. No, not there, but as I mentioned, each of
[Page 2120]
the examples I provided, I did the research, and
you've got the citations that demonstrate that.
Q. We'll get to the examples that you provide
in a minute. I just want to look at what the
Statements that you make in your Report, and whether
you provide a citation with respect to supports for
that.
So, you do mention seven countries on which
you relied. Is that what you're talking about? The
seven countries you relied in your survey, and you
identified that in your Opening, in your--sorry, in
your direct testimony as well. You referred to on
Slide 11--you referred to Argentina, Chile, Democratic
Republic of the Congo, Indonesia, Mongolia, Papua New
Guinea, and Zambia; correct? Those are the
comparative jurisdictions you analyzed?
A. Yes, which I selected because they are the
countries that Perú competed with for investment
during that time period.
Q. And you, as we discussed at the beginning of
this cross examination, that you've studied and
practiced natural resources law and mining economics
[Page 2121]
on behalf of Governments and the private sector for
over 40 years; correct?
A. Yes.
Q. But based on that, you weren't able to
identify any independent Authority who agrees with
your theory of a worldwide presumption that stability
benefits apply to all investments within a mining
unit; correct? You only--you're citing to your seven
comparative studies that you did, but you're not
citing to an independent Authority which agrees with
your theory of worldwide presumption, that stability
benefits apply to all investments; correct?
A. This is a pretty narrow field. There's only
a few people that write about it, myself being the
primary author of most of the texts on it. So,
there's nobody to go to to cite, really.
Q. So, it's your theory of the presumption of
the worldwide presumption; correct?
(Overlapping speakers.)
A. Well, I do provide--
Q. So, it is your theory that there is a
worldwide presumption; correct?
[Page 2122]
A. Yes, it is my theory backed up by my
analysis, and all the documentation included in my
Report.
Q. Thank you.
Now, let's--I want to discuss, briefly, the
term "mining unit," and you mentioned it again today
in your Direct Presentation.
In your Second Report you state that the
term "Mining Unit" is used by the United States
Government in mining regulations and also in legal
dictionaries, and that's in Paragraph 26 of your
Second Report. It's the last sentence there, the use
of the term "mining unit."
And then you footnote to--you put a
Footnote 91, and looking at Footnote 91, you're not
citing to U.S. Government Mining Regulations in
support of that assertion, and nor are you citing for
definition of "mining unit," per se. Instead, you're
citing to another definition, a term "Logical mining
unit"; correct?
A. It depends on which part of the definition
you look at. Logical Mining Unit includes "Mining
[Page 2123]
Unit."
Q. But it's a specific term. It's a
specifically referenced term, "Logical Mining Unit";
correct?
A. I saw the term "Mining Unit" used in the
Peruvian law. So--
Q. That's not my question. My question is--
A. What is it again.
Q. And the cite that you were--the document
that you were citing in support of the concept of
"mining unit" being in the U.S. Government Mining
Regulations and in legal dictionaries, you're not
giving a mine--the definition of "mining unit," per
se. You're giving the definition of "Logical Mining
Unit," which is a different term; correct?
A. It conveys the same meaning, but the wording
is slightly different. Yes, I agree.
Q. Okay. And you also are citing to a
reference to "coal exploration and mining operations,"
and referring again there to "Logical Mining Unit."
And so, that's in the context of coal
exploration, not copper exploration; correct?
[Page 2124]
A. The concept of Mining Unit applies to all
mines, of any type.
Q. But that's not what you're citing to.
You're citing to something specific to coal; correct?
A. In this instance, yes.
Q. And I assume that you tried to find your
best sources in supporting your Statement.
Is that a fair assumption?
A. I draft mining laws. Every mining law--
Q. That's not my question.
A. --has a concept of Integrated Mining
Project. They use different terms.
Q. That's not my question.
(Overlapping speakers.)
Q. That's not my question. That is not my
question. I will repeat my question.
My question is--I said, "I assume that you
tried to find your best sources in supporting your
statement."
Is that correct?
A. Which statement?
Q. The statement that you said in Paragraph 26
[Page 2125]
of your Second Report that states "the use of the term
'mining unit' to refer to a single integrated mining
operation is consistent with how I have seen the term
used in the United States mining regulations and legal
dictionaries."
I assume when you added that footnote, you
were trying to put forward the support--the best
support you could find for that statement. Is that
correct, or is that not correct?
A. Can you show me the--that has got the
reference?
(Overlapping speakers.)
Q. It's right here on the screen. There is the
sentence.
A. There we go. It "is consistent with how I
have seen the term used"--
Q. That wasn't my question.
A. Yes, it is consistent.
Q. My question was not that. My question was,
"I assume you tried to find your best source in
supporting your statement. Is that correct or not
correct?"
[Page 2126]
A. Supporting which statement?
Q. That statement at the last sentence of
Paragraph 26 that is highlighted in yellow.
A. Yes, it does support that statement--
Q. But that wasn't my question.
A. --it's the only.
Q. My question was, that you tried to find your
best sources in supporting that statement; is that
correct?
A. The best source I could find within the
United States Mining Regulations is the one that is
stated below.
Q. Excellent.
A. Does that answer your question?
Q. That does. Thank you.
A. Okay.
Q. Let's look at a list of mining terms
provided by the Tax Authority in the United States
Government and the Internal Revenue Service, which is
behind Tab 7. This is Exhibit RE-235. It's talking
about--it's the IRS rulings and releases, and it's the
revenue procedures, and it identifies there the
[Page 2127]
purpose: "The purpose of this revenue procedure is to
index and set forth the definitions of certain mining
terms that will be used by the Internal Revenue
Service."
Do you see that?
A. Yes.
Q. If we look--then it says, "Objective: The
definitions contained in the revenue procedure have
been compiled from the regulations or from accepted
industry definitions obtained from the sources listed
in Section C."
And then it goes on to list an index of
terms, and if you go see where "mining unit" might
fall, which is between numbers 35 and 36, there is no
listing of the term "mining unit"; is that correct?
A. No, not really.
Q. Well, is it there?
A. If you read the definition of the word
"mining."
Q. Yes?
A. It has the meaning of "an integrated mining
operation, Mining Unit." If you go to the definition
[Page 2128]
of "mining," you'll see that.
Q. There is no separate term "mining unit," is
there?
A. No, because they used the term "mining" to
mean "Mining Unit."
Q. But my question is, is there a separate,
unique term "mining unit" listed there?
A. There is no need to because they have the
term "mining" defined, which is an integrated Mining
Unit.
Q. Do you see the term "mining unit" listed
there?
A. It is not specifically listed because they
use a synonym, "mining."
Q. You answered my question. You do not see it
there.
MR. UKABIALA: I think if the question is
about what is between "mining" and "mining processes,"
it would be fair to show the Expert the actual
definitions of "mining" and "mining processes."
MS. HAWORTH MCCANDLESS: I'm asking if he
sees "mining unit" referenced on the list, and he did
[Page 2129]
answer my question eventually, that it is not listed
there. And I'm going to move on.
Q. And then later on it identifies "References"
in Point 6, and it lists 26 different references
there. And Number 19--these are the sources that they
used in order to compile the list. In 19 on the list
is the "Dictionary of Mining, Mineral, and Related
Terms" published by the U.S. Bureau of Mines.
Are you familiar with that, or did you
consult that when you were trying to find a definition
of "mining unit"?
A. No.
Q. Indeed, when you--in the SMCV-Perú Hearing,
you stated that in preparing your Reports you
consulted glossaries in your reference library, as
well as those on the internet. And you--we can put
that up on the screen. That was from Day 7,
Page 1935, starting with Line 12. And I asked: "In
preparing your Expert Reports, did you look into any
of the types of sources of dictionaries that are
listed here in this index," which I was just showing
[Page 2130]
you. The answer you said was: "did I look at
references from 1923 or 1924? Some of them are old.
No, I did not. I do have some glossaries in my
reference library. I looked there to see if anybody
used that specific term, 'Mining Unit.' They did not."
And then I asked--then I said "thank you." And then
you continued and you said: "I went to the internet,
as everybody does, to take a look to see, and I found
two examples of people that were using similar
language, but not the exact term 'Mining Unit.'"
Do you stand by your testimony from the SMM
Cerro Verde unit-Cerro Verde Hearing?
A. Yes.
Q. Okay. Thank you. Now I want to turn to the
issue of separate accounts. And you discussed in your
Reports the issue of separating costs between
different mining processes and projects, and you
talked about that today.
Do you recall that?
A. Yes.
Q. And I understand your position to be that it
is difficult to separate costs, and you state that in
[Page 2131]
Paragraph 52 of your First Expert Report. Indeed, you
state there, if we get to it, "it is difficult to
overstate the challenges associated with attributing
shared mining assets and costs to one of two
processes, processing circuits in an integrated mining
operation for the purposes of calculating a net asset
or net profit tax." You confirmed at the SMM Cerro
Verde Hearing that a mining company is capable of
separating shared costs between projects. It was an
answer to a question from President Blanch. She
asked--this is in the Transcript, Day 7, starting on
Page 1937, Line 12. She asked: "Am I correct in
understanding that it can be done but that one Mining
Title owner might do it in one way," and then she goes
on to say: "And another might choose to do it on the
basis of how many days worked, so it would be"--she
said, "it would be arbitrary in terms of each would
follow a different type of policy," and you answered
"yes."
And she asked: "So, you could do it? It is
just that there may be no consistency between the
mines?" And you answered: "Exactly."
[Page 2132]
So, you agree that it is possible to do; it
may be difficult, but it's possible to do.
You agree with that? You agree with your
testimony from the Cerro Verde Hearing; correct?
A. Yes. Any method you would come up would be
completely arbitrary, and every taxpayer could come up
with a different method, and that's why in my
presentation and my Report I say that a Government
that is going to come up with a unique and novel
approach, like Perú did here, is going to need to
provide detailed guidance through regulations,
guidelines, and then they could do it and not be
subject to fines and penalties.
(Overlapping speakers.)
Q. We'll get to that. We'll get to that.
But your testimony is today, as it was at
the Cerro Verde Hearing, which is that it is
possible--you're saying it is difficult but that it's
possible; correct?
A. I'm not an accountant, but I assume they
could come up with something.
Q. Thank you. And let's look, in fact, at
[Page 2133]
Mr. Aquiño, who is a witness in this Arbitration, in
his First Witness Statement. I believe we talked
about this at the last Hearing, but let's take a look
at his chart, which is Figure 17. You see here that
SMCV, in fact, keeps separate accounting for flotation
and for leaching; correct? It's just the top number,
which would be "mining" that's the shared cost between
the plants; is that correct?
A. Give me a second--
Q. Sure.
A. So does this cover all the costs?
Q. This is an example, and he provides--
A. Administration, labor, all the--
(Overlapping speakers.)
Q. It is not necessarily defined what mining
that combined one is on the top, but--because this is
an example he is giving of how they determine which
core ore goes into which processing, but he's saying
there is that common mining on top, and then it is
divided. I'm just asking you if you understand that
as well, and then the flotation is one line and the
leaching is another line. So, they are able to divide
[Page 2134]
those separate costs. The one that might be common
would be the top line.
Is that your understanding as well?
A. They have come up with the unit cost for the
leaching, the flotation, the mining, but it doesn't
tell me anything about most of the shared costs. That
would be things like labor, insurance, exploration.
Q. It's not going into details, but it has that
common--it is splitting up between floating and
leaching, the costs; correct? There's a separate line
item for each of those; isn't that correct?
A. What it does is it tells you the unit cost
for, like, say, a ton that is being floated, or the
unit cost for a ton that is being leached or a ton
that is being mined. But it doesn't tell me what went
into that. Does it include the shared costs--
Q. Right.
A. --of administration and marketing? It
doesn't say.
Q. Mr. Otto, it has a line item for flotation
and it has a line item for leaching. Is that correct?
A. Yes, it does.
[Page 2135]
Q. So, it breaks that up.
In your judgment, well, in your judgment,
those are difficult costs to split up between the
Concentrator Plant and the Leaching Plant, but--
A. Some costs are not difficult.
Q. Some costs are easy to divide.
Have you--you have read, I assume,
Mr. Ralbovsky's Reports, Expert Reports?
A. Yes.
Q. And he talks about a method for separating
shared costs in both of his Reports. He discusses a
methodology that was recommended in a technical advice
memorandum issued by the U.S. Internal Revenue
Service. And that methodology allocated shared costs
on a basis of tons of ore mined. If we could take a
look at that, which is RE-49, Tab 9. I will put it up
on the screen. It is the Internal Revenue National
Office Technical Advice Memorandum. If you turn to
Page 14 there, and they are making a recommendation
how to split up the costs that are shared. And it
says: "Accordingly" in the--second full paragraph and
then starting with "accordingly." Down at the
[Page 2136]
bottom--second paragraph. Right there.
"Accordingly, absent separately tracking
these costs, an allocation based on tonnage reasonably
reflects the allocation a taxpayer would have made if
the costs of each process were separately tracked.
Therefore an allocation of costs based on tonnage is a
reasonable method."
Do you see that?
A. Yes.
Q. And according to Mr. Ralbovsky, that
methodology has been around for over 30 years.
Was that--is the information in this
technical advice memorandum, is that new to you?
A. It is one of the most obscure documents I've
ever seen. Yes. It is new to me. Any allocation
that is going to be applied to a type of tax that
takes both revenues and costs into account, it is
based only on the value of the metal content is--I
think that is totally suspect.
Q. You're saying that the Internal Revenue
Service is totally suspect in recommending this and
having been applied for over 30 years? Is that your
[Page 2137]
testimony?
A. I can't think of any country anywhere in the
world except for the U.S. that would have something
like this. It is so obscure.
Q. And to confirm your earlier comment, you,
yourself, don't have any experience preparing or
advising mining companies on how to prepare tax
filings; correct?
A. That is correct.
Q. Now, I want to discuss a couple of
statements that you made in your Report and also you
made today in your direct testimony.
You stated that: "The Peruvian Government
did not provide SMCV with sufficient guidance to
divide common assets, costs, and expenses between the
leaching and flotation operations."
If we turn to Paragraph 53 of your First
Report, you make that statement, and you also state
that in your PowerPoint presentation today on
Page 20--Slide 20. You said Perú did not provide
guidance on how shared costs should be allocated.
You state here, in Paragraph 53, you point
[Page 2138]
to Annex D, and if we could go to Annex D in your
Report, your First Report, which is at the back of
your First Report. What is Annex D?
A. Annex D was a list of facts that were
provided to me.
Q. A list of facts provided to you. Okay.
And if you turn to Paragraph 17 of that
annex. 17. There.
It states there: "The Government never
provided SMCV with any guidance on how to apply both
the stabilized and nonstabilized regimes to operations
and assets within SMCV's single Integrated Mining
Unit."
So, that is not some conclusion you have
reached on your own. It's a fact that was given to
you as assumed; is that correct?
A. Yes.
Q. You have stated and you state, I think, just
recently that you would have--you assert that you
would have expected Perú to have provided SMCV to
provide shared costs--sorry--a way to divide the
shared costs between Leaching and Concentrator
[Page 2139]
Projects. You would have expected the Government to
have provided detailed guidelines on that; correct?
A. Yes, in line with the recommendation, like
you saw in my Second Report to the Ministry of Economy
and Finance, on a similar type of tax that would have
required sharing of costs. I would have expected it.
Q. You would have expected it.
Is it your testimony that if a taxpayer does
not get that kind of explicit guidance, that in your
view it is sufficient for the taxpayer to do what they
want, that they do not have to comply with the
requirements of the law?
Is that your testimony?
A. Can you break that question down a little
bit?
Q. Is it your testimony that if a taxpayer does
not get the explicit guidance that in your view is
sufficient, that the taxpayer can do what it wants?
A. No.
Q. And you would agree, would you not, that for
a large company like Freeport, if it needed any
additional guidance on that particular point or any
[Page 2140]
point concerning tax, for that matter, it could hire
tax advisors to help them understand their tax
obligation under Peruvian law; is that correct?
A. If you've got an EAU, it doesn't even come
up. There is no sharing of costs.
Q. That's not my question, Mr. Otto. My
question was very specific.
A. Okay.
Q. You would agree, would you not, that for a
large company like Freeport, if they needed additional
guidance at any point, it could hire tax advisors to
help them understand their tax obligations.
Would you agree with that statement?
A. Yes. Any company can hire a tax advisor.
Q. And I assume that you're not advocating that
a taxpayer should avoid its tax obligations simply
because the Regulations are allegedly not sufficient
to provide guidance, in the eyes of a taxpayer, to
undertake certain calculations; correct?
A. Correct.
MS. HAWORTH MCCANDLESS: I have no further
questions.
[Page 2141]
PRESIDENT HANEFELD: Any questions by
Claimant in redirect?
MR. UKABIALA: Yeah. Just a very brief
redirect, Madam President.
MR. UKABIALA: Could we please with the
assistance of opposing Counsel go back to Tab 9, which
is RE-49, for the record, which was shown to Mr. Otto
during the cross-examination?
Q. Mr. Otto, you were shown this document
during cross-examination.
Do you recognize what this is? Is it--
A. I know there was some sort of tax memorandum
that Ralbovsky made reference to. I did glance
through it. That was a couple years ago.
Q. And what jurisdiction is this from?
A. United States, I'm told.
Q. Did you in your review of the Peruvian
Mining Tax Law and Regulations see anything that would
authorize a Peruvian Mining Tax payer to use cost
allocation methods applicable in the United States?
[Page 2142]
A. No.
Q. The next question I have is about Ramiro
Aquiño's First Witness Statement, which is on
Figure 17. That was also shown to Mr. Otto, I would
be grateful if opposing Counsel could also pull up
that figure. Thank you.
Q. Mr. Otto, during your review of the Peruvian
Mining Tax Law and Regulations, did you see anything
that would permit a Peruvian taxpayer to use the cost
allocation it uses for management purposes for tax
purposes?
A. No.
Q. And in your experience advising on tax,
Mining Tax policy globally, what kind of advice do you
typically give governments about having sufficient
clarity in their tax laws and the risks of not doing
so?
A. When I develop Reports like I did for the
Ministry of Economy and Finance, if they are going to
be putting into place unique and novel approaches, I
always recommend that they provide detailed guidance
[Page 2143]
on how to proceed, how a taxpayer should proceed, and
that would be the case with Cerro Verde taking a look
at new investments aren't covered by stability, so you
would have one tax system depending on whether it was
invested this year, another tax system if it was this
year, another tax system if it was this year. So,
you'd have to provide detailed guidance for something
like that. Regulations, guidelines. You'd have to
also provide training within the Ministry on how to
handle it.
Q. And have you seen anything in the Peruvian
tax law regulations that you reviewed that would
constitute the kind of guidance that would be required
to allow a taxpayer to know how to allocate shared
costs in the way that Perú expected Cerro Verde to do?
A. No.
MR. UKABIALA: That's all we had for
redirect.
Thank you.
PRESIDENT HANEFELD: Any recross?
MS. HAWORTH MCCANDLESS: No recross.
PRESIDENT HANEFELD: Now, on us to ask
[Page 2144]
questions, and with the permission of my
co-arbitrators, I will start.
PRESIDENT HANEFELD: Mr. Otto, I understand
from Paragraph 42 of your First Expert Report that,
with regard to the facts of this case here in this
Arbitration, you have reviewed the factual summary in
Annex D of your Report.
My question is, this summary of facts was
provided by Claimant's Counsel to you. Did you also
study underlying specific documents, for example, the
1998 Stability Agreement or the Pre-Feasibility Study
of 2002 or other official documents from MINEM or
SUNAT preceding the investment in the Concentrator?
THE WITNESS: I relied on the facts provided
by Counsel, but I also relied on--I read through many,
many of the documents.
PRESIDENT HANEFELD: So, you read through
many, many of the documents.
THE WITNESS: Many of the documents.
PRESIDENT HANEFELD: This is not specified
in your Report; right?
[Page 2145]
THE WITNESS: That I read?
PRESIDENT HANEFELD: Which documents you
consulted?
THE WITNESS: Well, you can see all the
citation, the ones that I've cited, but I've read
through the Mining Law, the Regulations, things that
were referred to by Ralbovsky. I read through his
citations. I read--I would make requests and they
would send me documents, because I would look for
certain things that I thought would be useful to the
Tribunal, and useful for me to understand the
situation too.
So, I don't know, I probably received 30,
40, 50 different documents, like the Feasibility
Study, for example. They sent me some parts of it
because I wanted to look at parts of it. So, I did
have more at my disposal than the documents or the
fact statement that was sent to me.
PRESIDENT HANEFELD: Just to fully
understand, so you had more at your disposal than the
summary of the facts, and what you had in disposal and
you relied on is included in your Report in the
[Page 2146]
footnotes?
THE WITNESS: What I relied on--I tried
to--when I prepared my Reports, I attempted to provide
support for my various Statements, as drawn upon on
references. And some of those were provided by
Counsel, others were from my own collection or my own
research.
PRESIDENT HANEFELD: Just as an example, for
example, we discussed here the 2002 Pre-Feasibility
Study, and we noted that there were a lot of
redactions in this document, and have you reviewed, in
preparation of your Report, the 2002 Pre-Feasibility
Study?
THE WITNESS: I received part of it, and I
think I make reference to that in my Report. So, the
only part that I saw was the part that's referenced in
my Report. The Feasibility Study is--you know,
they're usually hundreds and hundreds of pages long,
so I requested a certain part of it that I thought
would be useful. The economic evaluation. And so,
you can see the exact pages I had access to, if you're
interested.
[Page 2147]
PRESIDENT HANEFELD: Thank you. Then the
next question I would have relates to what you
testified earlier. I understood you testifying: "It
is my theory that it is a worldwide presumption that
stability agreements cover all investments within a
Mining Unit," and you testified this on the basis of
your 40 to 60 years' experience in the industry in
various countries.
Have I understood your testimony correctly?
This is your theory in which you truly believe, the
theory of presumption?
THE WITNESS: Well, I think it's more than a
theory. If we take a look at those countries, those
are the countries that Perú competed with for
investment in copper. In all but one of those
countries, I prepared in-depth studies of their Mining
Tax systems. Some of those countries, I wrote their
Mining Laws. I have in-depth experience in those
countries. I know how stabilization worked in those
countries. I helped design their stabilization.
So, it's more than just a theory. This is
actual practice. This is my experience in Mongolia.
[Page 2148]
My experience, in Papua New Guinea. This is how it
worked. It's not something based on some academic
down in Australia who wrote a report for some academic
journal.
PRESIDENT HANEFELD: And as you mentioned
that you also published a lot.
Have you written on this theory, a
presumption of scope of stability agreements outside
of this arbitration and the SMM Arbitration, outside
of your Reports? Can you refer me to any Authority in
which you have--independent from this arbitration,
stipulated this notion?
THE WITNESS: The issue has never arisen
anywhere else in the world. It's just not--it's a
non-issue. The first time I heard about this was, you
know, this Cerro Verde situation. It just has never
come up. It's not an issue I would write about
because it's not an issue anywhere else, and it wasn't
in Perú.
You know, prices went up, senators started
submitting all these bills, they're looking for a way
to earn more money from the sector, and all of a
[Page 2149]
sudden this new and novel approach appears, you know.
Nobody has emulated it, that I am aware of, anywhere.
It's--it remains unique to Perú.
And when I read the Peruvian Mining Law, and
in my meetings with Perú, this issue of "new
investments aren't covered," it just--it was never
discussed. It was never on the table. And I worked
with Mr. Polo, you know, so--Marita Chappuis, and the
whole economic team, twice, you know, once in 2001 and
then, again, in 2011.
PRESIDENT HANEFELD: I think my next
question relates to a similar Statement in
Paragraph 45 of your Expert Report, where you speak of
industry expectations that stability benefits apply to
a Mining Unit. Can you refer me to any Authority that
defines such industry expectations as to the scope of
stability agreements in Perú?
If you said this was also another common
understanding in Perú, or the time except in this
case. Can you refer us to any source which supports
your opinion?
THE WITNESS: No, I couldn't point you to a
[Page 2150]
1 single source.
2 PRESIDENT HANEFELD: Then another question,
3 in Paragraph 45 of your Expert Report, and also in
4 today's presentation, you state: "Nothing in my
5 review of the Mining Law and Regulations in effect
6 under the Stability Agreement leads me to conclude
7 that Perú's Stability Regime applied to anything less
8 than Cerro Verde's entire Mining Unit."
9 Now, in contrast--and this is what the case
10 is about. And now Perú and the Peruvian authorities
11 and also the Courts rely on the term "exclusively" in
12 the Mining Law in order to say that Stability
13 Agreement relate to an investment project as defined
14 in a Feasibility Study, or somehow defined in a
15 stability agreement or whatever.
16 So, what is your Expert view on that?
17 THE WITNESS: My view when I read those key
18 Clauses, or Articles 82, 83, 85, you know the ones, of
19 course, is that stability applied to Concessions, and
20 there were two types of Concessions: The Mining
21 Concession and the Beneficiation Concession. And it's
22 an Adhesion Contract, which means that you read what's
[Page 2151]
1 in the Law, and then it's, you know, stability is
2 formalized in this short little Agreement.
3 And what's in the Law is, what are the
4 activities of a mining concession? What are the
5 activities of a beneficiation concession? If you go
6 to Articles 8 and 9 and 17 and 18 in the Mining Law
7 and read those, it tells you, if you have a mining
8 concession or a beneficiation concession, what it
9 authorizes you to do.
10 And in 17 and 18, a beneficiation
11 concession, if you hold that, you have the right to
12 this whole string of different activities. And one of
13 those is to develop processing plants. So, they had
14 these Concessions. So, if you read 17 and 18, they
15 had the right to develop processing plants, plural. I
16 mean, it's really clear there.
17 So, my view is the Stability Agreement is an
18 Adhesion Contract. You have to read it in association
19 with the Mining Law and with the Mining Regulations,
20 and stability applies to the Concessions that are set
21 out in the Stability Agreement, and those are set out
22 in the Stability Agreement, you know, Cerro
[Page 2152]
1 Verde 1, 2, and 3, the Beneficiation Concession.
2 And then you read what activities are
3 allowed. And you go to 7, 8, and 17, 18. It's all
4 covered. There's no restriction on new investment.
5 PRESIDENT HANEFELD: That is also what I
6 understood from your Second Report and also today's
7 Presentation, that you put a lot of emphasis on the
8 fact that it is an Adhesion Contract that forms the
9 basis--and now, of the Stability Agreement.
10 Are you familiar with the particularities of
11 how such stability agreements are then actually in
12 practice concluded in Perú? And now, who applies for
13 a Contract to filter out what is negotiated, what is
14 not? Do you know about these particularities of the
15 process?
16 THE WITNESS: Only what I can deduce from
17 the law and regulations. I see no room for any
18 negotiation when I read those, if that's your
19 question.
20 PRESIDENT HANEFELD: You just said it's a
21 short little agreement, and, now, what do you mean by
22 that? And now, we heard earlier in this Arbitration
[Page 2153]
1 that even lawyers were involved in negotiating, and
2 now there's an Agreement.
3 So, I just want to understand from you, as
4 an Expert, how much do you know about the process of
5 how such Agreements come into place in Perú?
6 THE WITNESS: Well, when I read the form
7 Agreement, I saw nothing that was negotiable. The
8 time period is set, the names of the Concessions are
9 set. I saw no terms there that you would actually
10 negotiate over. If you'd like to draw my attention to
11 one or another, I could tell you my view on that, but
12 I saw nothing that was negotiable.
13 Everything--all the various things you might
14 see negotiated in other countries are set out in the
15 Law. You get stabilization of this, this, this, for
16 this number of years. All those terms that might be
17 negotiated in another country aren't negotiated in
18 Perú. The Adhesion Contract, it's take it or leave
19 it. You can't change something that's in the Mining
20 Law. You can't change something that's in the
21 Regulations.
22 You can't all of a sudden, in the Adhesion
[Page 2154]
1 Contract, add some new obligation or a new right.
2 It's an Adhesion Contract. So, you have to go back to
3 the primary source, the Mining Law, the Regulations,
4 the Adhesion Contract is a way of formalizing
5 the--formalizing the stability. But there's--I saw
6 nothing in there that you would negotiate.
7 PRESIDENT HANEFELD: Thank you.
8 ARBITRATOR TAWIL: Yes. Professor Otto, if
9 I understood correctly, you advised Perú on mining
10 issues and Royalties at that time?
11 THE WITNESS: On two occasions.
12 ARBITRATOR TAWIL: Can you tell us a little
13 bit about that advice, and particularly if it relates
14 to any relation of the discussion here?
15 THE WITNESS: Yes. Perú was interested in
16 attracting investment. It had come out of a period of
17 really tough economic times, basically civil war, and
18 they needed to bring in foreign investment to help
19 rebuild the country. Their mines, which were mainly
20 under State ownership, had failed, and they decided to
21 privatize. So, they undertook an effort to modernize
22 their Mining Law, bring it up to date, to incorporate
[Page 2155]
1 such features that would be useful to updating it.
2 And a part of what they wanted to do was to
3 have a fiscal system that would provide a fair share,
4 but be attractive to foreign investors. So, I was
5 invited by the Ministry of Economy and Finance to come
6 down, and I spent several weeks meeting with various
7 stakeholders, industry, Government, accountancy firms,
8 whoever they wanted me to meet with, and the people
9 that I requested.
10 So, I met with a lot of different people. I
11 then went back and did a lot of economic modeling to
12 take a look at how does their current system compare
13 with the systems in other countries, and taking a look
14 at different Measures--to take a look at the
15 competitiveness of their system, and to make
16 recommendations, tax type by tax type, about whether
17 they should keep their current system or make changes
18 to it. And I made the recommend--I think two or three
19 recommendations that are pertinent here.
20 One is that they impose a Royalty, that
21 there was room in order to still be competitive. They
22 could get a little bit more money by putting into
[Page 2156]
1 place a Royalty, and I recommended a cap of around
2 3 percent on the Royalty.
3 ARBITRATOR TAWIL: Could you put that in
4 time? When would that be?
5 THE WITNESS: This would have been, I think,
6 2001. 2001. I took a look at stabilization. I said,
7 "this is really important for the country. You should
8 retain it." There was no question back then about new
9 investments and--versus old investments. It was all,
10 you got the Project, you got it stabilized, and if you
11 read the Report, it does talk about stabilization and
12 they should keep it, they should put in place a
13 Royalty.
14 There was also--
15 ARBITRATOR TAWIL: So--sorry, how would the
16 Royalties work, under your advice?
17 THE WITNESS: Under my advice, I think--it's
18 been a while since I've read that Report, but I
19 believe I recommended putting into place a Royalty not
20 to exceed around 3 percent. What they ended up with
21 was a Royalty that didn't exceed 3 percent, it was a
22 graduated, 1, 2, 3-step Royalty in line, not exceeding
[Page 2157]
1 my cap.
2 ARBITRATOR TAWIL: What would happen with
3 ongoing Projects with stability clauses, was that
4 discussed at all?
5 THE WITNESS: Yes, it was discussed. It was
6 discussed with the Government. It was discussed with
7 industry. And so, when I met with industry, it's like
8 "what do you guys think about a 3 percent Royalty?"
9 and it was, like, well, we've got stability
10 agreements. It won't apply. And if they try to make
11 it apply, we're all going to sue.
12 And so, that was the view of the industry.
13 If we've got a stability agreement, we're covered.
14 And I think that was pretty uniform. I heard nobody
15 on the industry side--
16 (Overlapping speakers.)
17 ARBITRATOR TAWIL: And what was the position
18 of the Government, of Mr. Polo, and the rest of
19 Government officials with the Projects, with
20 stability, was this issue of the Feasibility Study
21 raised? Can you explain a little bit more in detail?
22 THE WITNESS: Well, I'll have to say that
[Page 2158]
1 stability was not the main focus of what we were
2 doing, so it--this was a very minor subject. The main
3 discussion--and I wasn't really in the center of that
4 discussion--was whether or not Royalty was a tax or
5 not. So, I sat in on discussions about that.
6 And the--to me, you know, it was obviously a
7 tax, but there were lawyers and economists in the room
8 were saying, oh, well, in Perú, Royalty might not be a
9 tax. It could be, like, an administrative fee. And
10 then the question is, is okay, does stability apply to
11 just taxes or does it apply to administrative matters
12 also?
13 So, I don't think there was ever any sort of
14 resolution, other than me leaving knowing that, if
15 mining companies that had stability agreements were
16 required to pay it, they were all going to sue. It
17 wasn't my--really wasn't a focus of mine other than to
18 advise the Government, yes, stability is good. You
19 should keep it as you reform your system.
20 ARBITRATOR TAWIL: Okay. Thank you. No
21 further questions from my side.
22 ARBITRATOR CREMADES: I read with great
[Page 2159]
1 interest your two Reports, and I followed your
2 intervention today. I think we are convinced that you
3 have a great global experience in the mining industry,
4 and your advice is very important for States in which
5 you have been acted.
6 My question is, when a foreign investor
7 decides to go into a country, has to make a risk
8 assessment, and one part of the risk assessment is the
9 legal situation. I saw that you were really critical
10 to the situation in Perú. You were criticizing,
11 especially, the Adhesion Contracts, but anyhow, that's
12 what the foreign investor accepted coming to Perú.
13 And we, as arbitrators, we have to apply the
14 concrete Legal Framework and the Contract itself. I
15 mean, how could you advise us, as a Tribunal, who have
16 to take a decision about those questions we are
17 facing, but within the Legal Framework and within the
18 Contract you are criticizing so much?
19 THE WITNESS: Oh, I think, perhaps, there's
20 some misunderstanding. I think the approach they've
21 taken in Perú with putting the main stabilized tax
22 terms and so forth in the Mining Law is excellent. I
[Page 2160]
1 think the idea of having an Adhesion Contract is
2 excellent. I have recommended the same approach in
3 other countries, because it is such a good approach.
4 It's unfortunate that, you know, this controversy has
5 arisen. It's been extremely successful.
6 If you take a look at how much investment
7 Perú has attracted, and the fact that they still use
8 stability agreements today, you know, is indicative of
9 the success they've had attracting investment to Perú.
10 And tax stabilization, I think, has been an important
11 part of it. It's not, you know, the entirety of it.
12 But, you know, having a reasonable tax
13 system stabilized so that a company can, when it does
14 its Feasibility Study, and determines, you know, is it
15 going to make profits or not, it knows, you know, for
16 that stability period that things are going to
17 be--aren't going to change. That's powerful. In
18 their approach of using a combination of the Mining
19 Law, with formalization through an Adhesion Contract.
20 I fully support and recommend it. I have no problem
21 with that approach at all. Highly successful.
22 ARBITRATOR CREMADES: Thank you very much.
[Page 2161]
1 PRESIDENT HANEFELD: Any follow-up questions
2 by the Parties?
3 MR. UKABIALA: None for Claimant.
4 Just for the record, the Report that
5 Arbitrator Tawil was asking about is Claimant's
6 Exhibit 19. That's the Report that Mr. Otto provided
7 to Perú in 2002, which is referenced in--I'm sorry.
8 ARBITRATOR TAWIL: Noted.
9 MR. UKABIALA: I'm sorry. It's 381.
10 It's 381. Claimant's Exhibit 19 is Mr. Polo's
11 Presentation that references Mr. Otto's Report.
12 Sorry about that.
13 ARBITRATOR TAWIL: So, it's CE-381?
14 MR. UKABIALA: Yes, Claimant's Exhibit 381.
15 ARBITRATOR TAWIL: Okay. Thanks.
16 PRESIDENT HANEFELD: Any follow-up questions
17 by the Respondent?
18 MS. HAWORTH MCCANDLESS: No follow-up
19 questions from Respondent.
20 Thank you, Madam President.
21 PRESIDENT HANEFELD: Thank you, Mr. Otto.
22 This concludes your testimony. You are released as an
[Page 2162]
1 Expert in this proceeding. Thank you very much.
2 THE WITNESS: Thank you.
3 (Witness steps down.)
4 PRESIDENT HANEFELD: So, shall we make a
5 15-minute break, and then start with your Expert?
6 MS. HAWORTH MCCANDLESS: That would be fine
7 with Respondent.
8 (Brief recess.)
9 STEPHEN RALBOVSKY, RESPONDENT'S WITNESS, CALLED
10 PRESIDENT HANEFELD: Good afternoon,
11 Mr. Ralbovsky. Welcome as Expert for the Respondent
12 in this Arbitration.
13 I saw you today, so I think we do not need
14 to introduce ourselves. So, let us start right away.
15 Can you please be so kind to read out the
16 Declaration under Article 35.3 of the Arbitration
17 Rules?
18 THE WITNESS: Of course. I solemnly declare
19 upon my honor and conscience that my statement will be
20 in accordance with my sincere belief.
21 PRESIDENT HANEFELD: Thank you. Do you have
22 your Expert Reports RER-4 and 9 in front of you and
[Page 2163]
1 can confirm that they are yours and that they are
2 correct?
3 THE WITNESS: Yes, ma'am. I have them here.
4 I see my signature on my First Report. I see the
5 Second Report and my signature as well, and I am
6 sure--I have no changes and I'm sure they are complete
7 and as submitted.
8 PRESIDENT HANEFELD: And do you make a
9 presentation?
10 THE WITNESS: Yes, ma'am.
11 PRESIDENT HANEFELD: Is it already
12 available? Yes, for everyone. Then, please, go
13 ahead.
14 THE WITNESS: Thank you.
15 DIRECT PRESENTATION
16 THE WITNESS: Madam President, Gentlemen
17 Arbitrators, thank you for allowing me to present my
18 direct testimony in this manner. Like the two Reports
19 I've given as well as this presentation, it is my goal
20 to be efficient and effective and provide something
21 useful for you. You can see by the title of this
22 presentation that I'm going to be quite focused on the
[Page 2164]
1 1998 Stability Agreement throughout my presentation.
2 Let's talk a little bit about.
3 ARBITRATOR TAWIL: A bit slower.
4 THE WITNESS: Thank you. I'm very conscious
5 of my 30 minutes.
6 Let's talk a little bit about me for a
7 minute. Believe it or not, 50 years ago come
8 September, people started paying me to be an
9 accountant. I have built a career in accounting, law,
10 and tax since then, and for 36 of those years, I have
11 been a Mining Tax Expert.
12 I have an undergrad in accounting and a JD
13 in law, and I've gained much of my experience when I
14 joined PwC, then PW, in 1987, working on mining
15 companies, international mining companies, and quickly
16 became the U.S. mining tax leader about six years
17 after I arrived and then the U.S. mining leader cross
18 line of service. And then in 1998 I took over as the
19 global mining leader for PwC until I retired in the
20 year 2014.
21 I've had the privilege of teaching both in
22 PwC's America School of Mines, and I was engaged after
[Page 2165]
1 retiring the--2014, is when I retired from PwC. I
2 aged out at 60. And I've also had the privilege of
3 teaching a law school class on Global Mining Taxation
4 at the University of Arizona law school.
5 I knew one of the leaders of the mining
6 school there. She asked me to come write--to present
7 a class. I actually wrote a three credit-hour class
8 and then presented it. So, I have a great deal of
9 experience internationally talking about things. But
10 I made my living as a tax practitioner, where my
11 advice often ended up at the end of the day on a tax
12 return where I had to pick up the pen and sign under
13 penalties of perjury, just the same as the taxpayers
14 do.
15 So, what I have seen, the bulk of my
16 approach has been from that angle and working for
17 clients, although also advising Governments. I'm well
18 aware of, you need to know the law. You need to make
19 decisions about how to treat things and not have the
20 luxury of presumptions and undefined terms.
21 Let's start at beginning. The question here
22 is the 1998 Stability Agreement, and the issue under
[Page 2166]
1 that is, is the Primary Sulfide processed through the
2 Concentrator Project that came online in the year 2007
3 included in the 1998 Stability Agreement? My very
4 clear answer to that is, no. The 1998 Stability
5 Agreement includes the Leaching Project only. Let's
6 pause for just a moment and do a little Mining 101 and
7 talk about how quite different these two types of
8 copper ore are. We have two types of ore, two
9 process, and at the end of it, two products.
10 So, we have the original ore included in the
11 1998 Stability Agreement, which was the oxide and the
12 Secondary Sulfide ore. That was mined, went off to
13 the leach pads, and then through SX/EW, became
14 electrowon cathode copper that is 99.99 percent pure.
15 The later ore, the ore that came on line in
16 2007, when the big Concentrator came on line and was
17 excluded from the '98 Stability Agreement was Primary
18 Sulfide ore. It went through a Concentrator. It was
19 crushed and ground, went through a Concentrator, and
20 when they were done, they had concentrate.
21 Concentrate is a fine black powder. Once it dries, 25
22 to 30 percent copper, a vastly different product. And
[Page 2167]
1 SMCV did what many mining companies do, they shipped
2 that off to somebody else to be smelted and refined
3 and turned into useful copper.
4 The '98 Stability Agreement was based on and
5 specifically refers to the '96 Feasibility Study. The
6 1996 Feasibility Study detailed the expansion of
7 SMCV's leaching operation of the oxide in the
8 Secondary Sulfide.
9 Remember, this is a couple of years after
10 SMCV was bought from Minera Perú, and they had been
11 leaching and in '96 they were continuing leaching and
12 expanding it.
13 The Stability Agreement that SMCV applied
14 for and their own label of the Agreement was "the
15 Leaching Project of Cerro Verde." Neither the '96
16 Feasibility Study nor the '98 Stability Agreement
17 included the Primary Sulfide or the Concentrator.
18 Again, it is very important to focus on
19 the years we're talking about here. So, why wasn't
20 the Primary Sulfide and the Concentrator included in
21 that '98 Stability Agreement or in the Feasibility
22 Study? It wasn't economic. Mining the sulfide and
[Page 2168]
1 processing it through a Concentrator in 1996 wasn't
2 economic because for a--good, scientific operational
3 reasons. It wasn't a political thing. There was
4 inadequate power and water. Mills take a lot of power
5 and water, and not only was there not
6 enough--especially the power. It was unreliable at
7 times in that part of Perú.
8 Mr. Davenport, one of Claimant's Witnesses,
9 testified that Phelps Dodge was one of the companies
10 that bid on Minera Perú in '93, and they declined
11 because the returns on the Primary Sulfide were
12 unacceptably low to them in 1993 as they made their
13 analysis. SMCV was offered to 50 companies, Cyprus
14 was the only one that said, yes. So, we have on the
15 record Phelps Dodge saying, no, thank you, because we
16 can't make money. We can't run this Concentrator and
17 mine the sulfide.
18 Mr. Davenport continued, that was still
19 their position at SMCV in the year 2000, when he got
20 there. Further proof that the '98 Stability Agreement
21 excluded the Primary Sulfide and the Concentrator was
22 Mr. Davenport saying in his Report he/they/SMCV/Phelps
[Page 2169]
1 Dodge were worried that there was an obligation to
2 build a Concentrator and because it was not
3 economical. That was not an obligation that they
4 wanted from the Peruvian Government.
5 He went on further to say that, as they
6 mined the oxide and the Secondary Sulfide--because
7 that's what they were running, a leaching
8 operation--when they encountered Primary Sulfide, they
9 went around it or, if they had to mine through it,
10 they mined it and they threw it away as waste. His
11 word: "Waste." That's what this was in 1996 and 1998.
12 Sulfide in the ground that can't be
13 economically processed is not a worthwhile ore.
14 Notice he also did not say, when we had to mine
15 through it, we stockpiled it. Stockpiling is what
16 miners do when they encounter ore they believe is
17 useful and they can process it, but not right now for
18 one reason or another. They put it aside. They
19 preserve it to go back and get it and use it when it's
20 appropriate. They did not stockpile the Primary
21 Sulfide there at SMCV.
22 Here we have what I think is the most
[Page 2170]
1 persuasive reason as to why the Primary Sulfide and
2 the Concentrator are not included.
3 This is a letter. It's Exhibit CE-11. This
4 is a letter from Cyprus, who was the majority
5 Shareholder of SMCV at that time, in September of
6 1996, which is the summer of when the original
7 Feasibility Study for the leaching was submitted to
8 Perú's Government Authorities. This is a letter from
9 Jeff Clevenger, who was the President of Cyprus,
10 saying, pursuant to our Share Purchase Agreement and
11 our schedule of investments we are required to make,
12 we are exercising our right to reduce that financial
13 obligation because a mill is uneconomic. It is beyond
14 our control, "our" being Cyprus and SMCV. It is
15 beyond our control to build an economic mine.
16 He mentioned the power and the water, but he
17 also said, "this ore is unusually hard, and the
18 technology to grind it is expensive and separating the
19 copper from the ore is especially difficult, complex,"
20 he said, "complex recovery."
21 So, at the very time that SMCV was applying
22 for a Stability Agreement for the Leaching Plant, they
[Page 2171]
1 wrote this letter exercising their right under the
2 Share Purchase Agreement to get out of a financial
3 obligation, a most affirmative act, in my view.
4 We have heard about this alleged presumption
5 of inclusion with regard to the Primary Sulfide and
6 the Concentrator. No such presumption exists.
7 Stability agreements define what project or activity
8 or investment is included in the Agreement by
9 specifically describing what is included.
10 Mr. Otto failed to prove that any
11 presumption existed, and I address his seven country
12 examples in my Second Report. Mr. Otto takes this
13 presumption and says, and it applies to mining units,
14 which we've seen he can't really define, and I'm not
15 saying people don't use the term "mining unit," but it
16 does not have--it is not a term of art within the
17 industry. If I say to a colleague, hey, I want to
18 talk to you about the mining unit. He or she is going
19 to say, okay, what do you mean?
20 Now, I think, interestingly, you would need
21 context to know what I meant.
22 Interestingly, the term that he started
[Page 2172]
1 using, "mining unit," quite clearly in his First
2 Report, by the time he got to the Second Report it was
3 "a single integrated mining operation."
4 I think this is particularly interesting
5 because an integrated miner is a term of art that is
6 used in the mining industry, but it doesn't mean what
7 Mr. Otto says it means. It doesn't mean "mining
8 unit." An integrated miner is a copper miner that
9 mines the ore, processes it, concentrates it, and when
10 it is done, it has concentrate. It's the end of the
11 mining process.
12 An integrated miner also owns a smelter and
13 refinery, the so-called "manufacturing" that you need
14 to turn concentrate into useful copper.
15 SMCV is a nonintegrated miner. It has a
16 mine. It has a Concentrator. SMCV today. It has a
17 mine, it has a Concentrator, but it doesn't have those
18 further manufacturing facilities. So, it is a
19 nonintegrated miner. No big deal. I believe one of
20 the Phelps Dodge documents talked about the fact that
21 more than half of copper miners are nonintegrated. It
22 is truly not a big deal within the industry. But
[Page 2173]
1 integrated miner is a term of art that means nothing
2 at all what Mr. Otto is suggesting.
3 So, let's talk about how different these two
4 types of ore are. We have heard it talked about a
5 little bit. Let's be clear, the oxide in the Primary
6 Sulfide are identified while still in the ground.
7 They have to be. When you come to a mine face, it's
8 going to be blasted, it's going to be scooped, it's
9 going to go into a haul truck, and whoever is driving
10 that haul truck has to know where it going. Is this
11 sulfide, am I headed to the Concentrator? Is it oxide
12 and I'm heading to the leach dock? So, it's literally
13 separated in everybody's mind before it actually comes
14 out of the earth, and once it comes out of the earth,
15 the oxide goes that way and the sulfide goes that way
16 and they never meet again, in Cerro Verde's case.
17 Again, producing completely different products.
18 Cathode through the leaching, concentrate for the
19 sulfide.
20 I talked about this in my First Report, and
21 in my Second Report I thought, I'm not sure the
22 Tribunal is going to understand the value difference
[Page 2174]
1 of the original oxide in the '96 Feasibility Study and
2 '98 Stability Agreement and what ultimately happened
3 with the sulfide. I have here on Slide 12 some
4 excerpts from--figures that I had in my Second Report.
5 If you look at the red line, the copper-colored line,
6 in 1996--by the way, I used "salable copper" because
7 that was a term used in both the '96 and the 2004
8 Feasibility Studies. So, that's a common term. This
9 is all the copper we think we're going to be able to
10 produce, based on what we know, when the mine is done.
11 So, in '96, at $.90, which was the price of
12 copper, $.90 per pound, the oxide cathode was worth
13 $1.7 billion.
14 In 2004, when the Feasibility Study was done
15 for the new huge Concentrator, the copper price was
16 still $.90, and that sulfide that was going to be
17 turned into concentrate was worth $10.7 billion. That
18 sulfide is about 6.5 times bigger than the original
19 oxide.
20 It takes time to build a Concentrator.
21 Three years later, the Concentrator is built, it gets
22 approved, it goes on line in 2007, and the price of
[Page 2175]
1 copper is $3.28 a pound.
2 That value, that saleable copper value is in
3 the green there at the bottom, $42 billion, about 27
4 times larger than the original value of the saleable
5 copper of the oxide back in 1996.
6 2007 is also a really interesting year
7 because this is when the taxpayer, SMCV, had to put
8 all this on a tax return. That's what they were
9 looking at, those kinds of prices, that magnitude,
10 when they chose to take the position--we don't need a
11 new stability agreement, we're included. We are going
12 to file our return this way.
13 I want to step out for just a moment. We
14 had discussions yesterday about SUNAT and in the years
15 before 2007, and the discussions of, gee, didn't you
16 hear that SMCV thought the Concentrator was in the '96
17 Feasibility Study and the '98 Stability Agreement?
18 Kind of--why didn't you reach out? We heard that from
19 people in the room.
20 Taxpayers communicate with tax Authorities
21 By filing timely, complete tax returns and signing
22 under penalties of perjury. And Tax Authorities
[Page 2176]
1 respond by accepting it as filed, a desk review, or we
2 know we're going to go audit, which would always
3 happen with a big company like this. Think about this
4 for a moment in your setting, and you're in the middle
5 of an arbitration, you're gathering facts and somebody
6 says, can I just get clarity on this really one
7 important fact? You can't.
8 You need that tax return to know exactly
9 what position that taxpayer is making. If I may,
10 think of it also in terms of your own home country.
11 Whatever SUNAT is to you, IRS to me, whatever it is to
12 you, I don't think any of us really want your version
13 of SUNAT reaching out and saying, hey, I think you
14 were--I heard you were thinking of doing something,
15 and let me tell you how I think that might turn out.
16 Nobody wants that as a taxpayer, and the
17 Governments don't want that. File a return, and I'll
18 judge it from there.
19 Switching gears for just a little bit. We
20 see that there was a pile at Concentrator,
21 "Concentrator Zero," Mr. Aquiño called it. That was
22 around for many years and was, interestingly to me,
[Page 2177]
1 dismantled in 1987.
2 And I say "interestingly," and I don't have
3 a piece of paper to support this, but I do find it
4 very interesting that, during the period of when they
5 applied for the Stability Agreement and sent the
6 letter to Empresa Minera Perú, and said: "We can't
7 build a Concentrator--wait, we've got a Concentrator
8 out back." And I think that's when it got dismantled.
9 But I don't--I have no proof of that. That's just my
10 theory. Very coincidental.
11 Claimant has alleged, well, we were doing
12 Concentrate all along. This Concentrator Zero that
13 started out as, I think, a hundred pounds a day or
14 maybe a thousand MT/d, and its peak was 3,000 MT/d,
15 would have taken, in Mr. Aquiño's estimate,
16 3,600 years working 24/7, 365 days a year to process
17 the 4 billion MT of Primary Sulfide Reserves.
18 Mr. Davenport talked about it. He called it
19 "proof of concept," and that makes perfect sense.
20 It's sulfide, and you say: "Oh, that's going to go
21 through a Concentrator." That's all true, but that's
22 all, really, general. People do tend to try to figure
[Page 2178]
1 out the, well, how might this work exactly?
2 Ladies and gentlemen, I submit that this
3 pilot Concentrator that got dismantled in 1997 is
4 nothing like the 108,000 MT/d Concentrator ultimately
5 built by Cerro Verde and confers nothing with--to it
6 in terms of the Stability Agreement.
7 And we had a lot of talk just a moment ago
8 about separating revenues and costs. So, I'm going to
9 show you that Cerro Verde actually does both. I'm
10 going to show you in their Financial Statements where
11 they separate the revenues, and then we're going to
12 come back to Mr. Aquino's typical separation of costs.
13 So, Cerro Verde's 2010 Financial Statements,
14 it's Footnote 24. You see highlighted there
15 production in thousands of recoverable tons, the
16 comparative years. That's what Financial Statements
17 require. In 2010, the cathodes--remember leaching
18 produces cathodes--the cathodes, 183,000 recoverable
19 tons in 2010. The Concentrates, 484,000 МТ. And you
20 see below there the LME, the London Metal Exchange,
21 price for copper for that year, you do the math and
22 you have your revenues.
[Page 2179]
1 But costs--so, I think we can agree; the
2 revenues are really easy. They tell people about it
3 in their audited Financial Statements. Costs are also
4 really easy to be separated, and as we are about to
5 see, Cerro Verde did it itself, does it in running its
6 business, as it should. So, the example Mr. Acquiño
7 gave is they had some secondary Sulfide that
8 legitimately could go through leaching and get a
9 recovery, or legitimately could go through the
10 Concentrator and become Concentrate.
11 So, the question became, okay, science-wise,
12 this works--I can go either way. I want to know which
13 one makes more money, and that's the exact question
14 they should be asking.
15 So, he shows us in this Figure 17 that he
16 says is the hypothetical block calculation. But he
17 says, it's a typical calculation, and I seriously
18 doubt Mr. Acquiño would have given us numbers that
19 were not representative. And he shows us the data.
20 The blue boxes, those are the shared Mining Costs.
21 The unit costs/ton of $1.20, 17 percent of the total
22 of all the Costs here. The flotation, very expensive,
[Page 2180]
1 $4.50 per MT.
2 The leaching ROM, that means "Run of Mine,"
3 the leaching, $1.35 per MT. So, they took whatever
4 this block was, and they ran the numbers. And they
5 said, okay. If we run this through, what will the
6 financial numbers look like if we float it. And
7 that's down in the green section and with the
8 flotation. Wow. Revenue, $91,000. That's good.
9 As compared to the leaching, which is
10 71,000. Then you go to the next column on the right
11 in the costs, the marginal costs on the Concentrator;
12 twice as high, 57,000 versus 25.5 thousand.
13 And so, you get over to the net number, and
14 it's a pretty easy decision, we're going to run that
15 through leaching because our net will be $45,000
16 instead of $34,000.
17 In the process that went along with this,
18 Mr. Acquiño talks about--we didn't even run the mining
19 through these calculations because we had to do it
20 either way. And the--all the other costs, Mr. Otto
21 was alluding to, where is HR, where are the tax nerds,
22 where are those other costs?
[Page 2181]
1 He talks about those other costs, and he
2 said: "Oh, we allocated all those over to the
3 flotation because that was the bigger value." He
4 didn't say: "Well, we simply can't run these
5 calculations because we don't know how to separate
6 these numbers." They did it. They did a perfectly
7 logical thing with respect to both.
8 This is just math, and I'm about to show you
9 a little bit more about that. So, again, Mr. Otto
10 says, not enough guidance: "It doesn't meet his
11 expectations of 'reason, detailed guidance.'" No one
12 is allowed to ignore the law simply because it doesn't
13 meet their expectations.
14 As a tax practitioner, if a client wanted to
15 do something that I didn't approve of, I wouldn't sign
16 the return, and my own people, we never say: "Are you
17 sure we have to follow this?" But it would be
18 taxpayers who sometimes get pretty angry. But they
19 also knew that I signed that return too, and if I
20 wasn't going to sign it, they realize they shouldn't
21 sign it.
22 So, let's talk about the--let me make one
[Page 2182]
1 other point. If they didn't know how to do it--and I
2 believe this was really well-known within the global
3 mining industry--they should have gone and gotten help
4 from a Mining Tax or an Accounting Methods and Periods
5 Expert. That's all we're talking about here is
6 accounting methods and periods, which is a branch of
7 accounting in preparing your tax return. And this is
8 a really basic calculation.
9 So, let's talk about the tech advice, the
10 TAM, that I cited in my Reports, and I discussed it in
11 terms of the TAM so that, if people wanted to go back
12 and look at it, they could understand better.
13 These facts are very close to what we have
14 here with a couple of interesting twists. So, we'll
15 start with an open-pit mine that has both Primary
16 Sulfide and Oxide, exactly what we have at Cerro
17 Verde. The one twist, number one, in these cases,
18 they were mining for Sulfide first. They were there
19 for the Sulfide, and they were putting the Oxide aside
20 because they didn't know how to effectively process
21 it.
22 As technology got a little bit better, and
[Page 2183]
1 mining engineers did what they are supposed to do,
2 they came to realize: "Well, we really can leach this
3 and make money from it." So, they started doing that.
4 But there were mining companies that said: "But I'm
5 going to leave all those shared costs over at the
6 Sulfide."
7 And the reason they wanted to do that, when
8 I mine oxide for leach, it goes on a leach pad and
9 gets sprinkled with that weak acidic solution for
10 270 days, and then that solution at the bottom of the
11 PLS, the leachate, pregnant solution gets captured and
12 goes off to the SX plant and the EW plant to get
13 caught in--or turned into Cathode, and then they do it
14 again. You rinse the benches more than once, you let
15 them rest and you rinse them again.
16 So, any costs that get allocated over to the
17 leaching, they get hung up in inventory for quite a
18 while. What taxpayers want is, how can I get my
19 expenses through P&Ls quickly as possible? When it
20 goes to the Concentrator, concentrates fast, in
21 relation, weeks, months, and then you sell it. It's
22 gone. And so, the more costs you allocate over there
[Page 2184]
1 the more expenses you can get in your taxable income
2 calculation and reduce your taxable income.
3 When you're doing a tax return, you want
4 your expenses to run through as quickly as possible to
5 minimize your taxable income, to pay the lowest amount
6 of tax. That's what the controversy was in these
7 revenue roles.
8 That in late '80s, the IRS--Congress passed
9 a rule that said, you--taxpayers, you have to be much
10 more particular about your costs for inventory and
11 things you build. You need to separate these costs in
12 the situation.
13 And so, taxpayers did it. Some
14 taxpayers--so, that we're talking late '80s, 1990, my
15 clients. Some clients took the approach, we'll wait
16 until the IRS comes in and makes me. A lot of other
17 clients said, I think we would rather develop our
18 numbers, and then go apply for a change in the
19 accounting method. And so, that's what they did.
20 So, these TAMs that came out 20 years
21 later-ish, that detail all this, that was a taxpayer
22 that didn't volunteer to change. They waited for the
[Page 2185]
1 IRS, and they thought about it. And the IRS agent
2 said: Okay. We're going to send it up for tech
3 advice." And there were two parallel things.
4 Is that my five minutes? Two minutes? Oh,
5 my gosh.
6 (Comments off microphone.)
7 THE WITNESS: They--those calculations can
8 be done. You'll see same thing in my Report, shared
9 costs, just allocated based on tons moved. Perú
10 provides for this. They do provide guidance. It's in
11 Article 2 of the Regulations, because the other common
12 way to do this is allocate it based on the relative
13 revenue that goes around. This Slide 23 talks about
14 all the commentators that had talk about the
15 principles explained in that tech advice.
16 This was a very well-known thing. The
17 expansion of the Beneficiation Concession to include
18 the big new Concentrator did not confer stability on
19 it.
20 Mr. Otto thinks this is an economic debate.
21 I do not. I think this is about the 1998 Stability
22 Agreement and '96 Feasibility Study. Some things I
[Page 2186]
1 had in my First Report he didn't address. Let's come
2 to the conclusions.
3 Let's go to the second page. Look at the
4 bottom, SMC itself separates the revenues and costs
5 between the Leaching Project and the Concentrator
6 Project. They do it. That's how they run their
7 business. You can absolutely separate these costs by
8 Project. They want to float it back to 1998 because
9 the Royalty got enacted.
10 They are trying to--in '96 to '98, they told
11 Empresa Minero Perú, we can't build this thing. We're
12 afraid of the obligation. And now they want to go
13 back because, well, the rates changed. I mean, who
14 wouldn't want to go back to when prices were cheaper.
15 The Stability Agreement from '98 cannot apply to the
16 2007 Concentrator. Stability agreements are not
17 hold-my-place situations. You can't have a company
18 come in and go, here's $50 million, not paid as a fee
19 or a Royalty to the Government. I'm going to go spend
20 $50 million for my own Company, and I want you to
21 stabilize everything I do for 15 years, and I'm going
22 to kick some rocks, see what I can figure out in
[Page 2187]
1 15 years. Maybe I'll find something--
2 (Overlapping speakers.)
3 MR. UKABIALA: Madam President, I really
4 hate to interrupt. It's just that the Expert has gone
5 over considerably his time, and we don't have a lot of
6 time left for today.
7 PRESIDENT HANEFELD: Marisa, how much
8 overrun does he have?
9 SECRETARY PLANELLS VALERO: 45 seconds.
10 PRESIDENT HANEFELD: 45 seconds. So if you
11 can come to the end of your presentation, please.
12 THE WITNESS: Yes, ma'am.
13 If you look at that last bullet, if the
14 mining companies weren't required to act according to
15 their Feasibility Studies and do what they were
16 supposed to do, this land would just sit. This would
17 not help Perú. Perú wants to give you a stability
18 agreement because you're going to go do something with
19 it and create jobs and buy things from Peruvians and
20 sell things to Peruvians, not just tie the land up for
21 15 years, or whatever the length of the stability
22 agreement.
[Page 2188]
1 Thank you. Whoever gave me 45 seconds,
2 thank you. I guess that was you. Thank you.
3 PRESIDENT HANEFELD: Thank you very much.
4 Does the Claimant want to start with the
5 cross-examination? We have, I think, 15 minutes left
6 today.
7 MR. UKABIALA: Yes, please. Thank you,
8 Madam President.
9 CROSS-EXAMINATION
10 BY MR. UKABIALA:
11 Q. Good evening, Mr. Ralbovsky.
12 A. Good evening.
13 Q. Good to see you again. Thanks for joining
14 us.
15 My name is Nawi Ukabiala, and I'm part of
16 the Freeport Counsel team. I'll ask you a few
17 questions about your testimony.
18 So just, first, a bit about your
19 qualifications, you are a Certified Public Accountant;
20 correct?
21 A. I am, licensed in both the District of
22 Colombia and Arizona.
[Page 2189]
1 Q. And you've spent your career working in
2 accounting firms?
3 A. No. My early--my very early days I was an
4 Assistant Controller for Sears. After law school I
5 practiced law for a bit, and then in 1979 I joined
6 Arthur Andersen and went into big company tax
7 accounting, yes.
8 Q. Right. And during the course of that
9 career, you signed thousands of tax returns; right?
10 A. I did.
11 Q. And your clients were largely made up of
12 private-sector companies?
13 A. No. I advised private companies, I
14 advised--especially as the Global Mining Tax Leader.
15 I advised governments. I was sought out for
16 commentary about tax policy. I worked for mining
17 industry associations. It was a wide spectrum
18 involving the mining industry.
19 Q. Were you ever retained by a Government to
20 draft a mining law or a regulation?
21 A. I was engaged usually with members of a
22 local office if I was working on something
[Page 2190]
international for tax policy--
(Overlapping speakers.)
Q. By a Government to draft a mining law or regulation?
A. Well, I was hired as a--thank you--lobbyist on behalf of the National Mining Association to go work with the committees that were working on proposed change to U.S. Mining Law. So, pick up a pen and draft? No. Talk to them about what I believe is the a--
(Overlapping speakers.)
Q. Are there any mining stability agreements in the United States?
A. You know, that question was asked in February, and I said no. In mining stability, per se, maybe not so much, but we do have stability agreements in the U.S., more at the local and state level, and there are ways that taxpayers--I would submit that a taxpayer approaching the IRS to change its accounting methods is a bit of a stability agreement. I want to do something. I'm coming and asking for your permission to do this.
[Page 2191]
Q. I'm sorry, Mr. Ralbovsky. Are there mining stability agreements in the United States of America?
A. There might be at the state level. I do not know for certain.
Q. Okay. When you would work in foreign jurisdictions, did you ever file the tax returns in those jurisdictions?
A. I did not. The local office would have done that.
Q. Right. The local office.
So, when you were advising companies in foreign jurisdictions like Perú, you would have the support of a local office with the local team of local accountants and locally qualified attorneys; right?
A. I did, but many of the issues that were involved required both sides, say, the home country as well as the local country, to look at the laws and understand them. So, for example--
(Overlapping speakers.)
Q. Your Reports don't have both sides--right?--because you didn't have a local team of Peruvians helping you prepare your Reports, did you?
[Page 2192]
A. I'm sorry. I was talking over you.
Can you ask me that again, please.
Q. Yeah. No, I think that you agreed that you would have both sides including the local--
A. Absolutely.
Q. --support when you were advising companies in foreign jurisdictions on tax matters?
Did you have local support from Perú helping you prepare your Reports in this case?
A. I did not.
Q. Okay. Now, in his First Report, Mr. Otto described the mining stabilization in various jurisdictions: Argentina, Chile, DRC, Indonesia, Mongolia, Papua New Guinea, and Zambia; right?
A. I believe that's correct. That sounds like the countries, yes.
Q. And you're aware that Mr. Otto has extensive experience with mining stabilization in those jurisdictions, including drafting some of those laws?
A. So he says.
Q. Okay. And you didn't respond to Mr. Otto's analysis of mining stabilizations in those
[Page 2193]
jurisdictions in your First Report, did you?
A. I did not.
Q. You waited until your Second Report so that he could not respond to you in his Second Report?
A. I wish I was that clever.
I didn't respond to them because we were dealing with a stability agreement in the country of Perú, so--
Q. So, why did you respond to it in your Second Report then?
A. Because he was still there, and he was claiming--well, "Ralbovsky must have"--
Q. But you agree is that the effect is that you deprived Mr. Otto of the ability to respond in his Second Report?
A. I didn't deprive Mr. Otto of anything.
(Interruption.)
MR. UKABIALA: Sorry. I'm going too fast. I'll slow down.
BY MR. UKABIALA:
Q. So, Mr. Ralbovsky, is it fair to say that the main subject of your testimony--at least one of
[Page 2194]
the principle subjects of your testimony in this case--is your opinion that Cerro Verde's 1998 Stability Agreement didn't apply to the Concentrator?
A. That is correct.
Q. And the scope of a Peruvian Law Adhesion Contract is a question of Peruvian law; right?
A. The scope of this Peruvian Adhesion Contract is a matter of the facts. The adhesion element of the Contract defines how the Government operates.
Q. I'm sorry. Is this--just if you could just answer my question.
The scope of this Contract is a question of Peruvian law; right?
A. I disagree.
Q. Okay. So I think you agreed at the SMM Hearing in February that a question of Peruvian law has to go to Experts on Peruvian law.
A. Sir, that's a different question. That question is asking about Peruvian law and Peruvian Law Experts. You asked me about the scope of a Peruvian stability agreement, and I'm responding to you that the scope is a question of fact.
[Page 2195]
Q. Okay. So your testimony is that--
A. Yes, sir.
Q. --that the interpretation of a Peruvian law contract does not hinge on the application of Peruvian law?
A. That's not at all what I said, and I believe you know that.
Q. Okay. Well, does it?
A. Does it what?
Q. Does the interpretation of a Peruvian law contract hinge on an application of Peruvian law?
A. Yes.
Q. Okay. And Peruvian law is for Peruvian Experts; right?
A. Yes. But as a Tax Expert--
(Overlapping speakers.)
Q. I think you have answered my question.
A. --I think many things across all sorts of agreements, contracts, and I've done this for many, many years.
Q. But in your Reports, you didn't cite a single article you ever published on fiscal
[Page 2196]
stabilization, did you?
A. I did not. Well, actually--I didn't cite any. In my law school class, I talk about it, and I'm sure I have talked about it in speeches that I have given.
Q. But you're not a qualified lawyer in Perú, are you?
A. I am not.
Q. And you have never given Expert testimony on Peruvian Mining Law in another legal proceeding, have you?
A. That is correct.
Q. And I know you obtained a JD from Albany in 1978, but you are not qualified to practice in any jurisdiction, are you?
A. I chose to retire from the practice of law because I was working for an accounting firm.
Q. Right.
A. But I still use all the skills that I learned while at law school and to this day.
Q. Are you qualified in any jurisdiction?
A. As?
[Page 2197]
Q. A lawyer.
A. I am not.
Q. And after you graduated from Albany Law School, you couldn't find a job as a lawyer in New York; right?
A. No, that's not true. I worked for a small company as part of their corporate counsel.
Q. Was that a mining company?
A. It was not.
Q. Okay. And so, your experience practicing law is limited to working in the corporate counsel office of a non-mining company almost 30 years ago?
A. My experience in law is all the skills that I learned while in law school and while I clerked in law school and while I interned at the New York State Assembly, and taking all those skills and working in large mining--large accounting firms where, for example, at Arthur Andersen here in D.C. down at 16th and K, over half of the people had LLMs.
We were in the books constantly. People gave me their time on LexisNexis because I was so good in the library. So, did I charge people using my
[Page 2198]
legal license? No. Was I using all the skills of a lawyer? Absolutely. And I continued to do that today, and I teach a class in the University of Arizona Law School.
Q. But do you have any experience negotiating stability agreements in Perú?
A. I do not have negotiating experience negotiating stability agreements in Perú. I have a great deal of experience negotiating with Tax Authorities at the State level. I told you I've talked with Senate staff, House staff, State staff--
(Overlapping speakers.)
Q. Okay. That's going far beyond the scope of my question.
Just to sum up here, you're not qualified to practice law in any jurisdiction, you're not qualified in Perú, and you have never negotiated a stability agreement in Perú, but you are before this Tribunal giving Expert Opinions on the negotiation of a Peruvian Law Adhesion Contract?
A. I'm here giving advice as an International Tax Expert on how to interpret a Peruvian law as I've
[Page 2199]
been interpreting laws and regulations in cases for 36 years.
Q. Right. I think we established that the Peruvian law is for the Peruvian Experts, so let's move on.
Do you have a computer, Mr. Ralbovsky?
A. I do.
Q. Mac or Windows?
A. One of each.
Q. One of each. Nice.
So, when Apple or Microsoft updates its operating system on your computer and you get the little pop-up, to agree to the terms and conditions, you click that pop-up; right?
A. I do.
Q. You don't negotiate that contract with Apple or Microsoft for the use of the operating system, do you?
A. I can choose not to accept it.
Q. Yeah, but if you do accept it, you don't negotiate with Apple or Microsoft, do you?
A. I do not.
[Page 2200]
Q. Right. Because it's an Adhesion Contract; right?
A. It's more they have you over a barrel, and we all do it.
Q. Now, are you aware that stability agreements--
(Overlapping speakers.)
A. Actually, it's not really a contract. I'm not--there is no offer and acceptance there. They are asking me if I accept their terms to continue using their product. There is no offer and acceptance as there is in this Stability Agreement.
Q. So, you don't agree that that is an Adhesion Contract?
A. I don't think it is.
Q. Okay. So you've changed on that?
A. I did.
Q. Okay. Well, you are aware that stability agreements in Perú are Adhesion Contracts; right?
A. I am.
Q. But you testified that the scope of those stability agreements are negotiated in Perú; right?
[Page 2201]
A. I did.
Q. And so, that means, as an American accountant, you disagree with Claimant's Peruvian Law Experts, Dr. Bullard and Ms. Vega, that the scope of stability agreements are not negotiated in Perú; right?
A. If that's what they said, I'm not familiar with that.
Q. And you disagree with the testimony of Maríta Chappuis, the former Peruvian Director General of Mining, who was responsible for regulating mining stability agreements in Perú that the scope of stability agreements are not negotiated in Perú; right?
A. Could you show me that, please?
Q. Well, I'll show you something even better.
Why don't we show you the testimony of Perú's own Peruvian Law Expert, Professor Eguiguren, that said: "If the Mining Law says that the scope of the Stability Guarantees is X, the Parties could not then negotiate that the scope of the stability benefits be something different." That is Claimant's
[Page 2202]
Exhibit 1140, Day 8 of the Sumitomo Hearing Transcript, for the record.
Do you disagree with the Expert Opinion of Perú's own Peruvian Law Expert?
A. Let me read it. Let me read it. The Mining Law does not say--Perú's Mining Law does not say the scope of the stability agreement is X.
Q. So, is it that you think that the Parties negotiate the scope or that they don't negotiate the scope? I'm sorry. I don't understand.
A. They negotiate the scope. It begins with the mining company, A, choosing whether they want to be under a stability agreement or not--yes or no--and they may not. And then they go apply for it, and through the stability--the Feasibility Study, they tell the Government: "Here is what I would like to include in the stability agreement for which I'm negotiating."
Q. Right. So then how does that not mean that you disagree with Mr. Eguiguren who said the Parties could not then negotiate that the scope of stability be something different?
[Page 2203]
MS. HAWORTH MCCANDLESS: I'm sorry. I'm objecting because he's mischaracterizing Dr. Eguiguren's testimony. Dr. Eguiguren's testimony says there is--the scope--what he's talking about the Contract of Adhesion concerning the Stability Guarantees. That's a very different thing than what he just characterized which was stability. And so, it's a mischaracterization of the testimony of Dr. Eguiguren, and it's an inappropriate question to mislead this particular Expert with a misquote of what Dr. Eguiguren testified to.
MR. UKABIALA: I think that it's very clear that Mr. Eguiguren is discussing the scope of the Stability Agreement because--
MS. HAWORTH MCCANDLESS: He is not. It says "Stability Guarantees." You are misinterpreting that. That is absolutely incorrect.
MR. UKABIALA: If I can finish--because it refers expressly to the scope being X and the Parties negotiating something different.
MS. HAWORTH MCCANDLESS: The phrase there is "Stability Guarantees." That's a different thing than
[Page 2204]
talking about the scope of stability generally, and it says the "scope of stability benefits." There he's talking about Stability Guarantees. It is very, very specific to these guarantees that are provided under law. That's what he's talking about.
PRESIDENT HANEFELD: This is what we read. I read "Stability Guarantees and stability benefits," but maybe it's in a question we should ask to the Expert who had made the statement and continue with another line of questions.
MS. HAWORTH MCCANDLESS: Yes, we will.
MR. UKABIALA: Yes, of course, Madam President.
BY MR. UKABIALA:
Q. So, if I understand correctly, Mr. Ralbovsky, it is that the Parties can negotiate for the scope to be as large or small as they like; is that correct?
A. There are still limits as to certain amounts that they have to commit to, but it begins with the taxpayer choosing what to put in the Feasibility Study and just exactly what we have here, that Cerro Verde
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has a Feasibility Study for the oxide and the leaching, and very specifically left the Concentrator out and asked to be let out of a contract.
So, in my--in that negotiation, they chose what they wanted to see the stability agreement to cover.
Q. Okay. So it's that it is--okay. So what provision of the Mining law governs the submission and the approval of the Feasibility Study that you say is part of this negotiation?
A. I'm sorry. Ask me that again.
Q. Yeah. It seems like you said that the negotiation starts with the Feasibility Study.
What provision of the Mining Law governs the submission and approval of the Feasibility Study?
A. I don't recall the exact provision, but you get a stability agreement by applying for it. You start it by applying.
Q. And so you don't know what provision of the Mining Law governs the commencement of this so-called "negotiation."
Do you know how long the parties have to
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conclude this so-called "negotiation"?
A. Again, the negotiation part is what the mining company decides before they submit their application.
Q. So, the negotiation happens only internally with the mining company, not with the counterparty?
A. Well, it's a contract. It starts with--the mining company asks for stability for a certain thing, and then MINEM reacts to that.
Q. The negotiation part is what the mining company decides before they submit their application. That's your definition of a "negotiation"?
A. No.
Q. That's exactly what it says.
A. The negotiation part is both the offer and then the acceptance.
Q. Okay. All right. Mr. Ralbovsky, I think we disagree about what "negotiation" means, but I think we also agree that you have never negotiated a stability agreement in Perú?
A. We do agree on that.
Q. And you've never participated in a stability
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agreement application in Perú?
A. I have not.
Q. Okay. Now, you've said that the Government negotiates a narrow scope of stability agreements because the Government would never give up more than it has to; right?
A. I'm sorry. Where did I say that?
Q. That's paragraph 37 of your Second Report: "Countries do not offer more incentives than what is necessary to encourage investments including and especially in the mining sector"?
A. You'll pull that up please.
Q. Just a moment.
PRESIDENT HANEFELD: Counsel, just for further planning, how much more time do you need today to finish this line of questioning?
MR. UKABIALA: I think I could probably finish the entire cross-examination in about 10 minutes.
PRESIDENT HANEFELD: Would this be okay for the Court Reporters? I mean, we also have questions. I don't know whether you have now questions.
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MS. HAWORTH MCCANDLESS: I won't know until he's completed with his cross.
PRESIDENT HANEFELD: Go ahead.
MR. UKABIALA: Okay. I'll do my best to wrap it up. If not, I'm hopeful we can continue tomorrow.
BY MR. UKABIALA:
Q. Did you get an opportunity to review that paragraph from your Report, Mr. Ralbovsky?
A. I do see it. Can you scroll up just a little bit. No, I can read the print, but can you scroll up just a little bit, please.
So, in this section of my Report, I'm talking about stability agreements, in general, and that countries, in general, that choose to offer stability agreements, they need to figure out what are we giving up here and what are we going to get for it.
I've told clients and students throughout years, mining companies do their best to represent their shareholders and other stakeholders. Countries do their best to represent their citizens, and that's as it should be.
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Each one comes to the table representing their party. And there's another quote in there, I think, from a study I was reading: Mining companies only want to give up what they need to get the investors to come in.
Why would they give up more? They shouldn't. They are representing their citizens. So, that's the context in which I wrote that when I was talking about stability agreements, in general.
Q. Right. And so the mining company also equally would not give up more than it has to; correct?
A. It really depends. So--
Q. So, the Government will give up more than it has to--
MS. HAWORTH MCCANDLESS: He's not finished giving his answer. Let him finish his answer, please.
THE WITNESS: There are many ramifications to entering into a stability agreement, and if I may--and I'll tell you the Reader's Digest version of this.
Years ago the price of gold went from 800 to
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1100, and in the U.S., tax assessors at Counties said: "Your assessment is going up. We have to charge you more tax." And that happened. And when the cycle came around to the other side and prices dropped, mining companies went back to the assessors and said: "Hey, our mines are worth less. Lower our assessments and we will pay less."
The Counties had to do that. And then the Counties realized they didn't have enough money to run the schools and other things, so they either had to cut services, or they had to raise everybody's rate.
So, there were--I had clients who chose not to take advantage of a benefit they knew they would win on because they didn't want the bad press of being the reason the County had a shortfall, and when services were cut, the services at the schools, et cetera, that's where their kids went to school.
So, yes, there are instances where mining companies don't take advantage of everything they can because of the broader picture of what's going on in their world.
BY MR. UKABIALA:
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Q. Well, you're talking about the U.S. again, but all of those considerations would equally apply to the Government in this so-called "negotiation"; right?
A. I'm sorry. I don't understand your question.
Q. Well, it seems that you're acknowledging that stabilization doesn't necessarily mean that you lock in lower tax rates. And so, the guts of the company may not negotiate the broadest stability, according to you, because it doesn't necessarily lock in lower tax rates.
Doesn't that equally apply from the Government's perspective?
A. I'm sorry. I don't know what that means. Equally apply how?
Q. I'm just trying to understand what you're saying, Mr. Ralbovsky.
Are you saying that the company will not negotiate the broader scope of stability possible because it may imply locking in a tax rate that is higher than what the tax rate will be, for example, next year?
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A. That might be. There are tax--you might have a taxpayer that says: "I really think this country is going to respond in a couple of years by lowering their rates. I think that is how they will attract investments."
So, I'm not--even though they offer stability agreements right now, I'm not going to go seek that because I'll be locked at this rate, and when it drops to here, I'm stuck. I would rather take my chances and not do it. So, people have to decide what they think is going to happen to decide whether they want to go apply.
Q. Right. And so, the Government would also need to know what the tax rate is going to be in the future in order to be able to project whether--what they are giving up by entering into stability; right?
A. Obviously nobody knows the future, but people make assumptions and projections based on where they think things are going, not the least of which is what's the value of metal going to be here?
So, yes, they have to make some assumptions and projections and make decisions today and hope that
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they are calculating right how the future is going to turn out.
Q. Right. And so, you agree that nobody knows the future. So, any projections about what country is giving up would be based on assumptions?
A. It is going to be based on assumptions, but it is based on Mine Plans, the Feasibility Study, in this case, that people turn in. It is not just a spin of the wheel. You've got something to go by.
Q. But you've never done this negotiation before, though?
A. We worked--I had a project with my staff working for the state of Alaska where we ran projections. We were hired by Alaska to help them project what they thought the Alaska mining--
Q. I'm sorry. You might have misunderstood my question.
Have you ever done this negotiation in the context of a stability agreement?
A. I thought I was answering. I--you're right. I've not negotiated that particular agreement, but I've worked with projections--
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Q. Have you ever negotiated any stability agreement?
MS. HAWORTH MCCANDLESS: I'm sorry. Could you let him finish his answer to your question?
MR. UKABIALA: The answer is not responsive to the question.
MS. HAWORTH MCCANDLESS: Well, he was giving a more fulsome answer, if you let him give his full answer to your question.
BY MR. UKABIALA:
Q. Please. Please.
A. We were helping the State of Alaska project what revenues were likely to look like based on the mining activity they had going on at the State and trying to determine how they should--should or should not modify their taxes going forward.
Q. Right. But, Mr. Ralbovsky, you've never negotiated a stability agreement?
A. Okay.
Q. No, that's a question.
A. I said. Okay. Yes.
Q. Okay. Thank you for confirming that's.
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A. That's a yes.
Q. And Alaska doesn't have stability agreements in the mining sector?
A. No, but they have laws.
Q. Great. Okay. Mr. Ralbovsky, so it's crystal clear to you, an American accountant, that the 1998 Stability Agreement didn't apply to the Concentrator; right?
A. Repeat your question.
Q. It's crystal clear to you that the 1998 Stability Agreement didn't apply to a Concentrator; right?
A. Yes.
Q. Okay. And you were able to determine that by doing what? Reviewing the Stability Agreement and the record in this case?
A. Yes.
Q. But you have already admitted that you don't have any experience in interpreting Peruvian Law stability agreements, do you?
A. No, I didn't admit that. As a tax professional experienced for 36 years in mining, I
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think 42 years in big company tax, I am very experienced in interpreting laws from around the world.
Q. Peruvian Law stability agreements?
A. Well, in this case, I can read it, and it's a Peruvian law Stability--
Q. Have you ever interpreted a Peruvian Law stability agreement?
A. I did it to write these Reports, yes.
Q. Before your testimony in this case?
A. I did not have the opportunity to do that, no.
Q. So, you seem to be relying so much on your accounting experience.
Please explain it to me. Is it that, like, in the course of conducting an audit, you would notice: "Hey, this Stability Agreement doesn't apply the way the Company thinks it does," and then you would tell them that?
A. That's not at all what I've been saying. I am a tax accountant. When I was a partner, I had a pen, but I never signed financials. As a tax
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accountant, I use my skills, which I learned through law school and the practice of law and my law clerking and all those other things, as well as the work as a younger staff at Andersen, to research, write, represent clients at IRS and the state exams, advise Governments, go to appellant referee meetings and represent my clients. Those are all skills as a lawyer. I couldn't charge people as a lawyer because I wasn't licensed as a lawyer because I worked for a CPA firm.
Q. I'm sorry. We're really running out of time, Mr. Ralbovsky. That is not my question at all. I'm just trying to understand in what--how it would arise through your accounting practice that you would interpret a foreign stability agreement?
How does that happen? Explain it to me.
A. I am explaining it to you. In my--I have a tax accounting practice. I read and interpret and influence tax laws all the time.
Q. Okay. So if--for example, if you were--if it was a Peruvian stability agreement, you would consult with the PwC team in Perú about the scope of
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that stability agreement; right?
A. No. I feel very competent and confident in when I've read and interpreted and wrote.
Q. So, if you were working in Perú, you would--for PwC, you would ignore the local advice of the Peruvian lawyers?
A. I didn't say that at all.
Q. So, you're now contradicting yourself.
I'm sorry. If you were working on behalf of a Peruvian company with a Peruvian Law stability agreement, would you or would you not rely on the Peruvian team with Peruvian qualified lawyers?
A. I am not--excuse me--contradicting myself. I'm trying to explain to you that I believe I have the skills to interpret tax laws as I have done here, and that's the work I have done. When I was--that's it. You are concerned about time. Sorry.
Q. Mr. Ralbovsky, it's a simple question. If you were called upon in your capacity as a tax accountant to determine the scope of a Peruvian Law stability agreement, would you rely on your local PwC team?
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A. In what time frame are you talking about?
Q. In the relevant time frame.
A. No. I interpreted--my Reports are my Reports based on my work.
Q. Yeah, but if you were auditing, for example, a Peruvian company during the relevant time frame, would you rely on your local PwC Peruvian-qualified colleagues in determining the scope of a Peruvian stability agreement?
A. An audit would never address whether a stability agreement.
PRESIDENT HANEFELD: Counsel, I think it's now 15 minutes past 6:00. Our proposal would be that you continue your cross-examination tomorrow and then Respondent has the opportunity for redirect, and we may also have questions.
MR. UKABIALA: I think that makes sense.
PRESIDENT HANEFELD: Yeah. I think the attention span is somehow now reached.
So, we will continue with your testimony tomorrow.
THE WITNESS: Yes.
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PRESIDENT HANEFELD: And we start at 9:30 sharp.
And do the Parties have any remarks to make today before we close?
MR. PRAGER: No remarks from Claimant.
Thank you very much.
PRESIDENT HANEFELD: Thank you very much. Respondent?
MS. HAWORTH MCCANDLESS: None from Respondent. Thank you, Madam President.
PRESIDENT HANEFELD: Then thank you. We conclude the day. Have a good evening.
THE WITNESS: You too. Thank you.
(Whereupon, at 6:15 p.m., the Hearing was adjourned until 9:30 a.m. the following day.)
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I, Dawn K. Larson, RDR-CRR, Court Reporter, do hereby certify that the foregoing English-speaking proceedings were stenographically recorded by me and thereafter reduced to typewritten form by computer-assisted transcription under my direction and supervision; and that the foregoing transcript is a true and accurate record of the English-speaking proceedings.
I further certify that I am neither counsel for, related to, nor employed by any of the parties to this action in this proceeding, nor financially or otherwise interested in the outcome of this litigation.
Signature
Dawn K. Larson