In the matter of
The Renco Group, Inc.
Claimant
v.
The Republic of Peru
Respondent
14 January 2019
WHITE & CASE
1. The Republic of Peru ("Peru") hereby submits its Response to the Notice of Arbitration and Statement of Claim dated 23 October 2018 ("Notice of Arbitration") filed by The Renco Group, Inc. ("Renco"), in accordance with the Peru-United States Trade Promotion Agreement (the "Treaty") and the UNCITRAL Arbitration Rules (the "Rules").1
2. The Republic of Peru is a sovereign that is committed to promoting investment, development, and environmental protection. The instant arbitration is one in a series of proceedings by which Renco has tried to shift responsibility for its own failures to Peru. Its repackaged claims under the Treaty submitted without evidentiary support must likewise fail.
1 The Parties agreed that Peru would respond and make arbitrator appointments no later than 14 January 2019. See letter from White & Case to King and Spalding dated 17 December 2018. ↩
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3. Peru is a diligent and respectful participant in international arbitration proceedings. For the avoidance of doubt, Peru does not elect to treat this Response as its Statement of Defense, and expressly continues to reserves all of its rights with regard to this matter.
4. Renco, together with its affiliate Doe Run Resources Corporation ("DRRC"), has simultaneously pursued claims against Peru and state-owned company Activos Mineros S.A.C. ("Activos Mineros") pursuant to the Contract of Stock Transfer of Metaloroya dated 23 October 1997. Peru (together with Activos Mineros) had established a framework with Renco and DRRC to facilitate consultations, and in that context agreed to endeavor to resolve any disputes among them efficiently.
5. In the early 1990s, Peru sought to privatize and to modernize its mining industry, including the La Oroya Facility, which was then held by Empresa Minera Del Centro Del Perú S.A. ("Centromin"), a State-owned mining and mineral processing company.
6. In accordance with the applicable legal framework, Centromin prepared an Environmental Remediation and Management Program ("PAMA") outlining the actions and investments required to achieve compliance with environmental regulations, which included environmental projects aimed at remediating, mitigating, and preventing environmental degradation to be completed over a period of ten years. The Ministry of Energy and Mines (the "MEM") adopted the PAMA on 13 January 1997.
7. That year, Centromin transferred its interest in the Facility to Empresa Minera Metaloroya La Oroya S.A. ("Metaloroya"), a State-owned company that had been established by Centromin for purposes of Peru's privatization program. On 10 July 1997, a consortium formed by Renco and its affiliate DRRC won a public tender for Metaloroya, and proceeded to establish DRP. On 23 October 1997, DRP executed the Contract.
8. The Contract was executed by "on the one part [...] Empresa Minera del Centro del Peru S.A. (Centromin Peru S.A.) [...] and on the other part Doe Run Peru S.R.Ltda [...] hereinafter the Investor" with the "intervene[tion] in this Contract [of] the Empresa Metalurgica La Oroya, S.A. (Metaloroya S.A.) [...] hereinafter the Company."2 Renco and DRRC participated to "warrant the compliance with the obligations contracted by the Investor, Doe Run Peru."3 On 27 October 1997, four days after the Contract was concluded, Centromin agreed to release Renco from its guaranty per Renco's request.4
9. On 21 November 1997, in accordance with Presidential Decree No. 042-97-PCM, Peru entered into a separate Guaranty Agreement. The Guaranty, on its face is between "the PERUVIAN STATE [...] as party of the first part; and DOE RUN PERU S. R. LTDA. [...]
3 Contract, Additional Clause. ↩
4 See Modification of the Contract to Transfer Shares, Increase Company Capital and Subscription of Shares of Metaloroya S.A. dated 17 Dec. 1999. ↩
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hereinafter referred to as THE INVESTOR, as party of the second part."5 While Peru is a party to the Guaranty, Renco and Doe Run Resources—the Claimants in this arbitration—are not. The Guaranty provides in Clause 2.1. that the State "guarantees THE INVESTOR the representations, assurances, guarantees and obligations assumed by THE TRANSFEROR [defined in 1.1. as Centromin]" under the Contract. As Clause 2.1 reflects, the rights set out in the Guaranty run specifically the "Investor." Neither Renco nor DRRC are the "Investor" under the Guaranty.
10. On 30 December 1997, following Renco's release as a guarantor, Metaloroya merged with DRP, and DRP thus assumed all of Metaloroya's rights and obligations as the "Company" under the Contract.6 On 1 June 2001, DRP assigned its contractual position as the "Investor" to Doe Run Cayman Limited ("DRC");7 DRC thus assumed all of DRP's rights and obligations as the "Investor" under the Contract.8 Finally, on 19 March 2007, Centromin assigned its contractual position to Activos Mineros; Activos Mineros thus assumed all of Centromin's rights and obligations under the Contract. Activos Mineros is a state-owned company established on 12 July 2006 by Peru's Private Investment Promotion Agency (PROINVERSION) to remedy mining projects that the State assigns, supervise the post-privatization commitments assumed by mining investors, and assist with private investment promotion in the State's mining concessions.
11. Accordingly, "Company" and "Metaloroya" refer to DRP; "Investor" refers to DRC; and "Centromin" refers to Activos Mineros. The rights related to third-party liability under the Contract run specifically the "Investor," or the "Company." Neither Renco nor DRRC are the "Investor" or the "Company" under the Contract.9
12. The Contract establishes the rights and obligations of relevant entities, including related to environmental and investment undertakings, as well as liability for third-party claims. Further to the Contract, the Company undertook to invest US$ 120 million in the La Oroya Facility within five years. With respect to environmental issues, the Company assumed responsibility for the obligations contained in Metaloroya's PAMA in accordance with Clause 5.1, while Centromin assumed responsibility for Centromin's PAMA, as well as other technical obligations, including abandonment of the slag and remediation of areas affected by emissions, in accordance with Clause 6.1. In addition, further to the Contract, the parties undertook to hold themselves harmless and indemnify each other with respect to specific third-party claims. Specifically:
5 Guaranty Agreement dated 21 November 1997. ↩
6 See Modification of the Contract to Transfer Shares, Increase Company Capital and Subscription of Shares of Metaloroya S.A. dated 17 Dec. 1999. ↩
7 Assignment of Contractual Position between Due Run Peru S.R.L and Doe Run Cayman Ltd. dated 1 June 2001 ("Contract Assignment"), Clause 2. ↩
8 Assignment of Contractual Position between Due Run Peru S.R.L and Doe Run Cayman Ltd. dated 1 June 2001 ("Contract Assignment"), Clause 2. ↩
9 Nevertheless, Claimants inaccurately and improperly insert themselves into contractual text. See, e.g., Notice of Arbitration ¶¶ 50-51. ↩
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13. Regarding notice of third-party claims, the parties agreed that, "[s]hould the Company or the Investor receive any demand or judicial, administrative notice or notice of any kind, related to any act or fact included within the responsibilities, declaration and guarantees offered by Centromin, they pledge to report it to Centromin within a reasonable term which will allow Centromin to exercise its right to a defense, releasing the Company or the Investor from any obligation with regard to the same and Centromin shall be obliged to immediately assume those obligations as soon as it is notified."10
14. During its operation of the La Oroya Facility, DRP requested numerous modifications and extensions of the PAMA obligations, which the MEM granted, including modifications to the schedule of actions, investments, and scope of projects approved on 19 October 1999,11 10 April 2001,12 and 25 January 2002,13 as well as exceptional extensions of time granted further to new regulations modifying the maximum legal limit.14 Despite multiple modifications by the MEM, DRP failed to comply with its environmental obligations.
11 Directorial Resolution No. 178-99-EM/DG concerning the amendment of the action and investment schedule of the PAMA dated 19 Oct. 1999 ↩
12 Directorial Resolution No. 133-2001-EM-DGAA concerning modifying the PAMA for La Oroya Metallurgical Complex dated 10 Apr. 2001. ↩
13 Directorial Resolution No. 28-2002-EM/DGAA. ↩
14 DRP PAMA Extension Request dated 15 Dec. 2005; Ministerial Res. No. 257-2006-MEM/DM dated 29 May 2006; Law No. 29410 Extending the Term for the Financing and Culmination of the "Sulfuric Acid Plant and Modification of the Copper Circuit" Project at the Metallurgical Complex of La Oroya dated 26 Sept. 2009; Supreme Decree No. 075-2009-EM dated 29 Oct. 2009. ↩
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15. Beginning in 2007, plaintiffs from La Oroya filed lawsuits in the United States alleging various personal injury damages as a result of alleged exposure to harmful substances and environmental contamination from the La Oroya Facility. The named defendants at present include Renco and DRRC, as well as their U.S.-affiliated companies DR Acquisition Corp., Doe Run Cayman Holdings LLC, and directors and officers Marvin K. Kaiser, Albert Bruce Neil, Jeffrey L. Zelms, Theodore P. Fox III, and Ira L. Rennert (collectively, the "Renco Defendants"). Neither DRP nor DRC is a party to the Missouri Lawsuits.15
16. The Missouri Lawsuits are currently consolidated in the U.S. District Court for the Eastern District of Missouri and are styled as A. et al v. Doe Run Resources Corporation et al., Case No. 4:11-cv-00044 (the Reid Cases), and J.Y.C.C., et al., v. Doe Run Resources, Corp., et al., Case No. 4:15-CV-1704-RWS (the Collins Cases). The Renco Defendants have moved to dismiss both proceedings, and the lawsuits are ongoing.
17. The Treaty entered into force on 1 February 2009. Having failed to complete its environmental and investment obligations, DRP closed the Facility on 3 June 2009.16
18. Beginning in 2010, the Renco Defendants and DRP sought to involve Peru and Activos Mineros in the Missouri Lawsuits, requesting that "Centromin, Activos Mineros S.A.C., and the Republic of Peru honor their contractual commitments to assume and accept liability for claims by third parties relating to the La Oroya Metallurgical Complex."17 Activos Mineros responded reserving all rights and advising that it had not previously received any communication requesting participation in Missouri pursuant to the Contract. As Activos Mineros communicated, the Renco Defendants and DRP presented no basis to assert that the liability that may eventually result from the particular proceedings initiated against DRP's shareholders in the U.S. corresponds to Activos Mineros.18
19. That year, DRP's creditors began bankruptcy proceedings against DRP before Peru's National Institute for the Defense of Free Competition and the Protection of Intellectual Property ("INDECOPI").19 On 16 August 2010, INDECOPI published notice of the commencement of DRP's bankruptcy in the official bulletin.20 The bankruptcy is guided by a Board of DRP's recognized creditors, which includes, among others, DRP's labor creditors, Consorcio Minero, Volcan Compania Minera, AYS, Depositos Quimicos Mineros, the MEM, and DRC, a company wholly-owned by Renco.
20. In April 2012, DRP presented a restructuring plan to the Creditors' Board. The plan did not address various issues facing the La Oroya Facility, and did not incorporate concerns and observations made by the creditors. After the restructuring plan had been rejected, 97% of
15 See A. et al. v. Doe Run Resources Corp., et. al., (E.D. Mo. Case No. 4:11-cv-00044-CDP). ↩
16 Letter from Doe Run Peru to OSINERGMIN dated 3 June 2009. ↩
17 See Letter from King & Spalding to MEM, MEF, and Activos Mineros dated 12 October 2010; Letter from DRP to Activos Mineros dated 11 November 2010. ↩
18 See Letter from Activos Mineros to King & Spalding dated 5 November 2010; Letter from Activos Mineros to DRP dated 26 November 2010; Letter from Activos Mineros to King & Spalding dated 21 January 2011. ↩
19 See e.g., Cormin Notice Regarding Doe Run Peru's Bankruptcy to INDECOPI dated 18 Feb. 2010. ↩
20 INDECOPI Announcement, Official Bulletin dated 16 Aug. 2010. ↩
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DRP's creditors (including DRC) voted to place DRP in liquidation.21 The liquidation is ongoing in accordance with Peruvian law.
21. As a matter of Peruvian law, the MEM is a creditor of DRP on the basis of DRP's unfulfilled PAMA investments. In an effort to prevent MEM from participating in the bankruptcy proceedings, Renco's affiliates have opposed and challenged recognition of the MEM's status as a DRP creditor before INDECOPI and the Peruvian courts:
22. Despite repeated challenges, the validity of MEM's credit by virtue of DRP's breach of a quantifiable legal obligation has been upheld in each proceeding.
23. On December 29, 2010, Renco sent a Notice of Intent to Commence Arbitration against Peru, followed by a Notice of Arbitration and Statement of Claim on April 4, 2011 against Peru and Activos Mineros on behalf of Renco and DRP.22 Renco amended its Notice of Arbitration and Statement of Claim on August 9, 2011 by modifying the parties and the arbitration agreements on which it relied. Subsequently, Peru and Renco were parties to a proceeding styled as The Renco Group, Inc. v. Republic of Peru (ICSID Case No. UNCT/13/1) pursuant to the Treaty (the "First Treaty Arbitration"). The Renco Defendants used the the First Treaty Arbitration to remove the Missouri Lawsuits from Missouri state court to a U.S. federal court.
24. In the First Treaty Arbitration, Renco argued that Peru breached the Treaty by virtue of the alleged "refusal to honor its contractual and legal commitment to assume responsibility and liability for third-party claims of injury from environmental contamination at the Complex" and the alleged "pattern of mistreatment of Claimant and its investments relating to the Complex when Claimant's locally-incorporated subsidiary requested a reasonably—and contractually permitted—extension of time to complete the final environmental modernization project."23
25. The tribunal ruled in a Partial Award dated 15 July 2016 that Renco's claims must be dismissed for lack of jurisdiction because Renco failed to comply with the Treaty's waiver requirement.24 The tribunal explained that Renco's failure to comply with the Treaty was "not
21 Doe Run Peru S.R.L. Creditors' Meeting Minutes of 9 and 12 Apr. 2012, at 38-40; 43-46; 48-49. ↩
22 Renco v. Republic of Peru, Partial Award of July 18, 2016 (ICSID Case No. UNCT/13/1) (the "Partial Award") ¶ 4-5, available at https://icsid.worldbank.org/. ↩
23 Renco's Memorial on Liability dated 20 February 2014, available at https://icsid.worldbank.org/. ↩
24 Renco v. Republic of Peru, Partial Award dated July 15, 2016 (ICSID Case No. UNCT/13/1), ¶ 193 ("Renco has failed to comply with the formal requirements of Article 10.18(2)(b) by including the reservation of rights in the waiver accompanying its Amended Notice of Arbitration because: (i) The reservation of rights is not permitted by the express terms of Article 10.18(2)(b); (ii) The reservation of rights undermines the object and purpose of Article 10.18(2)(b); (iii) The reservation of rights is incompatible with the "no U-turn" structure of Article 10.18(2)(b); and (iv) The reservation of rights is not superfluous."). ↩
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a trivial defect which can be easily brushed aside—the defective waiver goes to the heart of the Tribunal's jurisdiction."25 The tribunal concluded that "Renco has failed to establish the requirements for Peru's consent to arbitrate under the Treaty," and consequently that "Renco's claims must therefore be dismissed for lack of jurisdiction."26 On 9 November 2016, the tribunal issued its Final Award concluding the proceedings and issuing its decision on costs.
26. Renco devotes a significant portion of its Treaty Notice of Arbitration on discussions related to the procedural history involving the waiver objection and asserting that Peru easily could have argued its waiver objection sooner. In fact, Peru sought an efficient and expedient determination of its waiver objection, which Renco opposed at every juncture. In May 2011, within a month of receiving Renco's Notice of Arbitration and Statement of Claim in the First Arbitration – and although it had no obligation under the Treaty to do so – Peru promptly informed Renco in May 2011 that the notice was inconsistent with the Treaty. Renco subsequently chose to submit an Amended Notice of Arbitration and Statement of Claim, in response to which Peru filed its preliminary response on 9 September 2011, citing various concerns, including, among other things, regarding the scope of the mandatory waiver. Following the tribunal's adoption of a procedural calendar in consultation with the parties, Peru timely notified preliminary objections in March 2014, and reiterated its request to be heard on the waiver violation in April and October of 2014, and again in May 2015.
27. Ultimately, at Peru's request, the tribunal agreed to evaluate Peru's objection as a preliminary matter and Renco's claim was dismissed without the parties and the tribunal having to engage in an expensive and time-consuming proceeding on the merits. The Tribunal concluded that, in raising its waiver objection, "Peru has sought to vindicate its right to receive a waiver which complies with the formal requirement of Article 10.18(2)(b) and a waiver which does not undermine the object and purpose of that Article" and "[did] not accept the contention that Peru's waiver objection is tainted by an ulterior motive to evade its duty to arbitrate Renco's claims."27
28. Following the dismissal of Renco's claims in the First Treaty Arbitration, Renco sent Peru a new Notice of Intent to Commence Arbitration under the Treaty dated August 12, 2016; and Renco and DRRC sent Peru and Activos Mineros a notice dated August 12, 2016, regarding a dispute under the Contract (the "Notices"). In addition, Renco requested that Peru stipulate that time stopped running when Renco submitted its Amended Notice of Arbitration in the First Treaty Arbitration,28 thereby waiving its Treaty rights with respect to temporal jurisdiction in
26 Partial Award, ¶ 193. The tribunal further noted that "[i]n the light of the Tribunal's conclusion that Renco has failed to comply with the formal requirement of Article 10.18(2)(b) of the Treaty, the Tribunal concludes that it is unnecessary to consider Peru's second contention, namely that Renco has failed to comply with the formal requirement of Article 10.18(2) because DRP has not provided a waiver in Renco's Amended Notice of Arbitration. It is also unnecessary to consider Peru's further contentions regarding DRP's conduct in the Peruvian bankruptcy proceedings." See Partial Award, ¶ 190. ↩
28 Letter from Renco to Peru dated 21 July 2016 ("In light of the Tribunal's Partial Award on Jurisdiction dated July 15, 2016 in the above referenced matter, The Renco Group, Inc. requests that the Republic of Peru advise in writing whether it accepts that time stopped running for purposes of Article 10.18(1) of the Treaty when Renco filed its Amended Notice of Arbitration in the above referenced case on August 9, 2011."). ↩
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future proceedings. As Peru communicated at the time, Peru maintains the continuous reservation of all its rights.29
29. Peru and Activos Mineros advised that they disagreed with the allegations set forth in the Notices and confirmed their continuous reservation of all of their rights. They also advised that the resolution of the prior arbitration proceeding facilitated a renewed opportunity to focus on solutions related to La Oroya.
30. Consistent with Article 10.15 of the Treaty, which encourages resolution through consultation and negotiation, Peru (together with Activos Mineros) entered into a Consultation Agreement with Renco (and DRRC) dated 10 November 2016. Following agreements in this context, Peru (together with Activos Mineros) entered into a Framework Agreement with Renco (and DRRC) dated 14 March 2017 to address related issues and facilitate further consultations.30
31. Further to the Treaty, Peru sent a letter from the Special Commission That Represents the State in Investment Disputes to the U.S. State Department dated 4 April 2017 addressing the status of the disputes.
32. The period of consultations ended on 20 October 2018 and on 23 October 2018, Renco filed this arbitration, as well as a separate arbitration on its behalf and its affiliate DRRC pursuant to the Contract against Peru and Activos Mineros related to third-party claims for alleged contamination in La Oroya.
33. The Treaty entered into force on 1 February 2009, providing certain protections for lawful and legitimate investments and arbitration for disputes arising thereunder, subject to prerequisites and conditions. Peru and the United States resolved to achieve fundamental objectives in concluding the Treaty, as stated in its Preamble, including, for instance, promoting "broad-based economic development," ensuring a "predictable legal and commercial framework" for business and investment, and preserving the ability to "safeguard the public welfare." In accordance with the universally accepted rule of treaty interpretation set forth in Article 31(1) of the Vienna Convention on the Law of Treaties, these fundamental objectives are integral to interpreting the Treaty.31
34. Such goals are in keeping with Peru's development and the investment program established and maintained by Peru for over two decades. Indeed, Peru respects its international obligations under the Treaty and its rights thereunder, including those related to investment that complies with regulations and dispute resolution where there is legitimate jurisdiction.
35. Renco's claims lack evidentiary support and have numerous deficiencies as a matter of jurisdiction, admissibility, and merits. Peru continues to reserve all of its rights, including, without limitation, its rights to raise preliminary objections, counterclaims, and other defenses, and to fully brief issues at the appropriate time. Among other things, Peru notes, without limitation, the issues set forth below.
29 Letter from Peru to Renco dated 12 August 2016. ↩
30 The Parties agreed that communications and interactions by and among them during the Consultation Period were without prejudice and shall be kept confidential. Peru reserves all rights in this regard. ↩
31 See Vienna Convention on the Law of Treaties, 23 May 1969, 1155 U.N.T.S. 331, Art. 31(1) and Art. 31(2). ↩
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32 See, e.g., Treaty, Art. 10.18, Annex 10-G. ↩
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36. With regards to Renco's proposals and the applicable procedure, Peru observes the following:
John Christopher Thomas QC
900 Waterfront Centre,
200 Burrard Street, PO Box 52,
Vancouver, British Columbia,
Canada, V7X-1T2
Email: [email protected]
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37. For all the reasons set forth above, and for the reasons Peru will articulate and expand upon at the appropriate time in accordance with the Treaty and applicable rules, Peru respectfully requests that the Tribunal:
Respectfully submitted,
Signature
_______________________________
WHITE & CASE
Washington, D.C.
Counsel to the Republic of Peru
14 January 2019
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| No. | Document | Date |
|---|---|---|
| Doc. R-1 | Contract of Stock Transfer, Capital Stock Increase and Stock Subscription of Empresa Metalurgica La Oroya S.A. | 23 October 1997 |
| Doc. R-2 | Guaranty Agreement | 21 November 1997 |
| Doc. R-3 | Modification of the Contract to Transfer Shares, Increase Company Capital and Subscription of Shares of Metaloroya | 17 December 1999 |
| Doc. R-4 | Assignment of Contractual Position between Due Run Peru S.R.L and Doe Run Cayman Ltd. | 1 June 2001 |
| Doc. R-5 | Letter from the President of the Council of Ministers to Ambassador of the United States to Peru | 31 October 2007 |
| Doc. R-6 | Peru-United States Trade Promotion Agreement | 1 February 2009 |
| Doc. R-7 | Legal Opinion of John B. Bellinger III | 20 February 2015 |
| Doc. R-8 | Renco v. Republic of Peru, Partial Award (ICSID Case No. UNCT/13/1) | 15 July 2016 |
| Doc. R-9 | Consultation Agreement (as Amended) | 10 November 2016 |
| Doc. R-10 | Framework Agreement (as Amended) | 14 March 2017 |
| Doc. R-11 | Letter from the Special Commission to U.S. State Department | 4 April 2017 |