[Page 2795]
INTERNATIONAL CENTRE FOR THE SETTLEMENT OF INVESTMENT
DISPUTES
- - - - - - - - - - - - - - - - - - - - - - -x
In the matter of Arbitration
between:
:
:
:
GRAMERCY FUNDS MANAGEMENT LLC AND
GRAMERCY PERU HOLDINGS LLC,
:
:
:
Claimants,
: ICSID Case No.
: UNCT/18/2
and
:
:
REPUBLIC OF PERÚ,
:
:
Respondent.
:
- - - - - - - - - - - - - - - - - - - - - - -x Volume 9
VIDEOCONFERENCE:
HEARING ON JURISDICTION, MERITS AND QUANTUM
Wednesday, November 18, 2020
The hearing in the above-entitled matter
came on at 9:05 a.m. (EST) before:
PROFESSOR JUAN FERNÁNDEZ ARMESTO, President
MR. STEPHEN L. DRYMER, Co-Arbitrator
PROFESSOR BRIGITTE STERN, Co-Arbitrator
In the case of discrepancy, the audio recording in the
original language will prevail.
[Page 2796]
Also Present:
On behalf of ICSID:
MS. MARISA PLANELLS-VALERO
Secretary of the Tribunal
MS. KRYSTLE M. BAPTISTA
Assistant to the President of the Tribunal
Realtime Stenographers:
MS. DAWN K. LARSON
Registered Diplomate Reporter (RDR)
Certified Realtime Reporter (CRR)
B&B Reporters
529 14th Street, S.E.
Washington, D.C. 20003
United States of America
[email protected]
MR. PAUL PELISSIER
MR. DIONISIO RINALDI
D.R. Esteno
Colombres 566
Buenos Aires 1218ABE
Argentina
(5411) 4957-0083
Interpreters:
MS. SILVIA COLLA
MR. DANIEL GIGLIO
MR. CHARLES ROBERTS
[Page 2797]
APPEARANCES:
On behalf of the Claimant:
MR. MARK W. FRIEDMAN
MS. INA C. POPOVA
MR. CARL RIEHL
MS. FLORIANE LAVAUD
MS. BERGLIND HALLDORSDOTTIR BIRKLAND
MR. GUILHERME RECENA COSTA
MS. SARAH LEE
MR. DUNCAN PICKARD
MR. JULIO RIVERA RIOS
MS. MARY GRACE MCEVOY
MR. ERIC TURQMAN
Debevoise & Plimpton, LLP
919 Third Avenue
New York, New York 10022
United States of America
MR. LUIS BEDOYA ESCURRA
MR. FRANCISCO CARDENAS PANTOJA
Rodrigo, Elias & Medrano
Av. San Felipe 758
Jesús María
Lima 15072
Perú
Representing Gramercy Funds Management LLC:
MR. ROBERT KOENIGSBERGER
MR. JAMES TAYLOR
MR. GUSTAVO FERRARO
MR. BOB JOANNOU
MR. ROB LANAVA
MR. JOSH O'MELIA
MR. NICK PAOLAZZI
MR. THOMAS NORGAARD
[Page 2798]
APPEARANCES: (Continued)
On behalf of the Respondent:
MR. RICARDO AMPUERO
Republic of Perú
MS. MONICA GUERRERO
Republic of Perú
MR. SHANE MARTINEZ
Republic of Perú
MR. JONATHAN C. HAMILTON
MS. ANDREA MENAKER
MR. RAFAEL LLANO
MR. FRANCISCO JIJÓN
MR. JONATHAN ULRICH
MR. JOHN DALEBROUX
MS. SOPHIA CASTILLERO
White & Case LLP
701 Thirteenth Street, NW
Washington, D.C. 20005-3807
United States of America
For the United States of America:
MS. LISA J. GROSH
MR. JOHN D. DALEY
MS. NICOLE C. THORNTON
MS. MARGARET E.B. SEDGEWICK
Attorney-Advisers
Office of International Claims and
Investment Disputes
Office of the Legal Adviser
U.S. Department of State
Suite 203, South Building
2430 E Street, N.W.
Washington, D.C. 20037-2800
United States of America
[Page 2799]
APPEARANCES: (Continued)
MR. EDWARD RIVERA
U.S. Department of Commerce
MR. KHALIL GHARBIEH
MS. AMANDA BLUNT
Office of the United States Trade
Representative
[Page 2800]
C O N T E N T S
PAGE
CLOSING ARGUMENTS
ON BEHALF OF THE RESPONDENT:
By Ambassador de Zela. ... 2805
QUESTIONS FROM THE TRIBUNAL AND
POST-HEARING MATTERS. ... 2935
CONFIDENTIAL SESSION 1. ... 2872-2876
CONFIDENTIAL SESSION 2. ... 2898-2902
CONFIDENTIAL SESSION 3. ... 2909-2910
[Page 2801]
P R O C E E D I N G S
PRESIDENT FERNÁNDEZ ARMESTO: We now begin
the Hearing. This is Day 2 in the Final Hearing in
arbitration under UNCITRAL Rules between Gramercy
Funds Management LLC and Gramercy Perú Holdings LLC,
the Republic of Perú.
I welcome you on behalf of the Tribunal on
this second and final day of our Hearings. First of
all, we're going to ask if there is any point of order
this morning, or this afternoon, and then we will give
the floor to Counsel for Perú.
Is there any point of order this morning?
MR. FRIEDMAN: None from Claimants' side.
Thank you.
Good morning, Mr. President and Members of
the Tribunal, and good afternoon, sorry, to those of
you in Europe.
PRESIDENT FERNÁNDEZ ARMESTO: Thank you,
Mr. Friedman.
I will now ask Mr. Hamilton.
Mr. Hamilton, any point of order on behalf of
the Respondent?
[Page 2802]
MR. HAMILTON: No, Mr. President. Thank you
for the question. We are ready to start.
PRESIDENT FERNÁNDEZ ARMESTO: Very well. In
that case, we will now begin the Hearing, and Counsel
for the Republic of Perú has the floor for your
Closing Argument.
CLOSING STATEMENT BY COUNSEL FOR RESPONDENT
PRESIDENT FERNÁNDEZ ARMESTO: And we need to
assign a number to this document being submitted by
the Republic of Perú. We will call it H-22.
Madam Secretary? We couldn't hear you.
Sorry.
SECRETARY PLANELLS-VALERO: Yes. H-22.
PRESIDENT FERNÁNDEZ ARMESTO: Very well.
H-22.
MR. HAMILTON: If we might ask
nonparticipants in the Oral Argument to close their
video, other than the Tribunal and, Mr. Ambassador,
could you open your video?
AMBASSADOR DE ZELA: Very well.
MR. HAMILTON: Mr. President and Members of
the Tribunal, on behalf of the Republic of Perú,
[Page 2803]
White & Case, and Estudio Rubio, it is my pleasure to
commence the Closing Statement of the Republic of Perú
with respect to the proceeding of Gramercy v. Perú.
It is important at the outset of the Closing
Statement that we keep in mind that this is a case
under a treaty. Yesterday we heard the Treaty cited
out of context, leaving out words, leaving out
meaning, disregarding the object and purpose.
Next slide, please.
And there were two things that we heard very
little about in Gramercy's Closing Statement. Not
only did they disregard the object, purpose, and plain
language of the Treaty, they also disregarded the
Opinion of Yale University Professor Michael Reisman.
Professor Reisman, an eminent scholar in the field of
investment arbitration law, is the only International
Law Expert before this Tribunal. Gramercy chose not
to present an International Law Expert.
Indeed, they tried to exclude
Professor Reisman's participation late in this
proceeding. But his testimony stands before the
Tribunal, nonetheless. And as he emphasized in his
[Page 2804]
First Report: "By initiating arbitration under the
Treaty, Gramercy has subjected itself to the norms
regulating the ISDS system and the integrity of the
arbitration process, including specific requirements
set forth under the Treaty itself."
During the course of Perú's Closing
Statement, we will probe this issue with respect to
the meaning of the Treaty, with respect to Gramercy's
conduct, taking into account the requirements of the
Treaty, and Gramercy's conduct outside the sacred
confines of this Treaty proceeding, which also have
serious ramifications for its claims.
And the other thing that Gramercy did not
discuss is the submission by the Non-Disputing Party,
the United States Government, and we will discuss that
in detail.
Keep in mind with respect to the Treaty that
it was carefully negotiated by the Republic of Perú
with the aim of facilitating good commercial relations
between the United States and Perú and to facilitate
commercial investment--commercial activity and
investment.
[Page 2805]
I would like to invite the Ambassador of
Perú, Hugo de Zela, to share various additional
comments related to the U.S.-Perú Treaty, and the
Ambassador will speak in Spanish.
PRESIDENT FERNÁNDEZ ARMESTO: Very good.
Thank you very much.
Mr. Ambassador, you have the floor.
AMBASSADOR DE ZELA: Thank you.
Good morning, Mr. President, Honorable
Members of the Tribunal, ladies and gentlemen.
My name is Hugo de Zela. I am the Ambassador
of the Republic of Perú to the United States of
America. I address you today in representation of my
country, Perú, as part of Perú's Closing Argument.
In this respect, I would like to make three
observations that we consider to be important. First,
the Trade Promotion Agreement between Perú and the
United States is very important for the bilateral
relationship between our two countries. The Treaty
benefits Peruvians, U.S. citizens supporting the
development of the peoples. We respect the
international dispute settlement mechanisms, and we
[Page 2806]
participate diligently in them, as we have been doing
in this proceeding. We would also like to note the
relevance of the interpretation of the Treaty by Perú
and the United States.
Second, Perú is a State that has displayed
responsible macroeconomic conduct plus juridical
security and solid fiscal discipline, all of which are
factors that have helped position Perú as one of the
most reliable markets for investors in the region, and
it has also led Perú to attain rates of economic
growth that are the highest in Latin America. The
conduct of the Peruvian State along this line has been
consistent for decades. Beyond transitions, political
transitions and changes, Perú has maintained a stable
macroeconomic policy that is respected here in
Washington and in international markets for many
years.
One example of the institutional framework
and respect for legal mandates is the establishment of
a procedure for paying the Agrarian Reform Bonds.
Those Bonds involve unique historical antecedents that
have been treated by the Peruvian State in a manner
[Page 2807]
that is provided for by law.
Third, Perú shares with the United States a
perspective on the importance of its international
obligations, reasonable--the reasonable expectation
that this proceeding will be resolved transparently in
keeping with the terms of the trade agreement signed
by the two States and the shared interpretations
rendered by them. In that regard, we regret the
insistence of the other Party when it comes to
repeatedly excluding the U.S. representatives and
keeping them from receiving all of the evidence or
from being able to observe the entirety of oral
argument. In addition--or the oral proceedings.
In addition, for the Peruvian Government, the
disinformation campaign that has sought to bring
pressure to bear on Perú to bring about changes in its
legislation is--and to oppose it to public opinion and
to the Government of the United States and
multilateral institutions, we denounce this campaign.
At the same time, I thank the kind attention
provided by the Distinguished Members of this
Tribunal, and I take this opportunity to respectfully
[Page 2808]
put before you for your consideration observations,
the purpose of which is to show the seriousness and
responsibility of the Peruvian State in addressing
this matter.
We also reject conduct that undermines the
trade agreement with the United States, which
prejudiced efforts on the part of our countries to
work together in the context of said bilateral
instrument.
Now, with that, Mr. President, Distinguished
Members of the Tribunal, I conclude these remarks, and
our representative, Mr. Hamilton and his colleagues,
will now go into these matters in greater detail. And
I thank the Tribunal very much for your attention.
PRESIDENT FERNÁNDEZ ARMESTO: Thank you very
much, Ambassador.
I now give the floor to Mr. Hamilton.
MR. HAMILTON: Thank you very much
Ambassador, and thank you very much for the time that
you have invested over a long time to prepare your own
remarks.
As the Ambassador stated, the Republic of
[Page 2809]
Perú is a fiscally responsible sovereign. The former
Minister of Economy and Finance and former Ambassador
of Perú to the United States, Luis Miguel Castilla, a
highly trained and highly credible Witness appeared
before this Tribunal, and he confirmed that the fiscal
management of Perú has been recognized
internationally.
And let's be clear: Perú is not only an
investment-grade sovereign; Perú has excellent
relations with financial institutions, respects
financial institutions, and financial institutions and
the international markets respect Perú.
Gramercy's years of propaganda campaign have
not changed these realities. Gramercy is an outlier.
Its conduct is an outlier. Perú remains, as ever, a
fiscally responsible sovereign, and it is in that
context that Perú established pursuant to applicable
law a global resolution related to the Agrarian Reform
Bonds.
It is important to keep in mind that the
Agrarian Reform Bonds have a unique history. They
relate to expropriation of land undertaken beginning
[Page 2810]
in 1969, over a half a century ago, over half a
century ago. And these Land Bonds are completely
different from Global Bonds, and this has serious
implications for what it means to hold a bond, what
legal rights are available, what expectations a
bondholder might have, and to any resolution related
to the Bonds. This severe difference between Land
Bonds and contemporary Global Bonds permeates this
case. And it was precisely this unique history that
left the Land Bonds in a state of persistent
uncertainty over many years.
The Republic of Perú, however, historically
resolved this matter. In 2013, the Constitutional
Tribunal adopted a resolution that provided for
valuation methodology and administrative procedure,
two gaps that had existed over a period of many years.
Correspondingly, the Peruvian State, through the
Ministry of Economy and Finance, adopted Supreme
Decrees that duly implemented the Constitutional
Tribunal ruling based on extensive preparatory
materials, hundreds of pages of material before the
Tribunal showing the careful work that was undertaken
[Page 2811]
to prepare the Decrees and develop a bondholder
process for the global resolution.
It is notable, as we will see, that
Gramercy's key expert on these issues admitted that he
had never examined relevant underlying documents.
That's why the Vice Minister of Treasury, Betty
Sotelo, testified before this Tribunal that the
Minister of Economy and Finance had duly implemented
the ruling of the Constitutional Tribunal, both in
terms of law and in terms of procedure.
It bears noting that former
Vice Minister Sotelo, also the former Head of Public
Debt of the Ministry of Finance, has over 40 years of
experience in the Ministry of Economy and Finance and
has observed firsthand the entire history of these
Bonds over several decades.
In addition, Perú established an effective
Bondholder Process. Perú is not engaged in an
exchange offer. It is not engaged in passing laws
which are somehow offer or negotiating positions. It
is applying the law established through a ruling of
the highest court in Perú, the Constitutional
[Page 2812]
Tribunal. It is a compensation procedure and must be
judged as such. It includes authentication,
registration, value, and payment steps.
Dr. Norbert Wühler is an eminent
international expert previously relied upon by
international Tribunals based on his extensive work
with the United Nations Claims Commission, and he
concluded before this Tribunal that the Bondholder
Process is a fair and effective process for the
Resolution of the Bonds and also for individual
bondholders themselves.
Finally, the Bonds reflect a global
resolution. Quantum Expert Brent Kaczmarek, deeply
experienced in investment treaty matters, concluded
that the formula applied by the Ministry of Economy
and Finance has no mathematical, economic, or
theoretical flaws and provides a reasonable, in fact
favorable, outcome for bondholders with coupons that
were worthless when the Agrarian Bank closed. In
other words, Perú, pursuant to Peruvian law, duly
carried out Peruvian law, created a bondholder
procedure, and created a global resolution. The
[Page 2813]
Tribunal really need look no further.
Perú's case has been supported through
multiple Witnesses and Experts before this Tribunal.
In addition to the Witnesses and Experts that we--that
I have already mentioned, you also heard from Experts
in Peruvian law, and we will discuss their comments
further as we proceed, as well as the comments of a
sovereign debt Expert, Dr. Pablo Guidotti, Ph.D. from
the University of Chicago, a former Treasury
Secretary, deeply familiar with the evolution of
sovereign debt issues in Latin America over the past
quarter of a century.
Next we will briefly summarize a piece of the
puzzle that Gramercy seems to have forgotten in its
own Closing Argument, and that is Gramercy itself. It
is time that we open our eyes, come out of the
fantastical world that we have seen presented
yesterday and look at the reality of Gramercy: Who it
is, what is its--what has its conduct been, and what
does that mean for this proceeding? Gramercy exposed.
It literally was the missing piece in Gramercy's own
Closing Argument.
[Page 2814]
Normally, you would hear in an investment
arbitration a diligent and respectful presentation
with extensive documentation indicating why a company
chose to invest based on clear laws, clear contracts,
based on specific expectations that they might have
had about what would happen next. But that is not
something Gramercy did in its Closing Argument because
it is not what happened.
In fact, the first two words of Gramercy's
Closing Argument were "Gramercy's entitlement,"
because Gramercy's entire case is about a fictional
self-entitlement, preferred treatment that no other
Peruvians would have, and special treatment that it
had no basis to expect from the outset of its arrival
to the story of the Peruvian Agrarian Reform Bonds.
Keep in mind who Gramercy is. Now, again,
Perú has no objection, and certainly no ideological
objection, to financial institutions. It's clear that
Perú has good relations with financial institutions,
and they respect Perú. But Gramercy has conducted
itself in a way that is disqualifying to the
protection of the Treaty and certainly to any
[Page 2815]
compensation.
Gramercy is in the business of uncertainty.
Its own overview of its activities says they look to
buy when there's blood in the street, and, as CEO
Robert Koenigsberger said in one of a series of
admissions that he made under cross-examination,
Gramercy is not in the business of giving certainty or
assurances. No, it is not in the business of giving
certainty or assurances. It looks for uncertainty to
try to exploit it and gain absurd, exorbitant
windfalls. The Treaty offers no such protections.
What is its mission? Gramercy's stated
mission is to find ways to monetize distressed debt.
Gramercy in its own statement seeks to exploit
distressed investment opportunities, not certain
investment opportunities; distressed investment
opportunities.
And that's why Gramercy tells those investors
in Gramercy, such as American workers, that they may
lose all. And Mr. Koenigsberger repeatedly confirmed
under cross-examination that Gramercy assumes that
investors may lose all. So, Gramercy is coming to
[Page 2816]
this Tribunal saying that this Tribunal should accept
that Gramercy is entitled to all while everybody else
is entitled to nothing. Perú never made any such
promises.
Now, keep in mind that Gramercy, consistent
with its approach to doing business, acquired claims
amid uncertainty, and you only need to look to the
underlying Gramercy due diligence memo. They have a
grand total of one, a grand total of one due diligence
memo, that, as demonstrated in Opening Argument, is
largely cut and paste from another document. And they
state in their own memo: The Land Reform Bonds have
been in default, in their view, for a period of
18 years. Why would the Government seek to reconcile
these obligations now? As Mr. Koenigsberger admitted:
"From the beginning there was a lack of certainty."
Now, we don't have to just listen to what
Mr. Koenigsberger said at the Hearing last February or
what their own documents said before they began
acquiring claims. Let's see what Gramercy said in its
own Closing Argument yesterday.
Yesterday, in Closing Argument, Gramercy's
[Page 2817]
best foot forward, one would think, before this
Tribunal, Gramercy said the following: "Gramercy
understood that receiving payment on the Bonds would
take time and effort. It would take
consensus-building."
Prior slide, please. Thank you.
"It would take consensus-building and even
assertion of legal rights." Not only that, Gramercy
said: "At the time of purchase, there was
'considerable uncertainty,'" "considerable
uncertainty." And maybe that's why Gramercy went on
to say yesterday: "What Gramercy invested in is the
hope"--the hope that it would be able to resolve the
stagnant Land Bonds debt.
So, there was no certainty at the time that
Gramercy showed up to this story. Indeed, there was
considerable uncertainty, as Gramercy's own Counsel
declared before this Tribunal in its Closing Argument.
Keep in mind that Gramercy acquired Bonds
through purchase contracts. Now, Gramercy has never
provided the physical instruments for 9,656 Land Bonds
that it alleges that it holds. It withheld from this
[Page 2818]
Tribunal and Perú for an extended period of time even
scans of those instruments. It knows that they have
to be authenticated. It did not bother to put before
this Tribunal any sort of expert advice verifying and
authenticating these old physical documents. They are
not authenticated. There is no expert before this
Tribunal who has done it. They have never submitted
to the Ministry of Economy and Finance, as other
bondholders do.
They also, indeed, did withhold over
20,000-plus pages of purchase contracts. These
documents were not all in the possession of the
Republic of Perú previously. That was a misstatement
yesterday. These purchase contracts were also not
even mentioned in the initial Pleadings of Gramercy to
this Tribunal. That's right, Members of the Tribunal:
Gramercy intentionally and knowingly did not disclose
to this Tribunal that it, in fact, acquired certain
types of limited rights through purchase contracts
that it didn't even mention to this Tribunal.
In addition--and it goes without saying, in
addition to other documents that were withheld,
[Page 2819]
Gramercy withheld over time evidence of 10-plus years
of internal valuations, and, of course, Gramercy
admitted, Mr. Koenigsberger under cross-examination,
that it had bond purchases--it had made bond purchases
in 2017 that were also hidden from this Tribunal and
from the Republic of Perú.
The fact that this kind of material evidence
was withheld and not presented timely to the Tribunal
is damning to Gramercy's case. Moreover, inflated
valuations--layers upon layers of meringue, as we have
discussed before, Mr. President--is really the best
way to understand the exorbitant amounts that Gramercy
seeks.
The key figures you need to know, Members of
the Tribunal, are that Gramercy, having hidden its
purchase contracts, ultimately admitted that it
actually spent $33 million, $33 million to acquire
Bonds. Not only that; it used the money of others.
Gramercy didn't spend its own $33 million. It used
the money of others, and these Bonds are held for
other beneficial owners, which includes many U.S.
citizens, but it includes non-U.S. citizens, and, it
[Page 2820]
appears, may include Peruvians.
The other thing Gramercy has admitted is that
it could have obtained $34 million through the duly
established bondholder procedure. Those are the two
numbers you most need to know, Members of the
Tribunal. Everything else is fabricated, invented
meringue dislocated from theories of compensation
under a treaty. And, by the way, it is also telling,
Gramercy valuations--Gramercy uses management fees to
make money during the life that it is pursuing a
resolution on claims, so Gramercy was making money all
along based on a percentage of assets under
management, and Gramercy set the valuation itself. It
created its own valuation, generating its own
management fee. And I'd love to talk about it, and,
again, we apologize to the United States Government,
but Gramercy insists that, while it can degrade Perú
in public, it wants to keep secret various information
about Gramercy.
Finally, what has its strategy been over the
course of this dispute? Its strategy has been to
weaponize this dispute, to weaponize this dispute.
[Page 2821]
This is not just aggravation. It is not an annoyance.
It is abuse. It is abuse, and Gramercy is in rolling,
constant and, as we sit here today, violation of the
express instructions of this Tribunal and repeated
orders of this Tribunal over the past 2.5 years that
it should stop, that it should respect this Treaty
proceeding.
And Gramercy has hired countless lobbyists.
It has used Experts that it pays but doesn't reveal
publicly what they have done. It uses propaganda that
sets out disinformation and falsehoods about the
Republic of Perú. And, as Gramercy itself said: "We
are going to create grist for the media mill."
Well, you tried, Gramercy, but Perú will not
bow to bullies and extortionists. This is wrong
conduct. This is not the kind of conduct that can be
permissible in the context of a treaty proceeding.
Let me give you just one example. Gramercy
intentionally tried to interfere with bilateral
relations related to the OECD and Perú's process of
entry into the OECD and repeatedly threatened that it
was going to stop Perú's entrance into the OECD.
[Page 2822]
Now, how is that in the interest of the
development of Perú or of the relations between Perú
and the United States as contemplated by the Treaty?
It is not. And that's why the reality is that
Gramercy has been on a campaign of deception.
Gramercy uses this kind of absurd propaganda: A
billboard parked in front of the United States
Congress stating: "Perú defaults. American workers
pay the bill." Well, if Gramercy has a problem with
American workers because of the way it's managed its
clients' money, that's a problem between Gramercy and
American workers. Perú never marketed 50-year-old
Agrarian Reform Bonds on international markets. There
is absolutely no connection between this and
contemporary bonds.
And most telling is that Mr. Koenigsberger
admitted that: "At or around the time of this
billboard, Gramercy was purchasing additional Land
Bonds; is that correct?" And he admitted: "Somewhere
in that time period, yes." And after an order of the
Tribunal, we learned and discovered that, in fact,
Gramercy was continuing to purchase Bonds during that
[Page 2823]
time period. It was continuing to purchase Bonds, but
it certainly was not telling that to the United States
Congress, the State Department, or the Executive
Branch of the United States Government.
Now, we will now go into a discussion of the
facts, jurisdiction, merits, and compensation, and our
aim, Mr. President, is to go through the facts and
then take a break.
With respect to the facts, we are going to
discuss the following issues: First of all, the
uncertainty that predated Gramercy's acquisitions of
Land Bonds; second, the acquisition of Land Bonds and
persistent uncertainty thereafter; third, Perú's legal
resolution related to the Agrarian Reform Bonds;
fourth, the bondholder process; and, finally a few
observations on the aftermath.
(Audio interference.)
ARBITRATOR DRYMER: Mr. Hamilton, we have
lost you.
PRESIDENT FERNÁNDEZ ARMESTO: Yes.
Ah, you are back.
MR. HAMILTON: I am here for you.
[Page 2824]
Regarding uncertainty, remember that the
Bonds have unique origins and characteristics. This
was a domestic dispute marked by legal and value
uncertainty.
The unique origins of the Agrarian Reform
Bonds are clear to this Tribunal. They date back to
1969, and, after a period of inflation and currency
changes, there was significant uncertainty and the
Bonds effectively became worthless. In 2001, in a
much-discussed Court Decision, the Court rejects the
concept of nominal payment, but it did not resolve all
the pieces of the puzzle to determine what would
happen to the Peruvian Land Bonds. Specifically, as
former Minister Castilla and former Vice Minister
Sotelo explained, "the Agrarian debt is a unique
historical chapter of Peruvian history."
We heard a lot yesterday from our
counterparts about the obligation of this Tribunal to
render justice related to something that happened in
1969 to try to use as pawns Peruvian citizens who were
affected half a century ago by the Agrarian reform
process. That is not why this Tribunal is here. That
[Page 2825]
is simply paper that Gramercy is putting over itself
because it itself is such an unsympathetic Claimant.
Let's be clear: This is an old domestic
dispute that Gramercy chose to interfere with, to
become an intermeddler with these circumstances. The
unique characteristics between these two types of
Bonds are really dispositive to many of the issues
before the Tribunal. And we discussed the difference
in old Agrarian Bonds and contemporary bonds in great
detail at the hearing, discussed with
Mr. Koenigsberger as well, and Mr. Koenigsberger made
clear, and Gramercy's only documents made clear, that
its preference is to acquire contemporary bonds that
have all of the contemporary types of protections,
clarity, promises, certainty that accompany those
kinds of instruments.
That is not what Gramercy did in this
instance. For whatever reason, it chose to enter a
situation of great uncertainty. And these differences
between the two types of Bonds before you, Members of
the Tribunal, permeate many of the issues of this
case.
[Page 2826]
Now, remember that by the 1990s the Bonds
became worthless.
Sebastian Edwards acknowledged they became
virtually worthless, and that's why both Perú's
Quantum Experts and Professor Guidotti emphasize that
Perú never defaulted. Literally, the Bonds became
worthless after extreme hyperinflation in a very
difficult period of time and multiple changes in
currency. This is the seed of the deception of
Gramercy, to repeatedly tell the United States
Government that Perú was in default; something that,
in fact, bondholders, financial institutions, and
rating agencies have all rejected.
So, then we come to the Decision of 2001.
The 2001 Sentence was limited. It was a limited
ruling that provided only that nominal payment was
unconstitutional. The operative language in this
sentence is one small paragraph depicted before you on
Slide 25, Members of the Tribunal. It was uncertain
with respect to valuation method, no rule mandating
CPI, no rule on reference date, no rule on interest
and it was uncertain on payment procedure. And as
[Page 2827]
we'll see later, it is exactly these two
elements--valuation method and payment procedure--that
were ultimately addressed in the 2013 Constitutional
Tribunal Decision.
I now invite Mr. Jijón to share additional
observations on the uncertainty of Peruvian law
pursuant to the 2001 Sentence.
PRESIDENT FERNÁNDEZ ARMESTO: Thank you,
Dr. Hamilton. Happy to give the floor to Dr. Jijón.
On behalf of the Court Reporters, if
Dr. Jijón could speak slightly slower, I think it
would be appreciated.
Dr. Jijón, you have the floor.
SECRETARY PLANELLS-VALERO: Mr. President,
the Court Reporters and Interpreters are also asking
if they could be sent the speaking points.
PRESIDENT FERNÁNDEZ ARMESTO: That is
important, yes, because it makes their life so much
easier and the quality of the interpretation so much
higher. So, that would be highly appreciated.
SECRETARY PLANELLS-VALERO: Thank you.
MR. JIJÓN: Thank you, Mr. President, Members
[Page 2828]
of the Tribunal. Good morning; good afternoon.
Thank you for this opportunity to speak on
what Gramercy yesterday described as the central issue
of this case. This goes to the very heart of what
they call "Gramercy's entitlements," and, as
Dr. Hamilton mentioned, this all arises from the 2001
Sentence, which is an extremely limited Decision by
the Constitutional Tribunal. It is four pages in its
entirety. The operative part relevant to this being
Paragraph 2, Paragraph 2, which merely says that
Article 2 of Law 26,597 from 1996 is unconstitutional
insofar as paying nominal value for Bonds did not take
into account the effects of time: "Ajeno a la
circunstancias de tiempo."
This one paragraph is the basis for
Gramercy's argument that there was a clear legal rule.
However, it is obvious on its face that this is not
the case, and aside from the rhetoric that Gramercy
has deployed yesterday and throughout this proceeding,
this is not borne out by the evidence.
Now, this is a very important rule because it
was the first time that it was established that the
[Page 2829]
Bonds should be paid at current value. And it's not
in dispute that the Bonds should be paid at current
value. However, there is a dispute as to what
"current value" meant at that moment, and the idea
that there was certainty as to how the Current Value
Principle was to be applied is absurd and, again, not
borne out by any evidence in the record. Contrary to
what Gramercy argued yesterday, there had been no
cases at this time or previously saying that the Bonds
had to be updated at all, much less that they had to
be updated in the way that Gramercy wants and says is
the clear legal rule coming out of this case.
Next slide, please.
So, on the first point, there is clear
uncertainty as to the valuation method, and both
Parties' Experts agree that the 2001 Sentence does
not--and I repeat, it does not--make any reference to
the CPI method. You can go through the entire
Sentence. It shouldn't take too long. The only
operative part is that one paragraph. There is no
reference to CPI. And as Dr. Hundskopf, an expert in
Peruvian law, explained, you cannot read a reference
[Page 2830]
to the circumstances of time, to the Current Value
Principle, as meaning CPI. CPI and the Current Value
Principle are not synonymous.
Next slide.
Now, Gramercy, because it has to accept that
the 2001 Sentence was silent as to the valuation
method, has argued that CPI, that its preferred
valuation method, is implicitly required by current
value.
Unfortunately, this is simply not the case
for Gramercy, and Gramercy does not and cannot support
that. It tries to do so with Experts, and yesterday
we saw Gramercy referring to the Report of Delia
Revoredo, which was quite surprising, because that
Report was Gramercy's first attempt to address these
issues in this case. However, Delia Revoredo was
withdrawn as an expert. She was absent during the
Hearing. She was unavailable for cross-examination,
and it was critical that she was unavailable for
cross-examination because, after she had submitted her
Report, Dr. Hundskopf identified numerous flaws in her
Report, and it was only after that Report had been
[Page 2831]
demolished by Dr. Hundskopf that she withdrew.
It is also significant she was unavailable
for cross-examination because, as was mentioned at the
beginning of the Hearing in February, Dr. Revoredo has
potential conflicts of interest that have been raised
in the past and on which we were never able to
cross-examine her.
Nor can Gramercy depend on Dr. Castillo
Freyre for this point. Now, Dr. Castillo has made it
very clear that he believes that CPI should apply as a
general rule. And, again, yesterday on Gramercy's
slides, you saw that, as a general rule, the current
value of principal requires the use of CPI.
However, on cross-examination, we asked
Dr. Castillo whether CPI applies as a general rule;
that is, by default. And he said: "By default, no,
no, no."
Next slide.
Now, it is also evident from
contemporary--contemporaneous court cases that you
don't need to take the word of the Experts. Courts in
Perú at or around the time of the 2001 Sentence were
[Page 2832]
applying the Current Value Principle to other types of
debt.
Now, yesterday Gramercy tried to put me on
the spot by putting an exchange between the President
and myself during the prior hearing where the
President asked whether these cases had to do with the
Bonds. And the answer is no. But why is the answer
no? Because, as I mentioned, there were no cases
prior to the 2001 Sentence, and there are certainly
none in the record, where people were updating the
Bonds with dollarization or with any other method.
They just aren't there. And we asked Dr. Castillo if
he knew of any cases in the 50 years since the Bonds
had been issued where they had been updated prior to
the 2001 Sentence, and he said he did not.
So, the other thing that Gramercy has to rely
on and they argue, is that, well, okay, maybe CPI is
not the default for all applications of the Current
Value Principle, but it's going to be the default for
updating sums of money.
Now, this is a really sneaky argument because
you are going to recognize that, in this context, they
[Page 2833]
describe the Bonds as a debt for a sum of money;
whereas, in others, they call it a debt for
compensation for expropriation.
And why is it sneaky? Well, because, in
Perú, debts for sums of money are not, as a general
rule, subject to the Current Value Principle. This is
something that is not in question. All the Experts
have agreed, including Dr. Castillo who said as much
in his direct testimony.
However, just so that there is no doubt in
the Tribunal's mind, if you look at the cases that are
in the record, you will find that dollarization was
used both to update sums of money and compensations of
various sort.
Next slide.
And this is just to say that Dr. Castillo
acknowledged that dollarization was being used as a
method of applying the Current Value Principle.
Next slide.
Another uncertainty in the 2001 Sentence
refers to the reference date, that is, when you are
going to calculate or update the value of the Bonds,
[Page 2834]
what date do you start at? Dr. Hundskopf points out,
quite correctly, that nothing in the 2001 Sentence
tells you where you should start calculating, and that
left the door open to different dates being used. You
could use the expropriation date, the placement date,
the date of the last clipped coupon, the date the last
payment was made by the Agrarian Bank, the day the
bank was liquidated, the day that a purchaser of Bonds
acquired those Bonds, et cetera.
None of these are necessarily wrong or right
coming out of the 2001 Sentence. They were all
potential reference dates. The point is there was
uncertainty.
Next slide.
Now, Gramercy is a little flippant on this
point. They say--and yesterday we heard them just
dismiss using other dates. They said using any date
other than the date of the origin of the debt is like
valuing from the date of a solar eclipse. Well, that
may sound pretty, but it's absolutely nonsensical.
Absolutely, it can make sense. If you are trying to
value a debt, why not update it from the day that that
[Page 2835]
debt was going to be paid.
So, what does Gramercy do? They have a different argument. They say that the debt was not born on the day it was supposed to be paid. They say you have to look at the date of the origin of the original obligation. And, here, they're not talking about the Bonds. What they are talking about is the debt for the original expropriation of land during the Agrarian reform, and they say that that obligation has to have been the date of expropriation.
Why do they say that? They say it's required by the Peruvian Constitution, and yesterday, again, they point to Article 70 of the Peruvian Constitution which says that, for expropriations, payment must be made in cash on the date of the expropriation.
Now, that is quite correct for expropriations under the current Constitution, but it is astounding that they should continue to make this argument because Perú has shown time and time again that that Constitution and that provision was not applicable when the Bonds were issued, a fact that Dr. Castillo acknowledged on cross-examination.
[Page 2836]
We asked him at the time of the expropriation, could the State pay--was the State required to pay with prior indemnization or could it pay with--over time and in Bonds? And he said: "Yes, of course, that was the point of the Constitutional Amendment of 1964." And, in fact, at the time of the Agrarian reform, the Constitution said that expropriations undertaken for the point of Agrarian reform could be paid over time, not on the date of.
Next slide, please.
I'm going to go quickly over interest. As Dr. Hundskopf has confirmed, again, there is nothing in the 2001 Sentence to refer to what type of interest was required to update the Bonds. And Dr. Castillo also said that he--this is Gramercy's only Expert, mind you--that he had not addressed this issue in his Report, that he had not gone into it "ahondo," but that interest, there is something different from current value. So, even if the 2001 Sentence is read to be about current value, it is not implicit that it should be read to say anything in particular about interest. That is something different.
[Page 2837]
Next slide.
You don't have to take our word for it or Gramercy's word for it. Look at how the 2001 Decision was interpreted over time. In 2004, a commission that had been put together for the express purpose of interpreting the 2001 Sentence concluded that there was uncertainty. This Commission was made up of representatives, both of the public sector as well as by bondholders, and they concluded that no valuation methodology was required by law, that the laws did not require any particular methodology. And when they did their attempts to quantify what a potential valuation could look like, they used three different valuation methods, not only CPI, not only the method that Gramercy says was the clear, legal rule. It wasn't.
There was a dollarization method, a CPI method, and an adjusted CPI method, all of which resulted in very different calculations.
Next slide.
Now, what else happened in 2004? There was another Constitutional Tribunal Decision. Gramercy has consistently misrepresented the significance of
[Page 2838]
this Decision. Contrary to what Gramercy says, the relevance of this Decision does not lie in the fact that it made dollarization an optional method for determining current value. What this Decision says is that dollarization is constitutional and consistent with current value, and Constitutional Tribunal said fundamentally, fundamentally, the difference between the Emergency Decree that mandated dollarization and the 1996 law at issue in the 2001 Sentence was that dollarization was consistent with current value. It did not ignore the effects of time.
Next slide.
And what happened the following year? 2005, another commission, this time in the legislature. Once, again, looked back and they adopted the recommendations of the 2004 Report, recognized them, and reaffirmed the conclusion that the law did not limit or restrict the factors or indices required to update the Bonds. And, again, they used these different methodologies, including the adjusted CPI.
Now, Dr. Castillo, on cross-examination, admitted that he did not know about the 2004 Report
[Page 2839]
until after he had finished his Expert Report in this case, and he said: "Well, it's--the adjusted CPI, it's cheeky." I don't know what that means. He can dismiss it all he wants, but the point is that at the time various commissions of the Peruvian Government, including a commission that included bondholders, included and recognized this uncertainty.
Next.
Again, we see how this was applied in the courts. All I want to say here is you can see for yourself different types of indices were being used, different reference dates were being used, different interest rates were being used. Not one of these is what Gramercy says is the default clear rule that should have come out of 2001.
Next.
Dr. Castillo agrees. He said he's read these cases and he's read other cases, which apparently are not in the record, but he's read others that came out in even different ways, and he acknowledged that there are different types of CPI, not just one type of CPI. And contrary to what Gramercy said yesterday, it is
[Page 2840]
not that CPI is CPI is CPI. He said: "I've always had this doubt about whether we should use the CPI of the place where the Bonds were issued."
Well, he may have that doubt. Gramercy apparently never did because they never did this. They've used one type of CPI and they have said only that one type of CPI could ever be used.
Next slide.
And, finally, if further proof were needed, you can just look at how the Legislature of Perú tried for many years to resolve the uncertainty. There were many draft bills. All of them failed. None of them included exactly what Gramercy says is the default rule.
Next.
So, to conclude, what they see is that there continued to be uncertainty as of 2001 and going forward through 2006. There were failed attempts at legislation, no consensus in the court, and there is no basis in Peruvian law for assuming that Gramercy's entitlement is, in fact, obvious or required by law. Thank you, Members of the Tribunal.
[Page 2841]
PRESIDENT FERNÁNDEZ ARMESTO: Thank you, Dr. Jijón.
Who is taking over from you now?
MR. HAMILTON: Have no fear, Mr. President.
PRESIDENT FERNÁNDEZ ARMESTO: Mr. Hamilton.
MR. HAMILTON: I'm back.
ARBITRATOR DRYMER: Welcome back.
MR. HAMILTON: Thank you very much, Dr. Jijón.
How could there be any serious doubt left that the conditions of the Agrarian Reform Bonds were uncertain as of 2006 when Gramercy began to acquire these instruments. The timeline, the evidence, the law, the Experts, and Gramercy itself all make it quite clear. And keep in mind that this was not only a period of legal uncertainty, but as Quantum Expert Brent Kaczmarek emphasizes, it was a time of value uncertainty. The Decision was unclear as an economic matter. It is ambiguous, open to interpretation, and not possible to make a calculation; ergo, value uncertainty.
No doubt, then, why Mr. Koenigsberger
[Page 2842]
admitted there was a lack of certainty, or, as Gramercy itself stated yesterday, considerable uncertainty.
Now, that was the status when Gramercy chose to get involved with the Agrarian Reform Bonds.
And next I'm going to speak about something that Gramercy totally admitted from its own presentation, which was how Gramercy entered the picture and acquired Agrarian Reform Bonds. Please buckle up because we are going to go quite quickly through this segment as we get rolling.
Now, we've mentioned that Gramercy was, in the words of Bloomberg, "a lone hedge fund." Other people were not rushing to get involved in Agrarian Reform Bonds. There were not funds rushing to Perú. Perú didn't invite anybody to come and acquire Agrarian Reform Bonds, market them in the international markets. There was not some great certainty at the time; otherwise, why would people be selling their Bonds.
You only need to look at Gramercy's own due diligence memo from January of 2006. It's in the
[Page 2843]
record at CE-114, and, just to briefly summarize, it refers to Bonds that were in arrears, in Gramercy's view, in default, it emphasizes complexity, long periods of time for legal proceeding, long periods of time for Government to make a payment. They hoped for some form of resolution. They emphasized the importance of physical authentication of Bonds. They focused on draft legislation, discrepancies, differences in Government approaches, a proposal to use CPI, multiple alternative valuation scenarios, and the possibility of acquiring Bonds at a discount off of an estimated claim. Uncertainty. That is Gramercy's own words, contemporaneously, it's toasted.
There is another thing that is important about the outset of Gramercy's acquisition of Bonds, which is--was carefully timed to align with the signing of the U.S.-Perú Treaty. If you look at the evidence--and this is outlined in Perú's prior Briefs with timelines--the Treaty was signed in April of 2006, and, within days, Claimant was established and Gramercy, then, proceeded to acquire the Bonds. That's because Gramercy knew from the beginning that
[Page 2844]
it was going to have to try to resolve claims that were preexisting and part of a preexisting dispute.
The uncertainty was confirmed, even by a report signed by Vice Minister Sotelo, then a functionary in the MEF, confirming that it was pending the establishment of a legal framework. And Mr. Koenigsberger acknowledged that Gramercy knew that that was the position of the Ministry.
So, what did Gramercy do in the face of all of this uncertainty? It proceeded just the same. It acquired Bonds that it never authenticated, and those Bonds were withheld from this Tribunal for a long period of time. Gramercy, not only didn't authenticate the Bonds, it used client funds. The Claimants only have a de minimis interest and the beneficial owners do not all have U.S. nationality, some may even be Peruvian as indicated through cross-examination. I direct you to the crosses of Mr. Lanava and Mr. Koenigsberger and Mr. Joannou.
And what did Gramercy actually acquire? It entered purchase contracts showing that there was use of Gramercy funds obtained through Gramercy clients,
[Page 2845]
$33 million, and Mr. Joannou admitted that Gramercy paid 33 million. So, they paid $33 million at the time and they paid for "derecho expectaticio." That is what they obtained.
And Mr. Hundskopf explains that "derecho expectaticio" means a gamble, a remote possibility. This is the opposite of a scenario where a company goes to a Host State, enters into, let's say, a Concession Agreement in a clear legal framework with certainty based on clear contractual provisions that set out its rights and expectations. This was the opposite.
And as you look forward, Gramercy, over time, continually was trying to change the law and supporting efforts and behind efforts to try to change Peruvian law, and it also quickly resorted to Treaty threats after the Treaty entered into force, including a statement in 2010 referring to the Free Trade Agreement between Perú and the United States, and that is in the record before the Tribunal.
Now, the key thing about all of these efforts to change the law, if everything was certain, why are
[Page 2846]
you trying to change the law? They knew from the beginning they were going to try to change the law. Repeatedly, they sought to change the law to try to inflate what they thought they could receive.
Now, unfortunately, we can't show the public and the United States Government all of the evidence, the damning evidence of Gramercy, related to these efforts to change the law, but one thing is quite clear: All these legislative efforts failed. 2006 failed; 2008 failed; again, in 2008 failed; 2011, failed. Multiple efforts to change laws, to try to create certainty where there was none. But, as we all know, to change the law, you are going to need Congressional approval, and they didn't have the votes. Meanwhile, limited resort to local proceedings.
As the Tribunal asked yesterday, if it was so clear that you could go to local courts and magically receive $840 million on these instruments that you paid $33 million for, why didn't you do it? Because it was uncertain, because they wouldn't have obtained that, and it is very clear that they became Parties to
[Page 2847]
some legal proceedings but, obviously, chose not to proceed locally. That's because there was no certainty with the situation.
The uncertainty persisted. You can look to contemporaneous documents of Minister Castilla, even in his era as Vice Minister of Finance. It's in the record. No legal framework. And, again, when Gramercy tried a back-door approach to the Minister in 2012, on the side of a meeting with another financial institution, the response was the same: There is no legal framework.
And keep in mind that all this time Gramercy was making money anyway because Gramercy was making money on Management Fees all along the way. And as Mr. Koenigsberger's admitted, Gramercy's own calculation of the valuation of the Bonds, which it keeps secret from the United States Government, determines Gramercy's management fee, and this was performance-based compensation as they themselves valued the Bonds at a time of rolling uncertainty. Gramercy was making money as it went.
Now, of course, as we will hear later,
[Page 2848]
Gramercy has never put before this Tribunal any breakdown of what actually happened to the Claimants before this Tribunal that were making money through Management Fees, how they were specifically impacted. It ignores that entire piece of the puzzle. And that's because it is not favorable to Gramercy.
Bottom line, Gramercy invested--sorry, acquired Bonds at the time of the great uncertainty. It acquired Bonds with limited rights through purchase contracts, and it repeatedly sought to change the law and bring certainty to no avail, changes in law to which it had no right and no reasonable expectation.
That's why it is so critical that, in 2013, the Constitutional Tribunal of Perú resolved this matter. It recognized the prior uncertainty. It established certainty and remains valid law of Perú.
There can be no doubt that the Constitutional Court Resolution identified precisely the lacuna in the 2001 Decision. It referred to the lack of valuation criteria and the lack of clarity on an Administrative Procedure.
There is simply no doubt about this. It is
[Page 2849]
as plain as day.
And that's why the 2013 Resolution was a historic resolution. It established a valuation method. Now we see clarity, dollarization, how do you update it, how do you use interest, and it mandated a payment procedure.
Mr. Jijón, very briefly, will touch on the legal circumstances related to the resolution.
Thank you.
PRESIDENT FERNÁNDEZ ARMESTO: Dr. Jijón.
MR. JIJÓN: Thank you.
Very briefly, unlike the 2001 Sentence, the 2013 Resolution is much more in depth.
Next slide, please.
First, the Constitutional Tribunal did address various methodologies, several methodologies, in fact, and it, once again, said these are all potential methodologies. It examined the possibility of CPI, and it examined dollarization.
Next slide.
And having done so, it determined that dollarization should be applied to update the Bonds.
[Page 2850]
This was critical. This was the first time that it became Peruvian law, that there was a fixed method for determining the value under the Current Value Principle.
Next slide.
In addition, the Court mandated a payment process. And this also was very important because this allowed and, in fact, required the Ministry of Economy and Finance to establish an Administrative Procedure to be able to pay the Bonds, and it established exactly what the types of regulations had to be, the steps that had to be gone through in order to reach payment including authentication, registration, valuation, and determination of payment.
And this was confirmed by both Perú's Experts, Dr. Hundskopf and Dr. García-Godos.
Next slide.
And I want to just end noting that the Court recognized that there were challenges and discussion of the 2013 Decision going on in public. So, a month after the Decision, they met. They debated--all of the Magistrates debated the situation, and as the
[Page 2851]
record of their meeting indicates, they unanimously agreed this case is closed.
Thank you. Dr. Hamilton.
PRESIDENT FERNÁNDEZ ARMESTO: Mr. Hamilton, you have the floor.
MR. HAMILTON: --resolution was the cornerstone of the global resolution of the--
(Audio interference.)
(Stenographer clarification.)
MR. HAMILTON: If there is any doubt, the 2013 Tribunal ruling was the cornerstone of the global resolution of the Agrarian reform debt.
PRESIDENT FERNÁNDEZ ARMESTO: How did that work with the Court Reporter?
REALTIME STENOGRAPHER: Much louder now.
Thank you.
PRESIDENT FERNÁNDEZ ARMESTO: Thank you. Mr. Hamilton.
MR. HAMILTON: Just very briefly, we are going to touch on Gramercy's unproven attacks.
Gramercy, strangely, attacks the resolution that finally brought the legal certainty that they had
[Page 2852]
been craving. Their issue is very simple: Gramercy just wants more. That is all that Gramercy ever wants is simply more.
This Court resolution clearly establishes and resolves the legal uncertainty and set the stage for a Bondholder process that has functioned as a global resolution of this problem. Keep in mind that Gramercy, despite a lot of mudslinging, has never delivered any meaningful evidence to undermine the origins or the validity of this Court Decision.
Minister Castilla expressly rejected allegations of interference, the Magistrates denied interference, and a criminal prosecutor confirmed the irrelevance of a proceeding related to the Liquid Paper issue about formalities of signature processes.
Very briefly, very briefly, given the time that we have, I want to note that Gramercy did not go through in its Closing Argument as in its Opening Argument, its fantastical timeline based on basically press statements, principally, trying to string together some sort of conspiracy theory about the origins of the Tribunal ruling.
[Page 2853]
And, in fact, Gramercy misuses the Transcript of Minister Castilla, and let's just be very clear what he said, and I will read briefly. Minister Castilla said: "I reject such statements and I reject those statements or assertions, period, 'punto final.'" Minister Castilla is a highly internationally respected public servant, and his testimony was clear and credible.
And you can look specifically at the exchanges between the President of the Tribunal and Minister Castilla regarding the reality that a Minister in Perú receives diverse officials in the normal course. And keep in mind what Gramercy acknowledged under cross-examination, and what the facts show is that it was Gramercy that was repeatedly visiting the Court.
You can look to R-467, the registry of visits to the Constitutional Tribunal, and you see over and over and over again visits by representatives of Gramercy, and an internal email to Mr. Koenigsberger explained: "We are discussing issues with the President of the Tribunal."
[Page 2854]
And under cross-examination, Mr. Koenigsberger, while clearly uncomfortable, made it clear that Mr. Seoane, for example, was both their Counsel and Counsel to other Bondholders, and they were actively advocating before the Court, and, as Mr. Koenigsberger acknowledged, it's a bit different than in the United States. You invest abroad, sometimes things are a little bit different. None of this reflects any sort of conspiracy theory.
And on top of that, the congressional record--Gramercy made a big deal in this case about a congressional investigation that was going to uncover things related to this Court Decision. It has resorted simply to ignoring the outcome of that investigation and, again, misusing the Transcript.
Members of the Tribunal, I encourage you to look at Slide 72 in the actual testimony of the Justices who repeatedly said that they rejected and did not suffer pressure or interference. They specifically say that they reject, that is "absolutamente falso," absolutely false that they were improperly interfered with.
[Page 2855]
That is what the record says. And that is why the Congress rejected those accusations. The white-out has been shown to be a red herring as well, maybe great for propaganda campaigns, but not so good as evidence. I, again, encourage you to look at the record.
And finally, a criminal process related to formalities of an administrative person in the Court found no relevance or impact on the validity of the Court Decision. Keep in mind, Members of the Tribunal, that the Government was not thrilled and did not embrace this resolution. In fact, it presented a "recurso" afterwards.
So, if there was this magical intervention, why were they so unhappy afterwards? The bottom line is that there was a recurso, the Court and the Justices confirmed their ruling, and the Government went ahead and duly implemented the ruling. End of story.
Bondholder process, briefly. The Minister of Economy complied with the Court mandate. As Minister Castilla and Vice Minister Sotelo explained, they duly
[Page 2856]
and in good faith carried out the instructions of the Constitutional Tribunal. They did so through the development of Decrees.
First, there were Decrees in 2014 that established the Bondholder process. They got the process moving, and they anticipated further Supreme Decrees. Subsequently, they refined the valuation methodology precisely to clarify and confirm the valuation before any methodology was ever applied to any Bondholder, and they established the payment option methodology.
Finally, soon after that, they adopted a bill that is--it is called a "TUA," it's a "texto único ordenado," and this is a very common instrument. It has been in other cases that Members of the Tribunal have been a part of related to the Republic of Perú. This is basically a consolidated text that leaves clarity published in El Peruano and in the public record, exactly the final steps of the process.
Now, one looks in cases to see was there a diligent, rational process? Yes. Did the Ministry comply with the Court ruling? Yes. There are over
[Page 2857]
400 pages of material in the record before the Tribunal related to internal studies and processes that led to the development of each Decree implementing the ruling of the Court.
And you can see, as an example, that they include Reports of a local financial expert and also, for additional security, an international financial expert as well. This is not the kind of scenario where a Government slaps something together and the Tribunal somehow needs to go in and second-guess everything it did.
This is a highly-regarded Ministry of Economy and Finance, very well-regarded around the world, very well-respected by international financial institutions, rating agencies in the international markets. They carried out the Court order. They duly implemented relevant Decrees, they duly developed all aspects of the process.
And these Decrees, let's be clear: They set out statements of reasons, pre-publication was unnecessary, and Gramercy, in its Closing Argument, again, is just trying to misrepresent the records
[Page 2858]
regarding the reasonableness of these Decrees.
The reality is that the kinds of attacks that Gramercy tried to make on the Decrees at the Hearing previously simply do not hold water. And perhaps, most telling, was that Gramercy's Expert brought in, in our view, in violation of due process, late in the proceeding to attack the Decrees, did not even review the complete set of Supreme Decree records, and I want to read in Spanish to be clear.
Gramercy's Expert brought in to attack the Supreme Decrees. This is what he said with respect to the deep record of documents showing how the MEF carefully prepared these Decrees, and I'll read in Spanish": "To be honest, there are documents that I had never seen before then. I am not sure whether they were on the record or not. But what I have received for analysis does not include all of those documents. I do not recall all of those figures, all of these documents. I do not recall the table at the end. I do not recall all of those figures, all of those documents."
Their own Expert crumbled--crumbled--and this
[Page 2859]
is someone who unfortunately has given conflicting Opinions in other cases and, in fact, is Claimants' Counsel against Perú in other Treaty proceedings.
The Bondholder process accordingly was established. This is a compensation procedure. It is a compensation procedure. As everybody knew from the beginning, this is not a contemporary Bond procedure. One of the interesting things that I noticed yesterday is that Gramercy describes laws as "offers," and Decrees as "negotiations." Not in this world. These laws are not offers to Gramercy.
They are laws, regulations, Decrees adopted to comply with applicable law, with instruments subject to applicable law, as everybody has known since 1969.
And so, this process, authentication, registration, actualization, and payment is a perfectly normal compensation procedure, where a Government is taking physical instruments that must be authenticated because you cannot have gross incidence or risk of fraud with respect to payments by the State. That's why they have a procedure. They have
[Page 2860]
duties as public officials.
And this procedure shows that the MEF has been paying Bondholders going through this process. It is in the hands of Bondholders to present their papers and participate. This is a thorough and rigorous process. We have demonstrated on the screen a single case record showing the amount of documentation prepared in order to process a Bondholder.
It is simple: It's an old process that a special procedure had to be devised for. If you wanted contemporary Global Bonds, go spend your resources on contemporary Global Bonds that have a different way of organizing files.
Nobody knows, Mr. President, how many outstanding Bonds there are. That's not the way this was handled. We all think in terms of the way things are done today. That is not the way that things were done in 1969. Payments were made for land, payments were made in paper. There is no registry. There is no clarity on the total Bonds outstanding. The numbers we hear from Gramercy are invented by Gramercy
[Page 2861]
for its own purposes.
And, finally, the Bondholder Process, yes, it was transparent: Information available, a clear website, explanation of valuation, detailed instructions, and answers to questions available to Bondholders. All of these reasons are why Dr. Wühler, an esteemed international expert, concluded that the process is transparent, it's fair, it's effective, it's a functioning and--and a functioning compensation procedure.
Final comment on Bondholder procedure.
Gramercy undermined the global resolution. Gramercy from the beginning, with its deception and campaign of propaganda, has tried to undermine the functioning of the Bondholder procedure. It's done this intentionally to interfere with and reduce participation rates for its own aims to try to enhance its Treaty case.
It has attacked the Bondholder procedure using extreme propaganda and it's wrong. They have not been a key to a solution. Gramercy has specifically been the obstacle to a global resolution
[Page 2862]
of this problem, and this cannot stand. This cannot stand.
An esteemed Ministry of Finance duly implementing the ruling of the highest Court in the land, carrying out hundreds of pages of background material to prepare Decrees, to establish a compensation procedure, given the seal of approval by a leading international expert, it should not be attacked and undermined so that an entity that acquired distressed claims can try to maximize its chance for success in claims. And keep in mind--keep in mind some of the sellers to Gramercy would have done better with the MEF.
A final comment about the Bondholder process.
And I refer you to R-197 as part of extensive discussion and exchanges between the Parties. And in this letter, Perú summarized the state of affairs in 2017 as follows: Legal framework. Perú has taken note of Gramercy's observation that the Supreme Decree can be a feasible framework for resolution. Check.
Verification. Perú has taken note of Gramercy's acceptance that Perú needs to verify the
[Page 2863]
legitimacy of Agrarian Reform Bonds. Check.
Form of payment. Perú has taken note that Gramercy has confirmed its willingness to accept a noncash payment in the form of new Bonds, which is precisely what the Bondholder procedure offers.
Check.
On each of these core elements of the Bondholder procedure, Gramercy confirmed that they were sufficient. This was--came out of meetings that were not subject to confidentiality protections, they were never rebutted in any way whatsoever. The real issue for Gramercy was, and has always been, valuation because Gramercy wants more, and they will always want more.
Briefly as to aftermath. Gramercy has engaged in misconduct in this Arbitration, repeated procedural violations, repeated aggravation, and direct efforts to interfere with the attorney-client relationship, including using a shell company and lobbyists to interfere with the attorney-client relationship between the U.S. Government. It's wrong. Gramercy has withheld evidence. I discussed
[Page 2864]
it in the Opening. It stands as a serious problem to the proceeding.
Gramercy never revealed its secret acquisition of Bonds. Gramercy sliced like a razor various representations it made to this Tribunal. "We made our final Land Bond purchase in 2008." There were multiple statements previously and throughout the document production process that were clearly designed and crafted to try to hide their 2017 acquisition.
Only on cross-examination did Gramercy finally admit the truth, that it was still buying Bonds while it was attacking Perú in public. And it bought new Bonds, 223 Bonds, $15 million of its client's money, none of its own, valued the Bonds at a very high amount, sold interest in these Bonds to third parties.
And, by the way, Gramercy admitted that, in 2017, it was a good idea to acquire Land Bonds. This is after the Court ruling, after the Supreme Decrees, and during the Bondholder procedures stage. Their conduct is at odds with their exaggerated arguments and propaganda.
[Page 2865]
And, by the way, the secret purchase Agreement that we uncovered only after the Tribunal ordered Gramercy to do so makes it clear they are teeing up more because you, Members of the Tribunal, I'm sorry to say, are pawns in Gramercy's campaign. They have already lined up more Bonds, probably for some other type of Treaty claim, which they would not answer at the Hearing, but you can see it reflected expressly in the document itself.
Keep in mind, all of this happened during a period of aggravation, a propaganda campaign, attacks on sovereign relations, deception of the Non-Disputing Party, where inaccurate information is given to the Non-Disputing Party, and, meanwhile, even in this proceeding, the Non-Disputing Party does not get full access to information.
Desperate lobbying, which actually intensified in 2020, despite the request of the President and repeated orders of the Tribunal. That's the reality. It's not just aggravation. It is Treaty abuse.
We will now take a break, Mr. President.
[Page 2866]
PRESIDENT FERNÁNDEZ ARMESTO: Thank you.
Thank you, Mr. Hamilton.
Let us get a time check from the Secretary so you know where you stand.
SECRETARY PLANELLS-VALERO: Thank you, Mr. President. The Respondent has one hour and 3 minutes left.
PRESIDENT FERNÁNDEZ ARMESTO: One hour and 3 minutes left. Very good. So, it is now 16:36 in Europe. Shall we say that we come back in 15 minutes? That would be 55. 16:55 we are back.
Would that be okay, Mr. Hamilton?
MR. HAMILTON: Five minutes before the hour, Mr. President. Sounds good.
PRESIDENT FERNÁNDEZ ARMESTO: Yeah, sounds good to everyone? Very good. Then we come back five minutes to the hour. Thank you.
MR. HAMILTON: Thank you very much.
(Brief recess.)
PRESIDENT FERNÁNDEZ ARMESTO: Now, we will resume the Hearing, and I give the floor back to the Republic of Perú.
[Page 2867]
MR. HAMILTON: Thank you, Mr. President.
I invite Ms. Menaker. Ms. Menaker is going to address jurisdiction and merits, together with our colleague Jonathan Ulrich. Thank you.
PRESIDENT FERNÁNDEZ ARMESTO: Very good. Ms. Menaker, you have the floor.
MS. MENAKER: Thank you. I couldn't see all the Members of the Tribunal, but I do now. Thank you.
All right. So, good morning, good afternoon, Members of the Tribunal. As Mr. Hamilton said, I'm going to begin by discussing some of our jurisdictional objections and, in that regard, begin with our temporal non-retroactivity objection.
Now, yesterday Gramercy did not even discuss this objection and suggested wrongly that we may have even abandoned it, but that is far from the case. We very much maintain this objection. And, in fact, it is quite central. It goes to really the heart of the problems with Gramercy's case and the Tribunal's lack of jurisdiction.
As you know, the Treaty does not retroactively apply to acts or facts that predate its
[Page 2868]
entry into force. That is clear from the Treaty's language and is a principle of customary international law.
Now, ipso facto, the Treaty also cannot retroactively apply to disputes that predate its entry into force. If it does not even apply to an act, it clearly doesn't apply to a dispute that predates the Treaty's entry into force. And this is the fatal flaw with Gramercy's claims, which is that, at bottom, their Claim is that Perú, through its measures, destroyed the value of the Bonds and correspondingly failed to pay the so-called "intrinsic" value, the value that they think the Bonds are worth. But those things happened well before the Treaty entered into force and thus cannot form the basis for a treaty claim, and there is really no doubt about this that there--
Excuse me, can someone advance the slides.
Thank you.
There can be no doubt about this because Gramercy has said so repeatedly, and even yesterday, for instance, they stated that their alleged
[Page 2869]
investment was a considered strategy to obtain money for a "stagnant debt."
So, what is stagnant debt? Stagnant debt is long, unpaid debt. So, they are asking for payment for long, unpaid debt, and that's the exact dispute that has persisted for decades. They said in their Post-Hearing Brief that they invested in a right to payment of the Land Bonds that Perú had not satisfied. Had not satisfied. It is something that happened in the past. It had been decades since the Bonds' face value had become worthless, and then there had been a dispute ever since then as to what amount, if any, Perú would pay for those Bonds. That is the crux of the dispute, and that dispute has preexisted for decades, well before the Treaty entered into force.
What is a dispute? At bottom, a dispute, again, is a disagreement about rights, a disagreement about legal rights. Here the dispute is what are Gramercy's or any other Bondholder's rights to payment to those Bonds. That's the dispute.
And when you're looking at whether a dispute preexisted, you need to look at what was the previous
[Page 2870]
dispute, what is the current dispute, and how do you tell if disputes are the same or they are different?
Well, the test is whether they concern the same subject matter, and we know that this concerns the same subject matter because we know what Gramercy did. They didn't make an investment in--well, certainly not within the meaning of the Treaty and not within any normal understanding of the term. What they did is, they purchased preexisting claims. And when you look, they even have said that they became a party and took over some preexisting litigations. And they have discussed at length the Pomalca litigation. So, what was the basis for the Pomalca litigation? What were they seeking in the Pomalca litigation?
You've heard about this Expert Opinion that Gramercy has talked about that was submitted in that case. That Expert Opinion sought payment on the Bonds at CPI--to value the Bonds using CPI as well as compound interest annualized from the date of issuance of the Bonds. It's the exact same thing that they are seeking in this Arbitration. And that was a preexisting dispute. That has been disputed for ages.
[Page 2871]
So, I am now going to refer to some confidential materials, so I ask if we can just go into confidential session. And let me know when I can begin speaking.
PRESIDENT FERNÁNDEZ ARMESTO: Thank you.
SECRETARY PLANELLS-VALERO: Okay. Thank you.
Yes. Yes. Give me a few seconds.
(End of open session. Attorneys' Eyes Only information follows.)
[Page 2872]
CONFIDENTIAL SESSION
[Redacted]
[Page 2873]
[Redacted]
[Page 2874]
[Redacted]
[Page 2875]
[Redacted]
[Page 2876]
[Redacted]
(End of Attorneys' Eyes Only session.)
[Page 2877]
OPEN SESSION
SECRETARY PLANELLS-VALERO: Okay. The
Non-Disputing Party is now back in the Hearing.
MS. MENAKER: Thank you.
I was just saying how unlike this is from an
ordinary investment claim, where you have an investor
that makes an investment, there is a measure that they
believe is unlawful, and that measure causes them
harm, and they bring a claim.
Here, Gramercy acquired a dispute with the
objective of resolving that dispute, resolving that
claim. There was nothing more to it than that. And
yesterday Gramercy explained what they invested in was
the hope that they could resolve this stagnant Land
Bonds debt. That is a preexisting dispute. They
purchased it hoping to resolve it, and they say that
time and again. They say, "This was the time for Perú
to finally clean up this Land Bonds debt."
So, as Gramercy said yesterday, once again,
they emphasized repeatedly that this debt had remained
unpaid for 40 or 50 years, and they said, "Perú must
now at long last be compelled to pay what it owes."
[Page 2878]
This is using the Treaty as leverage in order to get
that resolution to this preexisting dispute.
And this is the same thing as occurred in
Phoenix Action. It is no different than in that case
where the Claimant acquired an investment that was
already burdened with litigation. All of the damages
had already occurred when the alleged investment was
made. That's the same thing here. All of the damage,
the nonpayment of the Bonds, that had already occurred
by the time Gramercy acquired the Land Bonds. They
had remained unpaid for decades, and then Gramercy
stepped in and purchased them in order to try to
resolve the dispute to its satisfaction.
Now, in Phoenix Action, that was an abuse,
and this is an abuse as well, but here, because of the
timing, it is also--it also runs afoul of the non-
retroactivity principle and results in a lack of
jurisdiction of this Tribunal.
Now, secondly, Gramercy's claim also runs
afoul of the three-year prescription period. As you
know, the Treaty establishes a clear and rigid
three-year prescription period, and where no claim may
[Page 2879]
be submitted to arbitration if more than three years
have elapsed from the time that the Claimant acquired
or should have first acquired knowledge of the alleged
breach and knowledge that they have incurred loss or
damage.
Now, of course there can be no Treaty breach
before the Treaty enters into force, and so in that
regard, this is fundamentally different from the
nonretroactivity principle that I just discussed. And
what's important here, though, is that you look at the
date of when is the first date after the Treaty
entered into force where they are alleging that was a
breach, and when did they first acquire knowledge of
loss or damage?
Now, the record is clear that they first
appreciated alleged loss and damage and a breach no
later than on July 16, 2013, the date of the 2013
Constitutional Court Decision that we've heard so much
about. And Mr. Koenigsberger, in the February
hearing--at the February hearing said, you know, no,
no, no, we had no idea what to make of the July 2013
Ruling. He's trying to distance Gramercy from that
[Page 2880]
critical date because of this prescription period
problem.
But the contemporaneous documents show
otherwise, and you've seen here before the email chain
between Mr. Koenigsberger and Mr. Cerritelli, where on
the very day that that Constitutional Tribunal
Decision is rendered, Mr. Koenigsberger said, "Where
did they come up with this nonsense?" So, he's read
it. He knows he doesn't like it, he calls it
"nonsense." And then the Response is: "This is
different from what we expected. We expected to
represent a significant haircut." It doesn't matter
that they can't quantify or doesn't quantify the
haircut. He is saying this is different from what we
expected, we don't like it. There is your breach.
And your first appreciation of loss or damage is that
you expected to represent a significant haircut.
And why is this? Because it's clear on the
face of that Resolution that the Constitutional
Tribunal had not adopted CPI and interest from the
date of issuance. That was Gramercy's main points
that they are still making here, that they've made in
[Page 2881]
the Pomalca Case. That's what they have been seeking,
and it was clear on the face of that Resolution that
that is not what the Court adopted. So, they
immediately knew this doesn't comport with what we
want; hence, in their mind, a breach. And it was
going to result in lower payments to them; hence, an
appreciation of loss or damage.
Now, in their Post-Hearing Brief, Gramercy
characterizes this email exchange as a hasty email
that was written by a "single Gramercy employee." But
at the Hearing, Mr. Joannou testified that
Mr. Cerritelli was "Gramercy's main man in Perú." He
was the one who was most deeply involved with the
acquisition of the Land Bonds and being there with
respect to the Land Bonds. So that is simply not
credible.
But there is also additional evidence in this
regard. The following day, the very next day, a
Gramercy-affiliated Expert states that: "Creditors
might sue Perú in foreign or international court,"
clearly appreciating the alleged loss or damage. And
then we also have privileged withheld documents within
[Page 2882]
a couple of days that they prepared in anticipation of
litigation and withheld.
Now, yesterday they also--excuse me, in
February of the Hearing--Gramercy argued that they
didn't have any appreciation of loss or damage until
the issuance of the Supreme Decrees in 2014, but,
again, that is belied by the evidence and, in fact, by
Gramercy's own statements, even as recently as
yesterday when Gramercy stated: "They understood that
what the CT had ordered in July 2013 was something
different. It understood it might have an adverse
impact on its investment, but the extent of that
impact wouldn't become clear until months later."
Again, the jurisprudence is clear. And this
is a point on which the United States and Perú have
expressly agreed, and that agreement shall be taken
into account by the Tribunal, that you do not need to
appreciate the full extent of the damage that you have
suffered. What matters is the date on which you first
appreciated that you have suffered some loss or
damage. So, the fact that they didn't understand or
appreciate the full extent of the damage is legally
[Page 2883]
irrelevant. This is a clear concession that they
understood on that date that the Constitutional
Tribunal's Decision had an adverse impact on their
alleged investment. And they state this throughout
their Post-Hearing Brief, in fact. They call the
Decision the "smoking gun." They say it has features.
It is error-filled. It's a flawed premise.
Again, what they are getting at is that it
doesn't adopt CPI with interest from the issuance
date. That is easy to see, not something that would
take them a long time to find out--they knew it on the
day it was issued--and not something that would take
them any time at all to realize that it would result
in a valuation far below what they have claimed that
they are entitled to.
And again, recall, that in Gramercy's initial
pleading, they stated: "The Government's intentions
became apparent on July 16, 2013." Now, it was only
later that they shifted their focus to later events
when they appreciated the problem that they had here
with the prescription period. And that problem, as
you can see here, is that they did not submit their
[Page 2884]
claims to arbitration until--and GPH, excuse me, did
not submit its claim to arbitration until August 2016,
which is after that critical date.
Now, recall yesterday in response to some
questions from the Tribunal, when the issue came up
that this only--this objection only applies to GPH,
and Counsel stated, well, you know, that's okay
because, if you have jurisdiction over GFM, you can
award damages to GFM "on behalf of GPH," but, no, you
can't do that. There is no provision in the Treaty
that allows a Claimant to stand in the shoes of
another Claimant over which the Tribunal lacks
jurisdiction and to award to this other Claimant
damages suffered by the Claimant over which you lack
jurisdiction. So, you can't do that.
So, that is why this does remain important,
and also because GFM, in addition to GPH, clearly is
not an investor, as my colleague Mr. Ulrich will
discuss in just a few minutes.
Now, the problem with the prescription period
stems from the fact that they did not submit compliant
waivers until August of 2016, and it is clear from the
[Page 2885]
Treaty itself, as well as the U.S. submission, as well
as jurisprudence, that no claim can be submitted to
arbitration until you submit a compliant waiver, and
it has to be compliant in both form and in material
respect. And that's a condition precedent to the
submission of a claim to arbitration.
Now, counsel yesterday said: "A qualified
waiver is perfectly consistent with the Treaty." But,
no, it's not. The very words of the Treaty say
otherwise, as does consistent jurisprudence, as does
the Agreement of the United States and Perú.
Counsel also went on to say, even if it
weren't, "an imperfect waiver is still enough to stop
the clock on the time bar." That, too, is incorrect.
For that proposition, as you know, Counsel has relied
on the Renco II Decision. Now, Renco I, to take you
back to that, confirmed that an improper waiver is not
a trivial defect, but a defective waiver goes to the
heart of the Tribunal's jurisdiction, and Renco II
doesn't change that in any regard.
Now, Gramercy has placed into the record for
the Tribunal's consideration, and it's going to rule
[Page 2886]
on the issue, I believe, after the Hearing, the
majority opinion in Renco II, and it says that the
Tribunal's majority agreed or found that the
submission of a Statement of Claim in the earlier
Arbitration, even though that Arbitration was
dismissed for lack of jurisdiction, it suspended the
running of the prescription period.
Now, that is simply wrong. And I have quoted
here from the dissent, which Gramercy did not include,
nor did they make reference to the U.S. submission in
this case, which also contradicts the Renco
II Tribunal's ruling in that regard.
As the dissent explained: "The majority has
engaged in an excess of jurisdiction by arrogating for
itself a power which it clearly doesn't hold, and the
Contracting Parties' agreement, again, is that the
date of submission of an effective waiver is the date
on which the Claim has been submitted to arbitration
for purposes of 10.18.1" of that treaty.
Now, to just give you a hypothetical example
to put this very clearly in perspective, and to
explain why that Decision of the majority in Renco
[Page 2887]
II is clearly improper and is not only contrary to the
Parties' agreement, but beyond the Tribunal's
jurisdiction, I just want to explain how that Decision
both renders ineffective both the prescription, the
time bar provision in the Treaty, as well as the
waiver provision, and it is contrary to the object and
purpose of the Treaty.
So, if you imagine that a party has a claim
in domestic court and then wants to bring a claim in
arbitration, under the Treaty, they can do that as
long as, if it's running up against the three-year
period, they have to discontinue their domestic court
proceeding and then go to arbitration. They have to
waive their right to continue the domestic court
proceeding.
But let's imagine they don't do that, which
is what Gramercy did here. They put in the written
waiver, but they don't discontinue the proceeding.
That is a material waiver violation. Tribunals--Waste
Management II, other Tribunals--have clearly found
that is a violation that will render the Tribunal
without jurisdiction.
[Page 2888]
Now, in that event, what if the State Party
then raised an objection to jurisdiction on the
grounds of the material waiver violation? It goes
through briefing; it goes through a hearing. It takes
two years. The Tribunal renders a decision, dismisses
the case for lack of jurisdiction. By that time, the
prescription period has run. It's been more than
three years. But they are still going ahead in court.
They wait another year while they go through the court
proceeding. They get a court decision; they don't
like it. It's unfavorable. So, they file a new
arbitration.
By any standard, that new arbitration should
be time-barred. What Renco II, what Gramercy, wants
you to say is, no, it's okay, because we are going to
consider that it's not time-barred. We are going to
look at the time when you initially submitted that
claim to arbitration. That cannot be right because it
renders the prescription period entirely ineffective.
It renders the waiver requirement entirely
ineffective. That simply cannot be correct and should
not be followed here.
[Page 2889]
And finally, very briefly, I want to make a
few comments on abuse, because in addition to the lack
of jurisdiction the Claim is also inadmissible because
it is abusive. Even if there had been no
jurisdictional bar acquiring an investment that is
subject to a preexisting dispute is abusive because,
just like the Tribunal in Phoenix Action stated, that
type of an investment is not made in order to engage
in national economic activity. It is made in order to
transform a preexisting dispute into an international
dispute, which is exactly what Gramercy did here.
Now, as the Tribunal in Philip Morris
explained, an abuse of right also applies when there
is an existing dispute, although in many cases, there
will be a jurisdictional bar as well, as in our case.
Now, even if you find, however, that there
wasn't a preexisting dispute, Gramercy's claim is
still inadmissible as an abuse because the dispute was
reasonably foreseeable. And, as the jurisprudence
shows, an abuse can be found when a party engages in
corporate restructuring, the same thing as acquiring
an alleged investment, in order to gain access to
[Page 2890]
Treaty protection in order to bring a dispute that is
foreseeable.
And what does it mean if a dispute is
foreseeable? It means that it is within the
reasonable contemplation of the investor, if there's a
reasonable prospect that the measure which may give
rise to a treaty claim will materialize. And the
amount of time it takes for that claim to materialize,
that treaty claim, or legislation or something like
that, does not make it--is not determinative as to
whether it is foreseeable or not.
Now, here, at a minimum, it clearly--this
Arbitration was clearly within Gramercy's reasonable
contemplation when it acquired the Land Bonds. What
did Mr. Koenigsberger testify to? Once again, he
testified that Perú wanted to kick the can to the next
administration. They just didn't want to deal with
it. They waited until the next President. See if
that administration will deal with it. If not, they
kept kicking it down. This happened for decades.
Was it reasonably foreseeable that that would
continue to happen? Of course. Was it reasonably
[Page 2891]
foreseeable that they wouldn't get this grand virtuous
circle of a resolution, whatever that means? Of
course it was. Was it reasonably foreseeable that
they would end up in a dispute, a treaty dispute? Of
course it was.
He goes on to say that: "Of course we knew
there was an investment treaty. That was a valuable
safety net." But more than that, they said yesterday,
Gramercy invested because it saw an opportunity to
resolve the Land Bonds debt, and Gramercy understood
that receiving payment on the Bonds would likely take
time and effort, it might require consensus-building
and compromise, and perhaps even an assertion of legal
rights associated with the Bonds. Of course it might,
because this had been a long-standing dispute. Of
course it was reasonably foreseeable that it would end
up in arbitration, just like we are now.
So, with that, I'm going to pass the floor to
Mr. Ulrich, who will talk about the lack of investment
and investor.
Thank you.
PRESIDENT FERNÁNDEZ ARMESTO: Thank you.
[Page 2892]
Mr. Ulrich.
MR. ULRICH: Thank you. And thank you,
Members of the Tribunal. Let me jump right in here.
Even if you set aside the fatal
jurisdictional flaws just covered, the fact remains
that Gramercy didn't make an investment under the
Treaty, and neither Claimant is an investor under the
Treaty.
With respect to investment, the Treaty
definition is clear and requires an assessment of the
characteristics of an investment. The Contracting
Parties agree that this is an important requirement.
You didn't hear once from Gramercy yesterday about the
submission of the United States providing its views,
really, the agreed views of both Contracting Parties,
on various points of interpretation of the Treaty.
You did hear Gramercy's attempts to equate
the Land Bonds with other types of Bonds, like
comparing two types of cars from different eras, they
say. But that is not the relevant inquiry, as
Professor Reisman concluded. One must always assess
on a case-by-case basis the characteristics of
[Page 2893]
"investment."
Now, the Contracting Parties also agree that
the enumeration of a type of asset among the Treaty's
illustrative examples is not dispositive.
Nonetheless, you heard yesterday that because Bonds
are mentioned, they are presumed to have the
characteristics of an investment. This was the
refuted direct testimony of Gramercy's Expert,
Ambassador Allgeier, who had said he was thoroughly
familiar with the U.S. Government's understanding of
its treaties.
On cross-examination, Ambassador Allgeier
wasn't familiar at all with the U.S. Government's
submission on this Treaty in this case. This Treaty
says nothing about a presumption, and the Contracting
Parties have said nothing about a presumption. The
Ambassador also repeatedly acknowledged that treaty
interpretation is not within the scope of his
expertise.
The negative list to approach the
negotiations--this is another point covered by
Ambassador Allgeier. This, too, cannot obviate the
[Page 2894]
assessment of investment characteristics. On the
Ambassador's reading, and Gramercy's, every single
asset under the sun that is not expressly identified
by the Contracting Parties on an exclusion list is
automatically protected by the Treaty. That
completely deprives the investment characteristics
requirement in Article 10.28 of any meaning. Negative
list is a negotiating approach. It is not a legal
requirement. It is not a treaty requirement, as the
Ambassador acknowledged. It doesn't control the
analysis.
Now, consideration of investment
characteristics. Gramercy is skeptical that the
Salini factors could apply in an UNCITRAL Proceeding.
Professor Reisman, Perú's Expert, also has been
skeptical. He has been critical in other cases under
other treaties. But who better than a Salini skeptic
to explain why Salini is relevant in this case under
this Treaty? As Professor Reisman explains, Salini
and its jurisprudence are relevant to understanding
the Treaty precisely because the Treaty refers to the
characteristics of an investment. An interpreter, he
[Page 2895]
says, has no choice but to apply them.
Applying this criteria, we see that a treaty
investment requires that an investor make its own
contribution. It doesn't make an investment merely by
receiving an asset, let alone by inheriting control of
an asset years after the fact. A number of Tribunals,
some mentioned here, others in our Briefs, have ruled
on this need for an investor to make its own
contribution and not to act merely as a conduit for
contributions by third parties.
By the same token, an investor must assume
its own risk, and in the investment treaty context,
the jurisprudence shows, we are not just talking about
commercial risk, like the risk of nonpayment under a
contact or under a debt instrument. Investment risk
means operational risk tied to the success or failure
of an economic venture. As the Poštová Banka v.
Greece Tribunal ruled, that is not the kind of risk
involved even in the acquisition of sovereign bond
interests.
A treaty investment requires a certain
duration. You see here that the FedEx Tribunal
[Page 2896]
cautioned against short-term arrangements where an
investor seeks to make quick gains and then leave.
And, in KT Asia, the duration--the Tribunal ruled
that, where the investor's plan was to turn around and
sell the interest to third parties, the duration
element was not met just because that onward sale to
monetize the asset took longer than originally
planned.
A treaty investment requires a contribution
to the Host State's economic development. As
Professor Reisman testified, this is relevant because
it is reflected in the preamble of the Treaty, where
the contracting Parties resolve to promote broad-based
economic development, also a latent purpose of this
entire genre of treaties. Here, again, the
jurisprudence draws a distinction between a treaty
investment and an ordinary commercial transaction.
For fuller treatment of the preamble, including other
elements of the Treaty's object and purpose which must
be considered when interpreting the Treaty, I refer
you to our Briefs in the interest of time.
Now, Gramercy's alleged bond investment
[Page 2897]
doesn't meet any of these investment criteria. Not
its own contribution, not risk, not duration, not
contribution to Perú's economic development.
Much of the evidence relevant to this
analysis has been designated confidential by Gramercy,
so I need to ask that we enter into closed session,
please.
SECRETARY PLANELLS-VALERO: Okay. Thank you.
Yes. Give me a few seconds.
(End of open session. Attorneys' Eyes Only
information follows.)
[Page 2898]
CONFIDENTIAL SESSION
[Redacted]
[Page 2899]
[Redacted]
[Page 2900]
[Redacted]
[Page 2901]
[Redacted]
[Page 2902]
[Redacted]
(End of Attorneys' Eyes Only session.)
[Page 2903]
OPEN SESSION
SECRETARY PLANELLS-VALERO: The NDP is back
into the hearing group. Thank you.
MR. ULRICH: Okay. Thank you.
All right. Let's discuss contribution to
Perú's economic development. There wasn't any, not
from GFM, not from GPH.
Now, we heard repeatedly yesterday that
Gramercy planned to create a virtuous circle where it
could catalyze a resolution of the Bonds supposedly
with a wide range of corresponding benefits for Perú.
But that alleged plan never materialized. In reality,
Gramercy made one-off payments to bondholders using
third-party funds. Gramercy repackaged bond interest
for sale to third parties outside the Perú, and
Gramercy generated fees for itself outside of Perú.
Far from contributing to Perú, or to any economic
venture creating value in Perú, Gramercy actively
engaged in measures to undermine the economy in an
attempt to pressure Perú to settle. That's not the
type of conduct an investment treaty is meant to
protect.
[Page 2904]
A quick note on Gramercy's two Experts,
Ambassador Allgeier and Professor Olivares-Caminal.
Neither had assessed the actual circumstances of
Gramercy's bond acquisitions. They hadn't seen the
Purchase Contracts, they weren't aware of the funding
arrangements. As Ambassador Allgeier said, for
example, "I am totally unfamiliar with the Bonds
themselves and the transactions that took place."
In other words, they assessed the concept of
Bonds in a vacuum, entirely devoid of context, without
any consideration for the actual characteristics of
Gramercy's alleged investment in this case. That is
contrary to what Article 10.28 requires.
Now, jurisprudence on contemporary sovereign
debt reinforces that the Bonds are not investments
under the Treaty. We heard yesterday from Gramercy
that "Perú has never attempted to distinguish this
case from all the other cases in which Tribunals have
found Government Bonds are, indeed, investments."
Well, that's not true. In fact, Perú
introduced the analysis of this jurisprudence in a
Statement of Defense because Gramercy didn't mention
[Page 2905]
any of these cases in its Statement of Claim. Perú
also addressed the cases later in Briefing and also at
the Hearing, as we see in an example from a slide in
our Opening Argument and conclusions by
Professor Reisman saying that the Land Bonds are
nothing like the Bonds at issue in
Abaclat v. Argentina. This record speaks for itself.
The Treaty negotiating history further
confirms Gramercy didn't make an investment. As we
see here, the testimony of Perú's Witness,
Mr. Herrera, the chief negotiator for Perú, and
Gramercy's Expert, Ambassador Allgeier, is aligned.
The Bonds were never discussed at the negotiating
table and are not mentioned in any of the minutes of
the 13 rounds of Treaty negotiations. This hardly
supports Gramercy's theory that the Contracting
Parties were mindful of the Bonds, specifically
accounted for them in negotiations, and intended for
them to be covered under the Treaty.
Now, Ambassador Allgeier also testified that
a number of pre-Treaty disputes involving U.S.
investors regarding the land reform were "proverbial
[Page 2906]
sword of Damocles over the negotiations." As we saw
at the Hearing, those disputes concerned expropriated
property, not Bonds.
For example, the LeTourneau Case concerned a
dispute over payment for a road which had been
adjudicated in Peruvian Court. It wasn't a dispute
over the Bonds.
Ambassador Allgeier ultimately admitted that
he hadn't gone into details of that case or any of the
other cases his Report had referenced.
And as contemporaneous diplomatic cables also
showed, the U.S. Embassy in Perú actually recommended
the removal of a number of cases from consideration
due to lack of continued involvement of the investors.
This is hardly evidence that the Land Bonds were a
burning issue at the Treaty negotiations and that the
Contracting Party specifically intended that they
would fall under the protection of the Treaty. The
link that Gramercy has tried to manufacture here does
not exist.
If I may briefly make one further point here,
and, then, in the interest of time, we are going to
[Page 2907]
pass it back to Ms. Menaker and on to further issues.
This issue I'm going to address is that of
the beneficial owners. So, we see a critical issue
that came to light only years into this proceeding
with revelation of materials with Gramercy's Statement
of Reply is the particular nature of the beneficial
owners of Gramercy's alleged Bonds. As we
briefed--I'm not going to go over it, again,
here--Gramercy doesn't have standing to bring claims
with respect to the interest of third-party beneficial
owners.
Can we advance the slides, please?
And at the Hearing, both
Mr. Koenigsberger--keep going.
Can we had advance the slide, please? Again.
Next one. Thank you.
[Redacted]
[Page 2908]
[Redacted]
(End of open session. Attorneys' Eyes Only
information follows.)
[Page 2909]
CONFIDENTIAL SESSION
[Redacted]
[Page 2910]
[Redacted]
(End of Attorneys' Eyes Only session.)
[Page 2911]
OPEN SESSION
MS. MENAKER: Let me know when I can begin,
please.
SECRETARY PLANELLS-VALERO: The NDP is back
in the room. Thank you.
MS. MENAKER: Thank you.
So, Gramercy's expropriation claim fails at
the threshold because it cannot show that Perú has
destroyed all or virtually all of the value of its
investment, which is, of course, the requirement
for--one of their requirements to show an
expropriation. The Bonds, admittedly, were worthless
on their face well before Gramercy acquired them and
well before any of the Challenged Measures. And this
destruction of the bond value was neither unlawful nor
did it occur after the Treaty entered into force.
Now, yet in their Post-Hearing Brief,
Gramercy said that Perú does not dispute that
Gramercy's purchase price represented a steep discount
to its Lands Bonds' value--true value--and that the
reason for the discount was Perú's own conduct. And
yesterday Gramercy said: "It was the Government that
[Page 2912]
confiscated the land the size of Portugal and did not
pay for it. It was the Government that drove the
economy into the ground and initially undercut the
value of the debt."
However, it is undisputed that the Bonds
became virtually worthless as a result of years of
economic instability and severe inflation, not because
of any unlawful conduct by Perú, and, in any event,
this conduct occurred well outside of the time that
the Treaty was in force. And Mr.--Professor Edwards
recognized this. It was a result of severe
hyperinflation that rendered the Bonds facially
worthless.
In any event, the value of the Bonds has not
been destroyed by Perú's actions because Perú has
offered substantial compensation to Gramercy as well
as other holders of Bonds that have been
authenticated, but Gramercy chose to refuse that
compensation. As you've heard many times, Gramercy
paid $33 million for these Bonds. If they had gone
through the bondholder process, they could have
obtained $34 million.
[Page 2913]
Now, yesterday Gramercy said that the bond
process offers "trivial amounts of money of which the
society should be ashamed." At the same time,
Gramercy yesterday said that the Sellers, the Peruvian
bondholders that sold them their Bonds, agreed to sell
them to Gramercy because Gramercy paid them fairly.
Now, Members of the Tribunal, these two
statements are simply irreconcilable because Perú is
offering, essentially, what Gramercy paid for the
Bonds, which means that the bondholders who sold to
Gramercy would have gotten approximately the same
amount had they gone through the bondholder process.
Now, some of them, as you've seen, could have
gotten more, would have gotten more. Some would have
gotten slightly less; but, on average, approximately,
it's the same amount. They can't, on the one hand,
say that they treated these bondholders fairly, they
paid them amounts that were fair, that represented the
value of the bonds, and that they should be happy, and
these Bondholders are very, very happy to have
received this from Gramercy; and, at the same time,
call it shameful that Perú would have offered them the
[Page 2914]
same amounts and would offer Gramercy the same amount,
that is simply irreconcilable.
The other thing that defeats their
Expropriation Claim is their Tranche 2 purchases, and
you heard nothing about this yesterday from Gramercy.
2017, well after any of the acts that Gramercy is now
complaining about in this Arbitration, they went out
and purchased additional Bonds.
Now, when can you ever imagine a Claimant
having an investment that has been expropriated and
then they go out and they purchase that same
investment? Of course not. It had to have had value.
It could not have been substantially devoid of all
value if they went out and they actually purchased
additional Bonds.
Now, the other aspects that one looks at when
determining whether there has been an expropriation in
addition to showing that a financial impact, that it
was all or virtually all destroyed, you look at the
character of the measure and whether there have been
reasonable investment-backed expectations that have
been quashed by the measures, and both of those
[Page 2915]
factors also doom their expropriation claim.
Now, with respect to the character of the measure, that's because this measure at issue here, the bondholder process, it applied to all Bondholders. It was a general application. It served a legitimate public interest of resolving a decades-long dispute. It was implemented on the basis of fundamental public welfare objectives, including promoting the public general welfare, providing basic services, ensuring that there was money available to provide those services, et cetera.
Yesterday, counsel referenced the Siemens Case and said that's insufficient. The Siemens Case is inapposite. That case concerned a measure which was a Government degree that terminated the Claimant's contract. The Claimant had, what amounted to, a 12-year-long contract and, pursuant to Decree, the Government terminated that contract. That is a specific measure aimed at a specific Claimant. It is not a measure of general application that is adopted in pursuit of these objectives here, and it is completely inapposite.
[Page 2916]
Now, with respect to reasonable expectations, we have shown at length this morning that Gramercy had no reasonable expectations. They knew that the Bonds were subject to long-standing uncertainty and dispute. And, in the interest of time, I'm not going to repeat all of that here. In fact, I'm not going to repeat any of it here.
MS. BIRKLAND: This is confidential, I believe. This is a confidential slide.
MS. MENAKER: No, I'm not. We are skipping over those slides in the interest of time.
And I'm only going to mention that you have seen time and again the consistent lobbying if they had reasonable investment-backed expectations. That means that there was certainty. You wouldn't be lobbying. What are you lobbying for to change the law if there is certainty? Why are you going to court if there is certainty? Why are you only floating a test case? But I urge the Tribunal to look at the various additional quotations on the slides when you have time.
With respect to the Minimum Standard of
[Page 2917]
Treatment Claim, there, that claim is largely based on an argument that there has been a violation of fair and equitable treatment because Gramercy's legitimate expectations have allegedly been frustrated by Perú's measures. And that claim is also doomed to fail because, while legitimate expectations are a factor that is taken into account in an expropriation, it is expressly not a part of the customary international law Minimum Standard of Treatment. On this, the contracting Parties to the Tribunal agree. You have jurisprudence from Tribunals interpreting treaties similar to this one, as well as ICJ jurisprudence showing that.
So, then, when you look, what do they have left? When you're looking at a fair and equitable treatment standard--excuse me--violation in a nonjudicial context, the standard is indisputably very high, and they have not come close to meeting it. Instead, they rely on a host of arguments that these measures were contrary to Peruvian domestic law. But that alone is woefully insufficient to show a customary international law Minimum Standard of
[Page 2918]
Treatment violation.
Yesterday, Gramercy focused on some alleged domestic law violations and discussed, in particular, the prepublication requirement under Peruvian law. And it said that this requirement, in fact, emanated from our Treaty itself, and then was enacted into law in Perú in order to implement the Treaty's requirements. But that does not make noncompliance with that provision an FET violation.
And it is quite the opposite because our Treaty has express terms that says a breach of another provision of this Treaty does not constitute a breach of the customary international law Minimum Standard of Treatment. And the Tribunal will recall that the Metalclad v. México Decision was partially annulled, partially set aside for this very reason.
That Tribunal found a violation of the Minimum Standard of Treatment on the basis of alleged violations of transparency obligations that were part of other chapters of the Treaty, and the Court that set aside that Award partially on those grounds said those other violations do not constitute Minimum
[Page 2919]
Standard of Treatment violations.
So, instead, you have a host of complaints about a process that my colleagues discussed this morning in a lot of detail, so I won't repeat that here, but to say that also their complaints about alleged lack of consultations are inapplicable. This is not a restructuring, a global restructuring. They have pointed to no binding international--customary international law that would require the kind of procedure that they now are looking for.
And, at the end of the day, really, this is just post hoc complaints by them because, as my colleagues also showed, they didn't boycott this process because of these alleged procedural defects, of these shortcomings. At bottom, they did not like the valuation. They did not like the amount of money that they would get from this procedure, and that's what their complaint is.
And that is something that is well beyond the purview of this Tribunal to review and to decide that that would constitute a violation of the customary international law Minimum Standard of Treatment.
[Page 2920]
And, again, FET clearly does not provide an insurance or a guarantee for speculative investments. When you look at the Antin v. Spain case, I think it is quite instructive because there you had also a regulatory system that was in flux. You had people coming in, investing in solar power, but the market was overheated, and the Government was talking about having to do something about it.
They were debating what kind of legislation could we put in place? What new regulations? And this investor ran in, knowing this in the background, made an investment, and then when the law did change, they said, oh, wait, look, our expectations have been frustrated. This is an FET violation.
The Tribunal dismissed that, and they called that investor's actions opportunistic. That fits Gramercy to a T. They are opportunistic. They piled in to take advantage of laws which they knew were in a state of flux. All they had was a speculative hope. That hope is not protected by the Minimum Standard of Treatment.
Now, very briefly, Gramercy yesterday did not
[Page 2921]
even address their denial-of-justice claim, and that's clearly why they didn't do so is because they don't have standing to bring one. They--all of their complaints are with respect to the 2013 Constitutional Tribunal Decision, and they were not a Party to that Claim, that Case. And we pointed this out and they had no response whatsoever. So, they can't bring a denial-of-justice Claim.
So, now they tried to bring an Effective Means Claim. They can't do that either. They can't import the "effective means" provision through the MFN provision into this Treaty. Both of the Parties agree on that. It is clear in the text of the Treaty itself. It just simply cannot be done, but, at bottom, it fails for a number of different reasons in addition to all of the reasons we've discussed when we discussed the substance of the 2013 Constitutional Court Decision.
And, finally, with respect to national treatment on which Gramercy, again, that--spent very little time yesterday, that theme Claim also necessarily fails. They have not even identified a
[Page 2922]
relevant comparator. They are purporting to compare themselves to all the Peruvian Bondholders, which are largely comprised of a group of individuals with comparatively small holdings and various different circumstances.
But, anyway, they haven't shown any disparate treatment on account of nationality, which is what the national treatment obligation protects, and, at bottom, their national treatment claim rests on an irrelevant payment structure for small payments.
Yesterday, Gramercy said, quote, "it was the last in line to receive payment." That is gross misstatement, or it grossly misconstrues the nature of this provision in this Decree.
All this Decree says is that, when you go through the Bondholder process, you get paid in Bonds. However, for $30,000 you can opt to get cash. But if the Government runs out of cash, then they have an order of priority, which means, for Gramercy's $1.8 billion claim or $840 million claim, it would have been maybe entitled to get $30,000 of that in cash, if they were in the Order of priority and the
[Page 2923]
Government hadn't run out of cash.
This cannot form the basis for a national treatment Claim as the President recognized at the February Hearing for this arbitration. This provision, it's irrelevant. It may be important for small Bondholders, not for Gramercy. Gramercy, in any event, didn't participate in a process, and all along it said it was happy to receive Bonds.
So, with that, I thank the Tribunal for its attention, and I turn the floor over to my colleague, Mr. Llano.
PRESIDENT FERNÁNDEZ ARMESTO: Thank you. Let me, before--let me get a time check from the secretary.
SECRETARY PLANELLS-VALERO: Mr. President, the Respondent has one minute of its time left.
PRESIDENT FERNÁNDEZ ARMESTO: Very good. I think Dr. Llano, you wanted to, say, to take the floor?
MR. LLANO: Yes, Mr. President, if you can give me five minutes.
PRESIDENT FERNÁNDEZ ARMESTO: Of course. No
[Page 2924]
worry.
MR. LLANO: Okay. I will cover a handful of slides.
PRESIDENT FERNÁNDEZ ARMESTO: But it's better if you go slowly and you try to focus your comments to what is really important rather than trying to cover too much terrain.
MR. LLANO: Absolutely. I agree.
PRESIDENT FERNÁNDEZ ARMESTO: Thank you.
MR. LLANO: Thank you, Mr. President and Members of the Tribunal, for your attention and patience today.
Gramercy's damages case is a jumble of inconsistent figures and valuations, cherry-picked from a number of variables to suit their taste for a number that they are looking for. But before this Tribunal can even consider stepping into this morass of numbers it is key to address a series of threshold issues which Gramercy either confused or left unaddressed yesterday.
The first set of questions is who is Gramercy and why is Gramercy, as opposed to some undisclosed
[Page 2925]
third-party investor, entitled to any damages on the facts of this case? The answers are that Gramercy is merely a vehicle for other people's money, and that it is, therefore, not entitled to any damages in this Arbitration.
More specifically, Gramercy has failed to prove any investments by Claimants, not made on behalf of third-party beneficial investors, other than a de minimis ownership share by GFM. Gramercy also has failed to prove any damages to either Claimant, other than supposed lost Management Fees.
In fact, as testified by Mr. Lanava, which you can see on the screen, and that is Gramercy's Chief Compliance Officer, in his Second Witness Statement, "when and if Gramercy monetizes its Land Bonds investment--whether through a settlement with Perú or through an award in this Arbitration--the proceeds will be distributed by PARB exclusively to the...existing owners of PARB according to their ownership in PARB on our official books and records."
PARB, or Peruvian Agrarian Reform Bond Company, is a Cayman Islands entity that owns GPH, one
[Page 2926]
of the two Claimants in this case. And that is why Gramercy wasn't even clear in its Request for Relief as to whom any proceeds from this arbitration would need to be awarded to. Claimants suffered no damage and have proven none. At most, Claimants would get to keep whatever Management Fees they would be entitled to for pulling off such an extraordinary outcome.
But as also mentioned on this slide, Gramercy has not provided any evidence as to the amount of such Management Fees. And in any event, Gramercy has been collecting Management Fees for years on the back of hyperinflated valuations of the Land Bonds. Again, no damages proven here.
Gramercy has also failed to provide its financial models underlying its internal valuations and to provide financial statements or valuations coming from either Claimant. In short, this is not Gramercy's Claim. It is a Claim that they have sold to third-party investors who appear to have been taken in by self-sustaining valuations for years.
No damages to either Claimant have been proven, and we will provide a context at the end of
[Page 2927]
this very brief section, and references to evidence when we go into confidential session. Gramercy also has failed to establish and then satisfy a proper legal standard for damages in this case.
As Mr. Kaczmarek and Ms. Kunsman explained in their First Quantum Report, a damages case in an investment treaty arbitration must be anchored in an appropriate standard, and Tribunals most often adopt the Fair Market Value standard. That standard makes sense here precisely because there was so much uncertainty regarding the valuation of the Land Bonds at the time when Gramercy acquired its Bonds.
But Mr. Edwards disclaimed all that, he disclaimed all knowledge of Gramercy's expectations. He disclaimed all knowledge of Gramercy's due diligence. He disclaimed any concern with applicable standards in Treaty arbitrations.
In fact, when I asked him a question about whether he had any understanding about what the expropriatory act at issue would be, I was met with an objection from Claimants, which is telling because any meaningful valuation would take into account the
[Page 2928]
timing of the acts at issue.
Mr. Edwards' calculations are divorced from any understanding of Claimants' facts and Claimants' case, and the convenient use of the all-purpose phrase, "intrinsic value," does not bridge this gap.
MR. FRIEDMAN: Mr. President. Forgive me, Mr. President. You are on mute, Mr. President.
PRESIDENT FERNÁNDEZ ARMESTO: Sorry for that. No, I think, Mr. Friedman, you are going to say how long does Mr. Llano have to go.
MR. FRIEDMAN: In a slightly stronger form, which is that this is the second time because it happened at the Opening arguments, oral Opening arguments as well. I just want to make sure the rules are being applied equitably to the sides. That you will recall that both at the Opening and for this oral Closing, we had proposed slightly longer periods of time of three hours, which Perú objected to and cut back and said it should be 2.5 hours.
We then worked quite hard to be as disciplined as we could and felt sometimes we had to go faster than we wanted to in order to stick with
[Page 2929]
what the Tribunal had said, and so we left a lot of material on our cutting room floor out of being disciplined and respectful to what the Tribunal provided for.
Of course, we all appreciate that if you run over by a couple minutes because you want to wind up, nobody is objecting to that, but I note that Mr. Llano is sort of in the middle, or he is still at sort of the beginning of a whole series of slides on this topic.
And I just think it is rather--it is sort of unfair to have left us in a position for the second time where we had to comply and had the--there is a lot we didn't get to say because of the compression of time. And I think at the Opening, if I recall, I think that Respondent ended up taking about 20 minutes more than we did, which is not an immaterial amount of time when you are limited to 2.5 hours.
So, I would ask that the Tribunal simply apply the same discipline. They really--they have allocated their time and made their choices. They really do need to kind of conclude now, at least that
[Page 2930]
is our very respectful proposition and submission to the Tribunal.
PRESIDENT FERNÁNDEZ ARMESTO: Thank you. Thank you, Mr. Friedman.
Mr. Llano, I have--how long do you have to go?
Mr. Llano: Two slides.
PRESIDENT FERNÁNDEZ ARMESTO: Okay. You must come to an end now. You must wrap up your arguments, and if so we because I have some sympathy that you are really the last to speak and we compressed the presentations to 2.5 hours, and we should try to stick to that.
So, please. Two more. And please let's not make these old Spanish jokes that the five continents are four, Asia and Europe. Let's make it two slides.
MR. LLANO: Two slides, sir. Thank you.
So, I have--in these two slides, I have two points to make. One is about intrinsic value, and what is--and the other is about what is Gramercy's claim at the end of the day. So, on intrinsic value, what I want to say is this is just a euphemism for
[Page 2931]
whatever Gramercy sees fit to claim.
Whether it is $300 million or 800 or $1.8 billion, and as you can see on this slide, Mr. Edwards on cross-examination was taken to his First Report, his submission in chief, and he provided no connection between his so-called "intrinsic value" calculations and any understanding of Peruvian law.
He just came up with a high number. It is totally unilateral and totally circular. The number is not based on any market, any comparables, any certainty, any parameters.
And the other point I want to make just to conclude on this slide, is that we heard yesterday in Gramercy's Closing Arguments that intrinsic value is supported by Legal Authority. We respectfully disagree. Gramercy on Slide 151 of its presentation cited to Fedax v. Venezuela, Brazilian loans, Serbian Loans, and Vigotop.
Not one of these cases even mentions the phrase "intrinsic value." Fedax, which we show here, literally awarded the face value of the promissory notes at issue. The amounts that were specifically
[Page 2932]
recorded in terms of principal and they correspond exactly to the calculation of interest. Brazilian Loans awarded the precise amounts on the face of the loan Contracts, same with Serbian Loans, Vigotop is not even on point.
Intrinsic value is a meaningless phrase. It is not a standard, and to put in the same sentence together with Fair Market Value is ludicrous under international law.
So, now I will go, as I promised, to one of the final slides.
PRESIDENT FERNÁNDEZ ARMESTO: To your slide, to your final slide. Very good. Thank you. You are going to the values of your firm, which are important and probably you want to go one slide before that.
MR. LLANO: If my colleagues can pull back up the presentation, last slide.
PRESIDENT FERNÁNDEZ ARMESTO: "The value of your firm is never go one step back." And this is why you are unable now to go one slide back.
MR. LLANO: That's okay. Mr. President, we have dealt with worse.
[Page 2933]
So, I will tell you the point.
Mr. President, Gramercy's claims, at the end of the day, turn on a Claim that was purchased from Peruvian Bondholders. It was purchased at a price, $33 million, and it was purchased at that price for a reason because there was no market and there was no certainty, and uncertainty carries a price.
That price was factored into the Market Value of the Bonds that Gramercy purchased, but it is not--that uncertainty is not factored into the valuation that was provided by Mr. Edwards. And the fact that Mr. Edwards was compelled to provide not one, not two, but seven different alternative quantifications, all of which purportedly are conveniently consistent with the notion of intrinsic value shows you--shows you--that there is no basis here for legitimate expectations.
There is no basis for a claim of certainty, and the suggestion that was made yesterday that intrinsic value applies when you have a sum certain that is taken away from you is exactly the opposite of reality. Reality is there was no certainty. There
[Page 2934]
were no legitimate expectations other than uncertainty, which is Gramercy's business.
Gramercy purchased a claim. [Redacted] I will not get into the specifics to avoid any confidentiality issues, but this is the core of the issue. They bought a claim. That's all they bought. No certainty, no legitimacy. This is an abusive Claim and it should be dismissed with costs.
I thank you, very much, Mr. President and Members of the Tribunal, I thank you especially for giving me this one last minute. Thank you.
PRESIDENT FERNÁNDEZ ARMESTO: Thank you, Dr. Llano.
With that, we finalize the presentation of the Republic of Perú. We will now break for a quarter of an hour, if that is agreeable.
Could I see--because I only see Dr. Llano. Maybe Mr. Friedman or Dr. Popova could come up. Yes.
[Page 2935]
Thank you, Mr. Hamilton. So, if this is agreeable to you, we will now break for a quarter of an hour and we may or not have some questions to you.
MR. FRIEDMAN: Of course.
PRESIDENT FERNÁNDEZ ARMESTO: Is that agreeable?
MR. FRIEDMAN: Of course, Mr. President.
PRESIDENT FERNÁNDEZ ARMESTO: So, it is now 18:15. We will endeavor to be back by 18:30 French time, which is whatever time is in America.
MR. FRIEDMAN: 12:30 on the East Coast of the United States.
PRESIDENT FERNÁNDEZ ARMESTO: 12:30. We promise that we will let you off to a lunch in good time in America, and to dinner here in Europe. Thank you.
And we now break into our breakout rooms.
(Brief recess.)
PRESIDENT FERNÁNDEZ ARMESTO: We have a few questions which we have deliberated upon and on which we would like some further short input because--I
[Page 2936]
mean, there is a huge amount of material in the case, and we will, of course, go through all the material.
We have, first, two areas which we would like to hear both Parties. One is the 2013 Constitutional Court Decision and then the three Supreme Court Decrees. And starting with the Constitutional Court Decision, we understand that it established the law of the land regarding the payment of the outstanding Agrarian Bonds.
Can we have a very brief summary of what the Constitutional Court said regarding the principal and the interest of the Bonds, these two issues which seem important?
Mr. Friedman, I give you just these two points, if you can give us, in a nutshell, what did, in your opinion, establish the Constitutional Court as the law of the land regarding principal and interest of Agrarian Bonds?
MR. FRIEDMAN: Thank you, Mr. President.
We addressed this to some extent yesterday in our presentation and have some slides, if I can just recall the slide numbers. I would refer you to them
[Page 2937]
because they are helpful on this topic. Yes. I'll refer to those in just a moment.
The Constitutional Tribunal July 2013 Decision considered the issue, of course, against the constitutional and civil law background in which the question of updating the Land Bonds debt occurred. All right. So, it wasn't just an isolated issue, and there had obviously been a great deal of litigation in the lower Peruvian Courts as well, as you know, over the years about updating value in particular cases.
So, the Constitutional Tribunal considered what the principal was to achieve the current value, and it was their focus. And I think, as Professor Castillo described it during his testimony, and I think, actually, as Respondents acknowledged during their presentation today, strictly speaking, current value by itself means updating the principal so as to eliminate the effects of time, or inflation, that have denuded the value of Bonds--right?--so that it restores the original purchasing power of the obligation.
And I think the Constitutional Tribunal in
[Page 2938]
2013--it is quite clear, it is actually in the opinion--explicitly said that that is exactly what that same Tribunal had held in the same case back in 2001. That is the principle that--the legal principle--that's p-r-i-n-c-i-p-l-e--includes updating the principal, p-r-i-n-c-i-p-a-l, of the Bonds to current value. And that--but neither the CT 2013 case, nor, as Respondent's counsel correctly pointed out, the 2001 CT Decision was about the face--the interest rate that would also have to go along with it to comply with the obligation of the Civil Code because--I think because everybody understood that the--if I can speculate a little bit, but I think because everybody understood that was a Civil Code requirement in any event and that is--and consequently, the Constitutional Tribunal in 2013 talks about the approach to updating, how they are going to do updating.
PRESIDENT FERNÁNDEZ ARMESTO: How will they--let's go to that. Let's go to the details of that.
MR. FRIEDMAN: Sure.
[Page 2939]
PRESIDENT FERNÁNDEZ ARMESTO: How is your understanding of the updating that the Constitutional Court mandates?
MR. FRIEDMAN: What they mandated were certain parameters that they then directed The Ministry of Economy and Finance to implement in Supreme Decrees. And that was the part, I think, the Ministry actually had the greatest problem was, which is that they were actually being told to do something in an enforcement instance by the Constitutional Tribunal, and it was the subject of their later challenges. But what the Constitutional Tribunal said on this can be found in the Decision itself. They looked at these different methods, and then in Paragraph 25 of the Decree, they say, "Okay. Here are the reasons why we are going to select one of these methods, and we think that's appropriate."
They describe two reasons for it in Article 25. They said they find it appropriate to opt for an updating criterion that employs conversion of the unpaid principal into United States dollars as of the date of default on the payment of the coupons of
[Page 2940]
the Bond, plus the interest rate of the United States Treasury Bonds. This is due to the fact that, first, the method of conversion, the United States dollars has legal precedent in Emergency Decree Number 088/2000, which you will recall was the subject of the Court's 2004 Decision. That was the optional dollarization approach; and, second, because, as stated, the other valuation methods described would generate severe impacts on the budget of the Republic to the point of making impractical the very payment of the debt.
PRESIDENT FERNÁNDEZ ARMESTO: Okay.
MR. FRIEDMAN: And so, that's what they then prescribed. But they also state, as we indicated in--this is where we indicated in our Slide 70 yesterday--in Paragraph 28 of the Decree. They are directing then what the Supreme Decree must do, what the MEF must do to carry out this procedure, and they say: "Similarly, the Supreme Decree must contain a procedure intended to quantify the debt in each case, according to the method adopted for this purpose by the Tribunal. And it must be completed within
[Page 2941]
two years, and this procedure must show the updated amount of the land reform debt bonds plus the interest." Plus the interest.
And so, if you have updating as a concept, because that's what current value is about, that's the updating part. That is the piece about converting to U.S. dollars and then applying, in this case, a treasury rate, which the Ministry chose a short-term one-year U.S. Treasury rate, as you know, but plus the interest.
Now, if that was at all ambiguous--
PRESIDENT FERNÁNDEZ ARMESTO: No. We just want to--what about the parity exchange rate?
MR. FRIEDMAN: Yes. They do reference the parity exchange rate in--here, if I recall correctly, it is not in Paragraph 25. 25 is the methods we're selecting. I think what you must do to find out that is look at the prior paragraph, 24. That's the method that they are basically adopting. They say we have--we have the method that proposes the calculation of the updated value of the Bonds by indexing existing obligations to their equivalent in foreign currency,
[Page 2942]
which may be the dollar or others, to which the interest rate of American Treasury Bonds would be applied. This formula updates the obligation by converting the debt, principal, to U.S. dollars using the Parity Exchange Rate.
So, that was the--and it's very clear--so, they are describing that, and that's in distinction to Option 1, which was the--an original kind of dollarization approach that they had studied in the 2004 Opinion. So, they specify--so, the parameters that come out of the CT 2013 Decision are convert to U.S. dollars at the date of default in using a Parity Exchange Rate, rather than some other kind of exchange rate.
And then they--enough to develop a process to do the updating, show the value of the updating plus the interest.
PRESIDENT FERNÁNDEZ ARMESTO: Very good.
Thank you.
Let me get now the Republic, the Respondent, if they agree that this is what the Constitutional Court Decision said.
[Page 2943]
Mr.--now I have lost you because I have--yes, Mr. Hamilton. Now I have you.
MR. HAMILTON: Thank you very much, Mr. President.
PRESIDENT FERNÁNDEZ ARMESTO: Do you agree with the position of Claimant?
MR. HAMILTON: I am cautious to say that ever in this particular proceeding, but let me simply answer your question, Mr. President, and thank you for the question regarding principal and interest as addressed in the 2013 Court ruling. Keep in mind, Members of the Tribunal, that the 2001 Sentence, a limited ruling, did not set out a rule for valuation method, for principal or interest, and did not set out a payment procedure. And those uncertainties were clearly identified by the Court in the resolution and then correspondingly the Court proceeded to establish a valuation method and establish a payment procedure.
With respect to the valuation method, the Court Decision, indeed, at Paragraph 25 and--24-25--sets out payment through dollarization updated from the last clipped coupon and interest at the U.S. T-bill rate.
[Page 2944]
I reference you to Respondent's Closing Statement Slides 58-60--to 61. And here we see the language just acknowledged by Claimant with respect to the designation of principal paid in dollars.
PRESIDENT FERNÁNDEZ ARMESTO: Very good. So, I think there is--we can all, I think, agree that the system declared constitutional by the Constitutional Court was based, as you said, that the principal was converted at the Parity Exchange Rate into dollars on the date of default, and then that thereafter, there would be interest accruing at the Treasury rate of the U.S.--the U.S. Treasury rate and that this would be the system of converting the original debt into current value. Very good.
Now, let us go to the next step, which is the two Supreme Decrees because we have spoken very little about them, and the Tribunal--
MR. HAMILTON: Mr. President--
PRESIDENT FERNÁNDEZ ARMESTO: And the Tribunal would like to have some further information on that.
Now, I understand that Claimant is saying
[Page 2945]
that the Supreme Degrees are arbitrary or they are in some way discriminatory. And can we ask Claimant to express exactly why it is of that opinion, and then we will get the Opinion of the Republic on exactly the same question.
Mr. Friedman.
MR. FRIEDMAN: Yes. The discrimination--
PRESIDENT FERNÁNDEZ ARMESTO: Financially. Can we focus on these issues which we have now identified. Do you remember? We identified the principal, the interest, how it was going to be calculated. I know that you have some procedural issues with the Supreme Decrees, but can we go to the merits of the Supreme Decrees, why you think that these Decrees in establishing the parity rate and in converting it to and from dollars to local currency, why in your opinion there is some arbitrariness or discriminatory character in these Decrees.
MR. FRIEDMAN: Umm-hmm. We addressed that at some length yesterday, so I don't want to repeat everything I said yesterday--
PRESIDENT FERNÁNDEZ ARMESTO: I know.
[Page 2946]
MR. FRIEDMAN: --or the slides. I will give you the highest level summary, perhaps, and then if you have further questions.
Before I do, I just want to make clear that, because I didn't want it to be ambiguous in response to the last question and answer, that what we say the CT required in 2013 was that they do an updating, and that used U.S. Treasury--the interest rate of U.S. Treasury Bonds to do the updating; but, in addition to that, they needed to add the compensatory interest.
So, the word "interest" comes up and has two connotations in that. And that's what the Supreme Court--I just--your restatement at the end of what the Parties had sort of agreed, I don't think reflected what we believed we had stated to you.
PRESIDENT FERNÁNDEZ ARMESTO: Okay. So, the compensatory interest. Why don't you dwell on that?
MR. FRIEDMAN: Yes. Well, that's exactly, exactly what was at issue in all of those Supreme Court cases, including the one that the Tribunal asked about in Procedural Order 11. In those cases, the Peruvian Supreme Court said it is not enough to do the
[Page 2947]
updating, which, of course, includes updating using U.S. Treasury rate--interest rates on U.S. Treasury Bonds. You also--and the Constitutional Tribunal in 2013 also required adding to that compensatory interest on the Bonds at the face rate of the Bonds, either 4, 5, or 6 percent. And that's in RA-394, which is one of those Supreme Court Opinions, but there are five of them. And you'll recall Respondent's' Expert, Dr. Hundskopf, confirmed that they all said the same thing, that they were intellectually coherent under Peruvian law, and they carried out what the CT, the Constitutional Tribunal, had said in July 2013.
So, I just don't want--the word "interest," I just don't want to omit this important element of compensatory interest. And I say that--
PRESIDENT FERNÁNDEZ ARMESTO: How is exactly your idea that this compensatory interest would be calculated?
MR. FRIEDMAN: In general, so just sort of speaking about it conceptually, quite straightforwardly, you add the compensatory interest
[Page 2948]
to the updated value of the Bonds. Technically, Professor Edwards showed how you do that calculation in the formula that we attached to the Post-Hearing Brief.
PRESIDENT FERNÁNDEZ ARMESTO: Of course. Professor Edwards goes to the 762, I think, rate or--
MR. FRIEDMAN: No, no, no. No, no, no. No, no. No. I'm sorry. Forgive me, but that's--yes, Professor Edwards did calculate the 7.2 percent rate as a real Rate of Return on debt in Perú, but put that completely aside. Pretend that doesn't even exist. Professor Edwards also shows that the--that the--if you simply apply compensatory interest at the Bond face rates to Gramercy's Bonds--
PRESIDENT FERNÁNDEZ ARMESTO: I must interrupt you. We have some difficulty with Mr. Drymer, who seems to have lost his connection. He's frozen. Sorry for that. Can I get the Secretary to double-check what is happening with Mr. Drymer.
SECRETARY PLANELLS-VALERO: Yes.
Mr. President, Mr. Drymer can hear us. He can just not see us, but we are checking with the technician at
[Page 2949]
this moment.
(Discussion off the record.)
LEGAL TECHNICIAN: Mr. Drymer, if you continue to have problems, I suggest quickly logging off and logging back on. That tends to quickly resolve this solution.
PRESIDENT FERNÁNDEZ ARMESTO: That is a recommendation for Mr. Drymer; correct?
LEGAL TECHNICIAN: Indeed. Yes, indeed.
PRESIDENT FERNÁNDEZ ARMESTO: Thank you.
(Discussion off the record.)
PRESIDENT FERNÁNDEZ ARMESTO: Very good.
Mr. Friedman, why don't you continue?
MR. FRIEDMAN: Yes.
ARBITRATOR DRYMER: Again, I assure you I heard everything that was being said, even if I couldn't see the video up until the moment the technician asked me to log off, which I did.
PRESIDENT FERNÁNDEZ ARMESTO: Okay. So, you just can continue where you stopped.
MR. FRIEDMAN: Okay. Thank you.
I just want to be quite clear, and it's a
[Page 2950]
response also to the question, Mr. President, that you asked, which is essentially what's wrong with the Supreme Decrees? One of big things that is wrong with them is that they don't pay compensatory interest.
Now, the compensatory interest is on top of the updating. That's a conceptual matter because updating is obviously restoring the original purchasing power of the principal. That's the whole point of it. And compensatory interest is intended to compensate people for the time--the value of money, the time that they didn't have that principal to be able to use. And that's what Professor Castillo and Dr. Hundskopf agreed on.
We say it's what's in the 2013 Constitutional Tribunal Decision in Paragraph 28 when they said the Ministry has to show the updated amount plus the interest. We say that is confirmed in a 2015 CT Decision, but even if you don't believe either of those, the Peruvian Supreme Court addressed that issue five times, including in that case RA-394. And at Paragraph 10.3 of that Decision, they clearly state that because the Article 1242 of the Civil Code
[Page 2951]
establishes that when interest is compensatory, it must be paid. And they say in this legal context it is observed from the Land Reform Bond coupons that the Parties agree that compensatory interest would be at the rate of 5 percent per annum or 4 percent per annum, depending on the class of Bonds, obviously, at issue in this case.
And then they said, accordingly, it was appropriate to order that said compensatory interest be paid once the debt had been updated and the judgment in force. And they reversed the lower court for not having included that amount, that compensatory interest amount, on top of the updated value of the Bonds.
So, as we described yesterday, one big problem in the Supreme Decree process is there is simply no recognition of this and no inclusion of it.
We also had sort of a conceptual problem that they didn't even attempt to do the balancing of it, and there are--sorry, the balancing that the Constitutional Tribunal had required. I think we mentioned that point yesterday, that there had to
[Page 2952]
be--you couldn't prioritize State budget, on the one hand, or paying the Bondholders on the other, but you needed to have a serious number, which we say they didn't accomplish.
And so, in an addition--you were asking, Mr. President, about the sort of technical or computational questions, so I want to confine the rest of my remarks in response to your question on that.
In addition to the lack of compensatory interest altogether, there is also the use of the Parity Exchange Rate.
PRESIDENT FERNÁNDEZ ARMESTO: Yes. And I would like you to explain that to us.
MR. FRIEDMAN: Yeah. We explained yesterday--and I hope through the testimony at the Hearing--why the Parity Exchange Rate is arbitrary in the sense it has no logical justification in any of Decrees and why it is very unusual and even in the August 2017 Decree an incorrect way simply like economically irrational way of calculating a Parity Exchange Rate. And as I explained yesterday--but really it is Dr. Edwards who explained this--that if
[Page 2953]
you are looking for a Parity Exchange Rate, what you're trying to do is find a time--
PRESIDENT FERNÁNDEZ ARMESTO: I perfectly remember the argument. So, the next--I just want that you itemize to me. So, you say, then, the Parity Exchange Rate is irrational.
(Overlapping speakers.)
PRESIDENT FERNÁNDEZ ARMESTO: Are there other elements which are irrational? Because I seem to remember that you said the Parity Exchange Rate and then the return rate was different. I just want to get the financial aspects which you think are irrational and to an irrational consequence.
MR. FRIEDMAN: Okay. So, it's, one, lack of compensatory interest; two, Parity Exchange Rate, which is irrational. And there are really, then, two branches of that because there is sort of two ways that you could fix that essentially. One is by using a real Parity Exchange Rate, like one that was calculated in a responsible, economically rational manner--and Professor Edwards gave you one of those--or as a sort of cruder fix, if you will, just
[Page 2954]
use the broken--the irrational Parity Exchange Rate both to convert to U.S. dollars, and then after the updating process is done, you convert back to soles. Because at least then you would be using this kind of broken measure, but you would be using it consistently so it wouldn't--you know, the fact that it understates value in one direction would overstate it coming back and would, in a sense, compensate. It is not as intellectually elegant, I have to say, as just using a responsible Parity Exchange Rate in the first place. But both of those solutions respond to this point about the irrationality and arbitrariness of the Parity Exchange Rate.
And then, three, there's a third component of it. It has a slightly different character for a reason I just want to be very clear about what our submissions are: That the updating from the date of last clipped coupon, basically, instead of from the date of the--the date that the Bonds were placed.
PRESIDENT FERNÁNDEZ ARMESTO: But that we all agree was mandated by the Constitutional Court.
MR. FRIEDMAN: That is exactly why I say it's
[Page 2955]
1 something of a different character. We do think that
2 it is quite irrational. That's the
3 Professor Castillo's testimony about the solar
4 Eclipse. It doesn't make sense when the idea is to
5 restore the principal to its original purchasing
6 power. But, that said, that's why I flagged it up
7 specifically as having a different character because
8 that was in a sense part of the Constitutional
9 Tribunal 2013 Order.
10 PRESIDENT FERNÁNDEZ ARMESTO: Yes. Very
11 good.
12 MR. FRIEDMAN: And for further reference on
13 this--I'm just trying to be very brief, but you could
14 look at our Post-Hearing Brief, Section 2(c)(1) and
15 Slide 70--sorry. Let me do that again.
16 Section 2(c)(1), and the Closing slides from our
17 presentation yesterday, Slides 70-81.
18 PRESIDENT FERNÁNDEZ ARMESTO: Thank you. To
19 be true, I mean, we probably could get the answer to
20 all of these questions going through the record, which
21 is extremely detailed. It is just that we wanted to
22 get some clarified summary--
[Page 2956]
1 MR. FRIEDMAN: Right. So--
2 (Overlapping speakers.)
3 PRESIDENT FERNÁNDEZ ARMESTO: --from the
4 Parties so that we can in our minds exactly see the
5 opposite positions.
6 With that, I give Mr. Hamilton the floor.
7 MR. HAMILTON: Thank you very much,
8 Mr. President and Members of the Tribunal. I will
9 share comments and my partner Dr. Llano will share
10 some additional observations as well on this issue.
11 As a starting point, we left off with the prior
12 question with the provisions of the 2013
13 Constitutional Tribunal sentence, which finely brought
14 clarity to issues of valuation and procedure. And
15 what we then see with the development of the Supreme
16 Decrees is a process that implemented the Court
17 ruling. And I just want to underscore before we now
18 dive into this particular issue that these Decrees
19 were developed through extensive documentation that
20 included, for example--
21 PRESIDENT FERNÁNDEZ ARMESTO: Mr. Hamilton,
22 sorry to interrupt you. In the interest of time, we
[Page 2957]
1 are perfectly aware. Let's go to these--we are really
2 interested about the financial aspect.
3 MR. HAMILTON: We are coming.
4 (Overlapping speakers.)
5 PRESIDENT FERNÁNDEZ ARMESTO: Okay. Let's go
6 to--if you are kind enough, let's go specifically to
7 the issues which have been flagged by Claimant.
8 MR. HAMILTON: That's where we are headed,
9 Mr. President. Thank you very much.
10 But I do want to underscore that, whereas
11 Gramercy continues inventing different arguments, even
12 until its final Brief before the Tribunal, these
13 issues were addressed in internal records, external
14 Expert Reports, all in the record of the development
15 of Decrees, and all addressed by Mr. Kaczmarek with
16 respect to the manner in which the Decrees carry out
17 appropriately the Court Decision. And I direct your
18 attention to Mr. Kaczmarek's presentation from the
19 Hearing at Slides 22, 28, and 38.
20 Now, with respect to the two issues that we
21 were just discussing, let me first mention the Parity
22 Exchange Rate. Perú has established that the Parity
[Page 2958]
1 Exchange Rate was not mandated, and during the Hearing
2 Mr. Edwards himself confirmed that it's difficult to
3 choose the base that you have to apply, and when you
4 do, it is complex.
5 Mr. Edwards used ex post facto information,
6 as we have discussed in our prior Pleadings. So,
7 Gramercy's criticism of the Parity Exchange Rate used
8 by Perú is also inconsistent with its own position.
9 In particular, Gramercy alleged that Perú's use of
10 January 1969, a single month, as the base period
11 contravenes what they call a basic rule, and Gramercy
12 self-entitles itself to create all sorts of supposed
13 basic rules or certainty that simply are not
14 applicable and are not supported.
15 In addition, regarding your query as to
16 compensatory interest, Gramercy applies the Bonds'
17 stated coupon rates on top of the U.S. Treasury rate.
18 And in its Post-Hearing Brief, Gramercy claims that
19 the addition of compensatory interest is somehow
20 required by what it calls "clear and well-established
21 principles." That is simply, again, not the case, and
22 it is belied by its own Expert, again, who did not
[Page 2959]
1 include compensatory interest in the manner that
2 Mr. Edwards prepared his initial calculations in his
3 First and Second Reports.
4 Now, I want to invite Mr. Llano for
5 additional comments in this regard.
6 ARBITRATOR DRYMER: May I ask--just pardon
7 me, Mr. President, and Counsel. May I ask one
8 question following up directly on Mr. Hamilton's last
9 couple of words?
10 And perhaps I have misunderstood; it is
11 probably the case, sir, so clear things you up for me.
12 In Perú's view, did the 2013 Constitutional
13 Tribunal Resolution mandate compensatory interest, on
14 top of updating of principal by whichever means?
15 MR. LLANO: I'd be happy to take that
16 question.
17 ARBITRATOR DRYMER: Sure. Sure. Absolutely.
18 And perhaps you are coming to it.
19 MR. LLANO: I was. I was going to start with
20 that, Mr. Drymer. Thank you very much for the
21 question. It really does tee up the point.
22 So, I'm looking at the 2013 Resolution, and I
[Page 2960]
1 would direct your attention to Paragraph 28. The last
2 sentence of Paragraph 28--I apologize; I have the
3 Spanish version in front of me--it says that--it
4 mandates that the procedure that will be established
5 for a payment of Bonds "must provide the amount of the
6 actualized value of the Bonds of the Agrarian debt
7 plus interest." Okay?
8 So, here are the two components that the
9 court directed to the executive, and in particular to
10 the MEF. It's the actualization, the updating, and
11 interest.
12 The first component is achieved through
13 dollarization. The updating of the value of the
14 principal is converted to dollars, and it's not just
15 me saying that. I would direct your attention now to
16 Paragraph 24 of the Resolution, which says that the
17 actualization--in the first sentence--there we are.
18 It says: "The methodology for the
19 actualization of the Bonds through the indexing of the
20 existing obligations to their equivalent in foreign
21 currency, which may be dollar or any other free
22 circulation, to which the interest rate of the
[Page 2961]
1 American Treasury Bonds will be added." So, there
2 again, you have the two components. Actualization is
3 achieved through dollarization. Interest is achieved
4 through the T-bills. And we know that because it is,
5 I think, a common ground between the Parties, that
6 T-bills include an interest component.
7 And so, of course, this general formula or
8 general framework that is being set up here leaves
9 some issues that must be filled out, which the MEF did
10 in a very rational way and which is not for us, any of
11 us, to micromanage at this point. The question being,
12 for example, what is the proper Parity Exchange Rate
13 to convert to dollars? The first element of the
14 formula, actualization through conversion to dollars,
15 must be done through a Parity Exchange Rate.
16 The MEF applied the January 1969 rate as the
17 Parity Exchange Rate, and that makes sense. That
18 makes total rational sense, as Mr. Kaczmarek
19 explained, because the information that came after the
20 stoppage of payments on the Bonds was ex post. It
21 wouldn't have been known at the time of the
22 nonpayment, which is presumably the issue that we're
[Page 2962]
1 trying to fix here.
2 With respect to the T-bills, why one-year
3 T-bills as opposed to other durations? There are all
4 sorts of reasons for that. Long bond durations carry
5 more risk, and Mr. Edwards admitted as much on the
6 stand. And you can do a search for the phrase "long
7 bonds" in the Transcript. You will find that there
8 were a couple of exchanges on this. And he said, yes,
9 the longer the hold, the longer the risk, the bigger
10 the risk.
11 ARBITRATOR DRYMER: I think we all understand
12 that.
13 MR. LLANO: Right. It's a very basic
14 concept.
15 So, you have these--again, just going back to
16 first principles, you have actualization through
17 dollarization; done. Check. That was done through
18 the conversion to dollars at the Parity Exchange Rate
19 selected by the MEF. Then you have the T-bills.
20 Check. The MEF selected the one-year T-bills, which
21 make total rational sense. And then you have this red
22 herring about, you know, do we add interest on top of
[Page 2963]
1 interest? And the answer is no for legal and economic
2 reasons.
3 From a legal standpoint, the 2013 Resolution
4 does not require interest on interest. It never says
5 that. And I've shown you the two paragraphs, 24 and
6 28, which reference the issue of interest. Again,
7 dollarization plus interest, not dollarization plus
8 interest plus bonus compensatory interest. That's
9 from a legal standpoint.
10 From an economic standpoint, I would direct
11 you to Mr. Kaczmarek's testimony during the February
12 hearing--it seems like ages ago--where he explains
13 that that would be double-counting. To apply the
14 T-bill rate plus some other compensatory rate, whether
15 it's the stated coupon rate or whatever else, is
16 double-counting for interest. But that is precisely
17 why the two last alternatives which Gramercy has
18 provided, which belatedly came with their Post-Hearing
19 Brief, are completely wrong, because they do just
20 that--
21 PRESIDENT FERNÁNDEZ ARMESTO: Mr. Llano,
22 thank you.
[Page 2964]
1 MR. LLANO: Okay. Thank you.
2 PRESIDENT FERNÁNDEZ ARMESTO: You are getting
3 now into pleading your case. And thank you for your
4 explanations. I think it is now reasonably clear
5 where the differences lie. Let me then--
6 MR. FRIEDMAN: Mr. President, may I respond?
7 Or is that--
8 (Overlapping speakers.)
9 PRESIDENT FERNÁNDEZ ARMESTO: Of course, if
10 you want, if it's short and on these points.
11 (Overlapping speakers.)
12 PRESIDENT FERNÁNDEZ ARMESTO: --I ask that
13 you really address these issues. But if it's on these
14 financial issues, you are more than welcome.
15 MR. FRIEDMAN: Thank you. It is exactly on
16 these same financial issues, and responding
17 specifically to what Mr. Llano just said.
18 First, I think that it's intellectually wrong
19 and legally wrong to suggest, as he did, that merely
20 converting to U.S. dollars is updating the debt. All
21 that would do is establish a value in U.S. dollars at
22 some historical point in time. It could be 1972.
[Page 2965]
1 That is not the value today. At the very least, that
2 number would be subject to inflation risk in the
3 United States. So, that can't be the updated value of
4 the debt.
5 Second, the--as you know, the interest rate,
6 as we pointed out, in the U.S. Treasuries, especially
7 the short-term ones that the Ministry chose, is
8 immaterial. It is not the same thing as the
9 compensatory interest in Perú, that Peruvian law and
10 the Civil Code requires.
11 And, third, please don't take my word for it,
12 but the Supreme Court, five times on this very issue,
13 which the Respondent continues to avoid addressing in
14 all of its responses.
15 And, last, I simply want to suggest that this
16 idea that there is something wrong with using ex post
17 data--none of the data that you needed to responsibly
18 calculate a Parity Exchange Rate was ex post or
19 unavailable in 2013 or 2014. I mean, there were
20 plenty of years of parity to use as reference at that
21 time. It wasn't like the MEF was establishing a
22 Parity Exchange Rate in 1969.
[Page 2966]
1 So--and while I quite agree that it's not the
2 Tribunal's job to just sit and second-guess on
3 economic decisions, it is the Tribunal's job to
4 analyze State action that is consequential against the
5 legal standard which prohibits arbitrary and
6 irrational decision-making on important investor
7 rights.
8 So, if that's the level, I would just suggest
9 that you take--that is, obviously, your job. And as
10 between Mr. Kaczmarek and Professor Edwards, in
11 evaluating how you think about what is rational or not
12 or the rules of calculating Parity Exchange Rates,
13 Professor Edwards has published books on it. And
14 Mr. Kaczmarek said he doesn't deal with it; it's not
15 something he spends time thinking about.
16 Thank you.
17 PRESIDENT FERNÁNDEZ ARMESTO: Thank you.
18 So--
19 MR. LLANO: Mr. President, can I make a
20 30-second economic rebuttal?
21 PRESIDENT FERNÁNDEZ ARMESTO: Yes. Yes, but
22 we'll get--let me close the door, and--
[Page 2967]
1 MR. HAMILTON: Mr. Llano, you can make more
2 than 30 seconds, because we just heard more than
3 30 seconds.
4 (Overlapping speakers.)
5 PRESIDENT FERNÁNDEZ ARMESTO: --to say, but
6 then I have to say--okay. Hopefully this is the last
7 argument on this topic, because we have a couple of
8 others.
9 MR. LLANO: Okay. So, of course the MEF has
10 actualized the debt. Don't forget, Mr. President and
11 Members of the Tribunal, that in 1992 when the
12 Agrarian Bank closed, the Gramercy-held Bonds were
13 worth 34 cents. So, the fact that they were converted
14 to dollars is--again, not me saying it, and I
15 appreciate Mr. Friedman's words, but take a look at
16 Paragraph 24 of the Decision. It says "actualization
17 through the indexation to dollars." That is the
18 mechanism that the Court directed the MEF to use, and
19 they did. 34 cents were converted to 3--more than
20 $3 million, $3.3 million. That's a 900 million
21 percent hair extension. So, that is certainly an
22 actualization to current value.
[Page 2968]
1 And, on top of that, there is interest
2 through the application of T-bills. So, mission
3 accomplished.
4 Thank you.
5 PRESIDENT FERNÁNDEZ ARMESTO: Very good. I
6 think that the discussion is clear.
7 Let me get to another point which is related.
8 And that is the USD 33.57 million which Claimant--no,
9 Respondent says that Claimant would receive if it
10 submitted to the bond exchange--the bond payment
11 procedure.
12 Now, first of all, I have a couple of
13 questions. The first one is: Where does this figure
14 come from? Is this a figure from Respondent? Because
15 Respondent, when you referred to it, you just then
16 referred to Statements by Witnesses of Claimant. I'm
17 not clear--and that is on Page 35, Note 276. The
18 origin of the 35--USD 33.57 million figures are the
19 two--Mr. Edwards and Mr. Koenigsberger. Who
20 has--where does this very precise figure come from?
21 And I think I should ask first Respondent.
22 Dr. Llano, maybe you or Mr. Hamilton,
[Page 2969]
1 whatever is more convenient.
2 MR. HAMILTON: Thank you, Mr. President.
3 This number is derived from an examination of
4 the purchase contracts which Gramercy withheld from
5 this Tribunal for an extended period of time.
6 Mr. Kaczmarek, in the initial Quantum Expert
7 Report by Perú, took available bond purchase
8 contracts, calculated those amounts, and reached a
9 total of approximately $33 million. Then Gramercy,
10 the cat being out of the bag that it was asking for,
11 at that time, $1.9 billion, then did the calculation
12 itself and itself acknowledged in Pleadings and
13 Reports and at Hearing that the figure had been
14 $33.57 million. And so, this figure is derived from
15 the bond purchase contracts. And obviously, I will
16 not enter into the issue about where the money came
17 from, et cetera.
18 PRESIDENT FERNÁNDEZ ARMESTO: No.
19 So, it is--let me understand it. This comes
20 from Mr. Kaczmarek. So, there is a representation by
21 the Republic that this is the amount which Claimant
22 would receive if it presented its Bonds to this
[Page 2970]
1 system?
2 MR. HAMILTON: No, Mr. President. Perhaps I
3 can clarify.
4 There are two different figures: One is the
5 amount that was used to acquire the Land Bonds--
6 PRESIDENT FERNÁNDEZ ARMESTO: I know. I
7 know. I know the--
8 (Overlapping speakers.)
9 MR. HAMILTON: And the second is what--
10 PRESIDENT FERNÁNDEZ ARMESTO: I know the
11 facts of case extremely well.
12 MR. HAMILTON: Sorry, but what I've answered
13 so far--
14 (Overlapping speakers.)
15 PRESIDENT FERNÁNDEZ ARMESTO: Let me explain
16 to you exactly what I am--the $33.57 million figure,
17 which you round up to $34 million, is in your
18 Post-Hearing Brief Page 35, last bullet of
19 Paragraph 76. And in this, you say: "Gramercy could
20 have obtained USD 34 million. Gramercy's Witnesses
21 confirm the undisputed fact that Gramercy could have
22 obtained USD 34 million if it had tendered the Bonds
[Page 2971]
1 into the Bondholder Process." This is what I was
2 asking you.
3 You have, I think, clarified to me that the
4 number comes from Mr. Kaczmarek, and you are now going
5 to confirm to me that this is a representation by the
6 Republic that, if the Bonds are tendered, this is the
7 amount they would receive under the bond payment
8 program.
9 MR. HAMILTON: Thank you, Mr. President.
10 Your question is now more clear to me.
11 So, just to confirm, my prior comments
12 related to the calculation of the amount paid to
13 acquire the Bonds.
14 PRESIDENT FERNÁNDEZ ARMESTO: Oh.
15 MR. HAMILTON: Now, if you turn to the
16 separate issue--and there is a coincidence now--
17 PRESIDENT FERNÁNDEZ ARMESTO: I know.
18 MR. HAMILTON: --it was a process--that the
19 Parties are aligned as to what was paid to acquire the
20 Bonds.
21 Similarly, there is a coincidence of
22 calculation by the Experts on each side, applying the
[Page 2972]
1 Bondholder--the formula of the Supreme Decrees, what
2 amount would Gramercy have received if it participated
3 in the process? Gramercy itself stated in its Third
4 Amended Notice of Arbitration and Statement of Claim
5 from July 2018 Gramercy would receive $33.57 million.
6 So, that exact figure, Gramercy states that in
7 Paragraph 3 of its principal Brief of July 13, 2018.
8 So, what I would say at this point is that
9 Gramercy repudiated and disparaged the Bondholder
10 Process. It never participated, so it never went
11 through a valuation process like participating
12 Bondholders. In the context of this Arbitration,
13 Respondent's Quantum Expert and Gramercy itself have
14 effectively aligned--I don't know if there's a slight
15 difference, but have effectively aligned that the
16 amount available through the Bondholder Process would
17 be in that range of $33.5 million to $34 million,
18 applying the formula of the Supreme Decrees. That is
19 the position of Respondent's Experts, and that
20 obviously assumes that all of the Bonds are authentic.
21 PRESIDENT FERNÁNDEZ ARMESTO: Of course.
22 And then I understood--I think this was the
[Page 2973]
1 first time I had that understanding--from Ms. Menaker
2 that these $34 million would not be paid in cash, that
3 they would be paid in Bonds, in normal financial Bonds
4 issued by the Republic.
5 And first question: Is this correct?
6 MR. HAMILTON: The Supreme Decrees provide
7 for payment options. One of those payment options is
8 to receive new Bonds. As set out in Perú's Closing
9 Statement today, Gramercy has indicated, and it's a
10 matter of record, that it was interested in receiving
11 new Bonds. And I refer you to comments that I made
12 earlier today in that regard.
13 PRESIDENT FERNÁNDEZ ARMESTO: Yeah. Because
14 I understood Ms. Menaker to say the following:
15 Because you remember that one of the--the Decree has
16 this payment schedule, and the last one to collect is
17 "tenedores especulativo," speculative holder of debt.
18 And I don't know if it is clear whether Gramercy would
19 or not fit into that category, and if it fits--if it
20 were to fit into that category, I now understand after
21 Ms. Menaker's statement that it implies not that it
22 does not collect. It implies that it does not collect
[Page 2974]
1 in cash, that it cannot collect in cash, that it must
2 collect in Bonds. And so, it would receive the
3 $34 million in Bonds, presumably in Bonds which have a
4 Market Value equivalent to $34 million.
5 Could you clarify that, Mr. Hamilton.
6 MR. HAMILTON: Yes, Mr. President.
7 The Supreme Decrees establish a menu of
8 options for payment. That was one of the things that
9 the Initial Decree anticipated, that as the process
10 went forward, they would finalize the payment options
11 and verify the formula, which is exactly what they
12 did. And there is a menu of options, and that menu
13 includes electing to receive payment through new
14 Bonds, and that in the past has been what Gramercy has
15 expressed an interest in.
16 There certainly is not a provision that says
17 Gramercy doesn't get paid, and of course I think it
18 goes without saying the principal reason Gramercy
19 hasn't been paid through the Bondholder Process is
20 because it didn't participate, because they process
21 the Bonds presented into the Bondholder Process just
22 like when you go and buy ice cream: The first one in
[Page 2975]
1 line is the first one that is getting processed
2 through.
3 PRESIDENT FERNÁNDEZ ARMESTO: But you have
4 not answered my question. Is Gramercy "un tenedores
5 especulativo? And, if it is, what is the implication?
6 MR. HAMILTON: Well, I believe your question
7 was whether Gramercy would not get paid because it
8 potentially could be designated that way.
9 PRESIDENT FERNÁNDEZ ARMESTO: But--but--
10 MR. HAMILTON: And the answer, as Ms. Menaker
11 set out, is that Gramercy can be paid through new
12 Bonds or other options in that list.
13 Now, there are limits on cash outlays
14 contemplated in the Supreme Decrees, and that is the
15 way that the Ministry reasonably regulates the risk of
16 the uncertainty of not knowing how many Bonds are out
17 there.
18 PRESIDENT FERNÁNDEZ ARMESTO: Let me phrase
19 your statement in my terms.
20 It is your representation on behalf of the
21 Republic that even if Claimant is considered as a
22 tenedor especulativo, that would not affect its right
[Page 2976]
1 to receive USD 34 million in exchange for the Bonds to
2 be paid, not in cash, but in Peruvian normally traded
3 Bonds, for a value equivalent to USD 34 million.
4 MR. HAMILTON: I'm just reading the
5 Transcript again to be confident in my reading of your
6 question.
7 PRESIDENT FERNÁNDEZ ARMESTO: Of course.
8 (Discussion off the record.)
9 MR. HAMILTON: Mr. President, regardless of
10 whether Gramercy were considered to be--through the
11 Bondholder Process, if it were considered to be
12 speculative, as you mention, that would not prevent
13 Gramercy from receiving compensation through election
14 to receive new Bonds.
15 And the amount--as we have discussed, there
16 is a coincidence of opinions by Experts in this
17 proceeding that the amount available by applying the
18 formula of the MEF would be approximately $34 million.
19 PRESIDENT FERNÁNDEZ ARMESTO: And now--yes,
20 Mr. Drymer?
21 ARBITRATOR DRYMER: I apologize. I still
22 don't understand. And, again, it is probably just me.
[Page 2977]
1 I understood Ms. Menaker to be telling us
2 that that ranking, if you will, that puts speculative
3 holders at the bottom applies only to those who
4 request payment in cash, and then she further said
5 that--my understanding is that they can only request
6 $30,000 in any event. So, it is immaterial in this
7 case.
8 Did I understand correctly? In other words,
9 it--
10 MR. HAMILTON: Yes, Mr. Drymer. Thank you
11 for your question and confirmation.
12 And I invite Ms. Menaker to join. We are not
13 in the same location, and so we can't signal to each
14 other, but--
15 ARBITRATOR DRYMER: Sure. Of course.
16 MR. HAMILTON: But, yes, precisely. And if
17 you look at the text of the "texto único ordenado"
18 from August of 2017, you can see this is confirmed.
19 ARBITRATOR DRYMER: And again, conversely,
20 that ranking, if you will, that places speculative
21 holders at the bottom does not apply to holders of
22 Agrarian Bonds who seek payment for them in the
[Page 2978]
1 current process by means of issuance of current
2 Peruvian Bonds; correct?
3 MR. HAMILTON: Correct.
4 ARBITRATOR DRYMER: It applies only for
5 people who ask for cash. It doesn't apply to payment
6 in the form of Bonds.
7 MR. HAMILTON: Well, I think the critical
8 point--and here is Ms. Menaker. I will let her
9 comment on this, but I think part of the critical
10 point is that it's effectively immaterial to the
11 reality of what would occur here.
12 Ms. Menaker?
13 MS. MENAKER: I have to say that I just--yes,
14 that is my understanding, and I was hoping to get the
15 document from a colleague, but we're not in the same
16 location.
17 But, yes, it doesn't affect their right to
18 compensation through this procedure. They would still
19 have the $34 million; however, not be paid necessarily
20 in cash, but, again, only up to that small amount.
21 But that is what it is. It is priority ranking for
22 these cash amounts.
[Page 2979]
1 ARBITRATOR DRYMER: Okay. That's what I
2 happened to have understood your argument to be
3 earlier on.
4 Thank you for clarifying that, Ms. Menaker
5 and Mr. Hamilton.
6 PRESIDENT FERNÁNDEZ ARMESTO: So, now let us
7 see if Mr. Friedman has any further questions--or, not
8 further question, but further comment to this
9 question. Sorry.
10 MR. FRIEDMAN: Yes. So, that colloquy
11 involved a few issues. If I may, I'd like to briefly
12 address each of them.
13 The first was, where did the calculation of
14 the notional amount that the Bondholder Process might
15 offer to Gramercy come from? I think I can help bring
16 some clarity to that question of the Tribunal. I
17 believe that that was first calculated by Professor
18 Edwards, and you'll find that number in Paragraph 271
19 of his Amended Expert Report, which is CER-4. That
20 was based just on him trying to apply the formula as
21 he best understood it.
22 I have to say that we also have been confused
[Page 2980]
1 about whether Perú has ever actually subscribed to
2 that number. It has usually been put, this is
3 something they say they could get, instead of
4 something that we adopt.
5 It may be that Mr. Kaczmarek calculated the
6 same number or confirmed that in his First Quantum
7 Report, but I have to say I'm not--to this day, I
8 still don't know whether Perú has actually ever said
9 that or represented that that was their understanding
10 of what their own Decree would yield if applied to all
11 of Gramercy's Bonds, assuming of course that they were
12 authentic and whatever else--whatever other filters
13 they put them through. But I don't know that that is
14 their representation. That is something we calculated
15 to try to parameterize what it could be, but that's
16 all that it is as far as I know.
17 Second, you asked about the treatment of
18 speculative holders. I think--well, you will make
19 what you will, of course, of the responses you've had
20 to the direct questions today, and of course you heard
21 the Witnesses testify about whether that is a Gramercy
22 bill of attainder, basically, or not. And so, I think
[Page 2981]
1 we've submitted the evidence on that. But I don't
2 think that the representation--and that alone, even if
3 it did only apply to the cash payments, it would still
4 be discrimination and, we think, emblematic of a lot
5 of the thinking behind these. We think that it stands
6 for more than it would be in that case. But I don't
7 think we accept the idea that it is limited to cash
8 payment.
9 It is true that the Bondholder Process does
10 say that cash payments can only be made in an amount
11 up to 100,000 soles, which is about USD 33,000 at kind
12 of normalized exchange rates for any Bondholder;
13 right? That's what it says.
14 But then the payment priorities are not
15 distinctly linked or limited only to the payment in
16 cash. And it's true that Gramercy has said on a
17 number of occasions that it would be happy to accept
18 Bonds as part of a global settlement, because that
19 could be a good way of restructuring that would spread
20 out Perú's obligations over time; but I have to say
21 Gramercy always would have been happy to receive cash,
22 and much more happy to receive cash than more Bonds.
[Page 2982]
1 And I have to say, the other thing is that,
2 you know, it's fine to talk about Bonds, but if you
3 actually look at the payment provisions of the Supreme
4 Decrees, not only is the waterfall not necessarily
5 limited to cash, but the flexibility of the Ministry
6 in how to pay the debt, what forms to pay in, other
7 than the cap on cash, are wide open. They can pay in
8 land if they want to. They can pay in Bonds, but it
9 doesn't specify what Bonds.
10 And one of the earlier proposals, the 2004
11 proposal from the--regulation from the Government,
12 which was itself a Supreme Decree that the
13 Constitutional Tribunal studied in that 2004
14 Decision--remember the optional dollarization one?
15 That was interesting, because that Supreme Decree had
16 a very high interest rate on top of the dollarization.
17 It added 7.5 percent interest to dollarization. But
18 the problem with it was, and the reason Bondholders
19 didn't take it up, was that it said, "We are going to
20 pay you in Bonds that pay no interest for another
21 20 years." There is nothing that prohibits the
22 Ministry under the Supreme Decree from paying with a
[Page 2983]
1 bond that has some base value, or however they
2 determine it, but that doesn't have valid economic
3 value over time.
4 So, there's an enormous amount--I just want
5 it to be very clear that there's an enormous amount of
6 discretion that the Ministry has reserved to itself in
7 how it actually goes about paying Bondholders.
8 Of course, in the event where it has only
9 paid about $300,000 in cash to all Bondholders who
10 went through the process, at least up to the last time
11 we saw evidence on it, I don't think they had to make
12 a lot of hard decisions, but they also reserved
13 themselves to stop making payments if it's going to
14 hurt the budget of the country. And so, there is
15 quite a lot in there that is unregulated and very
16 uncertain for any Bondholder who goes into it,
17 especially since you have to waive your rights to do
18 anything else once you submit to the process.
19 MR. HAMILTON: Mr. President, we are unable
20 to hear you. Thank you.
21 PRESIDENT FERNÁNDEZ ARMESTO: Sorry for that.
22 No, I was going to say if you want to comment
[Page 2984]
1 on this argument by Mr. Friedman, that a holder of
2 Land Bonds would have to waive his right to collect
3 through the Courts or through any other system before
4 embarking in this Supreme Decree procedure, and that
5 there was a wide margin of discretionality for the
6 Ministry of Finance in how the payment can be
7 structured. And Mr. Friedman was saying it could be
8 structured in a 20-year bond without interest and that
9 this created this lack of knowledge compared with the
10 necessity of waiving your rights that it created. I
11 don't know what the objective was. I don't know if
12 you said arbitrary or discriminatory or what was
13 exactly the adjective you used to qualify this
14 extension.
15 MR. HAMILTON: Mr. President, I will comment
16 and then Ms. Menaker will comment as well.
17 I will comment to clean things up because
18 Gramercy continues to be all over the map because, of
19 course, in imaginary land, they can make up all sorts
20 of things that they think would be nice for them but
21 that's not the way this works. This is not a
22 restructuring. It's not an offer. It's not a
[Page 2985]
1 negotiation. It is the implementation by a sovereign
2 of the ruling of its Constitutional Tribunal as
3 carried out appropriately through Supreme Decrees.
4 And so, specifically, with respect to the
5 issue that you raised, let's be clear: There is a
6 common understanding before the Tribunal by the
7 Parties and their Experts in this arbitration that
8 Gramercy paid 33 million, Gramercy could obtain
9 34 million.
10 Of course, the Ministry has not opined
11 through that process. I must say it because we just
12 heard confusion. The Ministry does not opine on
13 Bondholders who are not participating in the process,
14 so we have articulated, there's a common position.
15 33 paid, 34 million, approximately, available for
16 authenticated Bonds.
17 With respect to--
18 PRESIDENT FERNÁNDEZ ARMESTO: But that was
19 not my question, Mr. Hamilton. Sorry. But that is
20 not the question.
21 The question which Mr. Friedman raised I
22 would like your comments on is slightly different. It
[Page 2986]
1 is that you have to embark without knowing the
2 outcome. And I just--and that was the argument of
3 Mr. Friedman. And I--could I get your comment on
4 that?
5 MR. HAMILTON: My one final comment and then
6 we answer your question--and I'm sorry, because we
7 heard confusion that could clutter understandings,
8 and, therefore, I'm simply cleaning up the basics.
9 Second, I refer the Tribunal to Article 18 of
10 the text from August of 2017, which specifies--and
11 I'll read this in Spanish, if I might: "Priority in
12 the payment of the updated debt of the Agrarian Reform
13 Bonds is to be applied one time only to the option of
14 payment in cash."
15 It is to answer the priority question, which
16 there continues to be--it is expressed and it's clear.
17 Now, the other issue, Mr. President, which we
18 now come to having confirmed the foregoing.
19 Ms. Menaker, again, we are not in the same
20 room, is this what you are interested in proceeding to
21 address?
22 MS. MENAKER: Yes.
[Page 2987]
1 MR. HAMILTON: Perfect.
2 ARBITRATOR DRYMER: That's a leading
3 question, Mr. Hamilton.
4 MR. HAMILTON: She is waiting patiently, so
5 I'm going to bend to her will.
6 PRESIDENT FERNÁNDEZ ARMESTO: No, it
7 difficult in these times where we are all separated in
8 organizing answers to questions when you have a big
9 team. So, thank you for--both Parties for their
10 efforts in doing this Hearing in this fashion, and we
11 are perfectly aware that it puts strain on everyone.
12 So, if at any time any of you need some time to
13 collect or you would like some time to speak to all of
14 the members of your teams, please feel free to say so.
15 Ms. Menaker.
16 MS. MENAKER: Thank you.
17 So, just in response to your question or the
18 comment that whether there is a problem because you
19 needed to waive your right to pursue a court action,
20 for instance, without knowing the specifics of what
21 would occur. And Dr. Wühler actually addressed this
22 in both of his Expert Reports and remarked that it's
[Page 2988]
1 not at all an unusual feature of mass claims
2 resolution procedures, that when you have these types
3 of commissions put forth that are established by a
4 State to resolve mass claims, often exclusivity is a
5 primary factor or element of that because, otherwise,
6 the system doesn't work; right?
7 I mean, if the State going to, essentially,
8 create a system and they want to do it, put everyone
9 on the same footing, apply the same types of
10 considerations, and then have a certain amount of
11 money or something like that that they are going to
12 pay, it only works if you funnel everyone through that
13 type of system. So, it's a very common element, and
14 that's what Perú did here. So, that doesn't, in our
15 view, make it at all arbitrary or rational and,
16 certainly, it is not unusual.
17 PRESIDENT FERNÁNDEZ ARMESTO: No, I think, if
18 I can just--I completely understand that you have to
19 get everyone on the same line.
20 No, I think Mr. Friedman was saying that the
21 outcome, that there was a high level of discretion,
22 and I think you could be paid with land, for example.
[Page 2989]
1 So, that Gramercy could be--find itself to be the
2 landowner of some land in Perú or that you could be
3 paid with a 20-year zero coupon bond.
4 And could you just comment on this?
5 MS. MENAKER: Yeah. No, I think that is just
6 not reasonable interpretation of the Decrees because
7 what the State has done is it has afforded itself some
8 flexibility because, as we've discussed, I mean, you
9 have this mass claim procedure. The State has a
10 public interest in ensuring that it's going to be able
11 to balance the public objectives, maintain fiscal
12 stability, et cetera. So, it has to guard against an
13 unknown issue because, again, as we've said, they
14 don't know for certain how many of these Bonds are
15 outstanding and what the potential liability might be
16 because there was no register. You don't know if
17 people have been hiding these in their attics or
18 something.
19 So, they are not sure of what could be the
20 outcome and what if they were flooded with tons of
21 claims immediately and they wouldn't be able to
22 satisfy them by paying out the cash or even paying out
[Page 2990]
1 Bonds that would become due, you know, very quickly.
2 They had to afford themselves some discretion.
3 Now, the amount of compensation is not varied
4 because that is done pursuant to the formula. So,
5 even if you get a bond who is like--you're going to be
6 paid later, you are going to still be paid what the
7 compensation is. The form of payments may change just
8 in order to ensure that the State has the fiscal
9 wherewithal in order to cover its liabilities in that
10 regard. And I think that--when looking at this in
11 context, I think that Gramercy is really making it
12 seem as if it is much more--not problematic but
13 uncertain. Like, to say that they would be afforded
14 land just doesn't make any sense; right? I mean that,
15 naturally, would be put in because this was all due to
16 the expropriation of land.
17 So, again, the State is putting something in
18 there to give itself a little bit of the flexibility
19 that in the event someone, a landowner, came in
20 50 years later and said: My land was expropriated.
21 Okay, here's what it is worth, and maybe we can just
22 do that. That might be easier.
[Page 2991]
1 Are they going to give Gramercy land? I
2 mean, no. And if they did, it would still be worth
3 the $34 million and they could go sell the land. I
4 mean, it's still--but I just think that is fanciful
5 thinking, that that would actually apply to them.
6 And so, I think, again, the State has
7 afforded itself some flexibility to make these
8 payments in different ways in order to ensure that
9 they always had the fiscal stability to run the
10 country and that it--also there's tension in
11 Gramercy's arguments that this alleged uncertainty
12 prevented them from going into this process, when, at
13 the same time, they remark that participation rates
14 were so low. Because if participation rates were as
15 low as they say they are, then it wouldn't have put
16 that strain on the fiscal capabilities of the
17 Government, and the Government would be able to pay in
18 the ordinary manner.
19 MR. HAMILTON: Mr. President, and
20 Ms. Menaker, please, just to provide a citation--and
21 let's be very clear here: The Decree states at
22 Article 16, modalities of payment. And it says
[Page 2992]
1 specifically--and I'm going to read it in Spanish:
2 "The legitimate Agrarian Reform bondholders with
3 updated debt may opt--may opt for the following
4 payment modalities: (a), payment with sovereign
5 bonds; (b), payment by conveying lands; (c), payment
6 in cash up to a maximum of X amount; (d), to swap for
7 investment in sectors prioritized by the State."
8 (Interruption.)
9 (Stenographer clarification.)
10 MR. HAMILTON: Going back to English.
11 The reason we are referring to a menu is
12 because, in black and white, there is a menu
13 available, and I just read the menu to you and the
14 menu starts with "bonos soberanos," with sovereign
15 bonds, and has the other options as well, and those
16 are the options made available. That menu is made
17 available to legitimate Bondholders, not
18 differentiating among them at all.
19 And as I just cited earlier, the same Decree
20 also makes it clear that the issue of prioritization
21 only relates to the payment in cash and the payment in
22 cash amount is strictly limited; therefore,
[Page 2993]
1 immaterial.
2 Finally, your initial question,
3 Mr. President, about the requirement of a waiver. In
4 addition to all of the important arguments that
5 Ms. Menaker made, it is also notable that there was a
6 similar requirement under some of the draft bills that
7 Gramercy supported and were never passed.
8 Thank you.
9 PRESIDENT FERNÁNDEZ ARMESTO: Mr. Friedman,
10 your last words.
11 MR. FRIEDMAN: Yes. Yes, I will be brief.
12 I'm quite glad that Mr. Hamilton brought you
13 to the text of the MEF's own regulations. They did
14 change a little bit also between 2014 and 2017, so he
15 was reading to you from the 2017 ones. But I'm glad
16 he did. The reference is CE-275, Article 16.
17 And, I mean, what it said is--he read it
18 accurately--there's a set of options. The option for
19 actually getting paid in cash is limited to 100,000
20 soles or about 33,000, and I should just add, just to
21 be fair, what it says is that you can be paid up to
22 that small amount in cash that can be paid, where
[Page 2994]
1 possible, over not more than eight years. So, the MEF
2 can also string out payments in cash over eight years
3 if it wishes to.
4 But then the other three options that are
5 left after whatever you have above 100,000 soles are
6 sovereign bonds with no term specified. And,
7 remember, they did in that earlier iteration have no
8 interest Bonds with a 20-year term. Or investment
9 swaps and sectors prioritized by the State or land.
10 So, really you can only get $30,000 in actual
11 cash and the rest of it is up to whatever the MEF
12 really ultimately decides.
13 To the extent--and I think Ms. Lavaud
14 explored that also with Dr. Wühler, during his
15 testimony. You might refer back to that. He couldn't
16 really explain it or explain how it would work, but
17 it's quite clear at the end of day, the Ministry
18 creates those options, it tells you what's available.
19 So, if you can choose from three really bad options,
20 it's not a particularly good choice.
21 And I think--yes, I think that was really the
22 only thing that I wanted to draw to your attention.
[Page 2995]
Thank you.
PRESIDENT FERNÁNDEZ ARMESTO: Thank you. So, I think this now brings us to the end of the Hearing. Let me double-check with Professor Stern and Mr. Drymer. If there is anything else they would like to both put to the Parties.
Professor Stern? No. She is perfect.
And Mr. Drymer?
ARBITRATOR DRYMER: She is always perfect, even if she has questions.
I have no further questions. Thank you.
PRESIDENT FERNÁNDEZ ARMESTO: Very good. So, this really, then, puts an end to the Hearing, it puts an end to this extensive case. And I thank you all for the double effort you have made in making such excellent presentations, and I know you are spread all over the world, different offices and different places. Some in lock down, some at home. It has been an extremely high quality--high, high quality presentations. Extremely helpful. There is a lot of work which went into them on both sides.
Just looking at your Post-Hearing Briefs, how
[Page 2996]
much work and how well you have--both have used the evidence to support your case. This could be a law--for law faculty examples to show students how one should draft a post-hearing brief. So, really excellent work. We appreciate the effort.
And we appreciate the effort of our Court Reporters and our Interpreters. For them, these presentations are always extremely hard work and thank you for the efforts.
And to our technicians. I think they are in England, in fact, at least by the accent. Thank you very much.
(Comments off the record.)
PRESIDENT FERNÁNDEZ ARMESTO: It has worked very, very well. Thank you, Marisa, and thank you to the technicians and all the supporting staff.
You are all worried, and you would like to know when the Award will come out. We will do an effort. It is a complex case. We will have a deliberation tomorrow to start the work and--but it will take some months that we just get through the facts and then all the jurisdictional issues and then,
[Page 2997]
if we get there, to the merits. We will keep you updated on how we are progressing, but it will not be--it's a complex case, and it will take some time too. You know how much work goes into one. It has gone into all of your presentations. An equivalent amount of work will go into the Award, and it takes, inevitably, some time.
So, with that, I thank my two colleagues, and I thank all of you, and I wish you--today is Wednesday. I was going to say, Mr. Hamilton and Mr. Friedman, that you should give the weekend off to your--all your younger staff so that they can relax after what must have been very hard work, but it is Wednesday and maybe it's too early for that.
But they deserve not to work at least on Friday. So, that is to all the young lawyers who have done the really tough work, and I think that they deserve at least two or three days off to recover from their efforts.
(Comments off microphone.)
MR. FRIEDMAN: Mr. President, if I may just for a moment, I want to, of course, join in and echo
[Page 2998]
all of your thanks that you extended to all of the people on both teams, White & Case as well as Debevoise, as well as Estudio Rubio and Estudio Rodrigo and the people at the clients who worked very hard on, sort of, making sure that we were able to bring all this to you, and to all the people who made this possible, the assistants, the Secretariat, thank you, Marisa, the translators and Interpreters.
But also, a special thanks to the three of you. This--we have given you a lot of material. I know that during the February hearing, with the bit of anxiety about what might be happening in the world in the back of our minds, you, nevertheless, stayed quite late some nights to make sure that we were able to work through.
And you have always been throughout--well, I'm sure both sides have, from time to time, wished things had come out maybe a little bit differently. We are grateful to you because we think you have conducted the case in a very responsible, appropriate manner, and we really do wish to thank you for your careful attention to it, which has been obvious
[Page 2999]
throughout, and just for the way--the very professional way that you have handled things throughout. So, a sincere thank you from Gramercy and Debevoise.
PRESIDENT FERNÁNDEZ ARMESTO: Thank you.
Mr. Hamilton, you don't have to equal that. You can just say, well, we--but I will let you also thank. If you prefer, you can even express whatever you feel at this moment.
MR. HAMILTON: Thank you, Mr. President.
And, of course, we offered empanadas as well, so I think we all can be in a more relaxed frame of mind.
I want to mention two things before I say thanks. Number one--and please forgive me--but the order of the menu of options in the Supreme Decree derives from the 2013 Court Ruling. I refer you to Paragraph 29 and the subsequent paragraphs, and also just to confirm the 2013 Court Ruling does not provide for accounting from date of default but, rather, date of last coupon. Just a factual note to ensure there was no lack of clarity in the record.
And the other only thing I need to mention--
[Page 3000]
MR. FRIEDMAN: Factually inaccurate note.
PRESIDENT FERNÁNDEZ ARMESTO: Okay. We will look it up. Don't worry.
MR. HAMILTON: The other issue is cost submissions.
PRESIDENT FERNÁNDEZ ARMESTO: Don't worry. We will look it up. And we will double-check. As you know, we always double-check every single item, and whatever has been is there, we will double-check it. And it will come out the way it was.
MR. HAMILTON: Cost submissions is other thing I wanted to mention before saying thank you.
PRESIDENT FERNÁNDEZ ARMESTO: Thank you.
MR. HAMILTON: And we want guidance and pragmatism, lest we reopen Pandora's box that the President has just managed to close.
PRESIDENT FERNÁNDEZ ARMESTO: Yes. I would propose the following.
We now declare the procedure closed so there will not be any new submissions. There will be no marshaling of evidence, except if there are exceptional circumstances. Should that happen, you
[Page 3001]
both know the rules. You must first write to the Tribunal, without making the submission and without attaching the evidence, explaining why you have to make that submission or why you have to marshal the evidence. We will hear the other party and we will take a decision.
But you know the rules, and you are highly professional, experienced counsel that knows how to respond to presentation of submissions or evidence after this point. So, that is the first issue.
The second is we need, of course, your input on costs. I would recommend that after Thanksgiving--at some reasonable time after Thanksgiving, on the same date, you make--I would expect an affidavit from Mr. Friedman and Mr. Hamilton or from Ms. Popova or Mr. Llano or Mr. Jijón, whoever is--but I would assume Mr. Friedman and Mr. Hamilton--making a breakdown of the costs you have incurred in this case.
It may be interesting that you break it down, taking into account jurisdiction and merits and the rest. So, because if we allocate, depending on where
[Page 3002]
we come out in jurisdiction, there may be a different allocation or not. So, I would kindly ask you that you break it down into phases, jurisdiction, and merits, and that, then, you also break it down by stating the--itemizing the different costs which you have incurred.
And I would expect that you state that these are the true and proper costs and subject that you disagree with this proposal, I would think that this is the most efficient way to go about it.
But let me ask Mr. Friedman first.
MR. FRIEDMAN: I had one other comment on--in response to the housekeeping comment that you had made.
But, on cost submissions, I think that it may be that the Parties should discuss--I think what often comes up is sort of what date do you want them by and what level of detail are you interested in? And I think it would be good for us to have something that looks similar, that has the same level of detail, and a date that doesn't require our teams to miss the Thanksgiving holiday in the United States.
[Page 3003]
PRESIDENT FERNÁNDEZ ARMESTO: It could be, I would say, by the end of November or the middle of December. There is no hurry in it. So, before the year-end you should send it, but not before that.
And the second is why don't you establish the date? I expect that two, three, four-page summary in the form of an affidavit from one of you--from both of you itemizing the costs. Maybe starting with costs related to jurisdiction, and to the extent you can and costs related to merits. To the extent you can break them down, it is helpful. Or make at least some allocation, even if it's a rough allocation.
MR. FRIEDMAN: When you say itemize the cost, when we think about that, we often think about very detailed bills, which often raise questions of privilege and individual time entries, which, I assume, you do not want.
PRESIDENT FERNÁNDEZ ARMESTO: No. I would expect saying Debevoise $300,000 or $315,000. And White & Case--
MR. HAMILTON: Debevoise $300,000.
PRESIDENT FERNÁNDEZ ARMESTO: Something like
[Page 3004]
that.
And you say, then, expert. Well, Expert A, $50,000. Expert B, traveling expenses, 200,000. Organizing the Hearing, 300,000. Payments to ICSID, 600,000. You itemize them so that we can have an idea of how you--but then that you--that you, then, represent that these are really the truly incurred costs. I would expect a representation from you that these costs are real.
MR. HAMILTON: To assist Mr. President, just to be concrete, we would suggest a cover letter no more than one page and a summary table along the lines the President just described. We were going to suggest one-page summary table, but if it assists for practical reasons to say up to two-page summary table, that would be okay. And that clearly is a summary table that's just--sort of just the facts and we would propose a date. We were going to say January 7 actually. But if you want December 31.
PRESIDENT FERNÁNDEZ ARMESTO: January 7, that is one day after the Holy Magi, and it's a very appropriate--in Spanish-speaking world, a very
[Page 3005]
appropriate day after the finalizing of the holiday period. So, yeah, 7th sounds good to me if it sounds good to Mr. Friedman.
MR. FRIEDMAN: Yes. And I think what we should do is and what Mr. Hamilton is describing, in principle, sounds fine. I would suggest that--it sounds like we should talk about it a little off-line but come up with something along those lines that is short submissions that don't provide a lot of detail, but that are, then, certified as to their accuracy by Counsel.
May I, Mr. President--
MR. HAMILTON: And without reopening Pandora's box, so to speak. It's a cost submission and nothing more.
PRESIDENT FERNÁNDEZ ARMESTO: Yeah. Please don't. Because, I mean, we will evaluate them. We will, then, make an analysis of them. I don't think that it--I would discourage you, let me say it that way, that we, then, have a round in which you, then, comment on the other party's submission. To be very frank, I don't think that--that would be more costs
[Page 3006]
and it would not be extremely helpful to the Tribunal.
MR. FRIEDMAN: We couldn't agree more.
If I may, Mr. President, there is just one sort of matter of housekeeping that really I regret to raise, but I was reminded of it and it did come up today in Respondent's submissions.
As you know, there were a number of 10 authorities that we had proffered to the Tribunal with our Post-Hearing Brief on Jurisdiction. Tribunal reserved on those. There are two in particular that I think may now be relevant and that you should take account of in light of Respondent's submissions today.
The first of them is Renco II, which was the other case against Perú under the same Treaty.
Ms. Menaker referred to that in some detail in her slides, and so I think it is appropriate--it is in the public sphere anyway, I think it is appropriate that that come in. The second one is Ms. Menaker also referred to the annulment Decision of the Canadian courts in the Metalclad case.
That's an Authority that's not in the record, but if it's an annulment on a relevant issue of a case
[Page 3007]
that a party is relying on, we don't really have an objection to you taking account of what the reality of the state of the law is, but, by the same token, you should probably take into account the annulment in the Clorox case on which Respondents have relied because that was annulled on the very issue that they cited it for.
So, I just wanted to bring those two Legal Authorities to your attention because I do think equality of arms would sort of allow you to and maybe require you to take account of them in light of Respondent's legal submissions today.
MR. HAMILTON: Mr. President, if I might, equality of arms would have meant that they followed the rules, that Gramercy did not repeatedly break procedural rules, did not repeatedly stuff into the record improperly, in violation of Tribunal orders, additional evidence at the wrong periods of time, did not sandbag with additional documents, did not bring out new Authorities, did not repeatedly try to change Professor Edwards' submissions.
All of it has been violative of due process.
[Page 3008]
I'm sorry. I'm sorry he raised this. Putting in extra cases now, we did not get the opportunity to put in 10 new cases that we felt like. There are many new things that we might observe to continue to undermine Gramercy's case, and so simply to let in what they want because they unilaterally decided, they unilaterally violated the rules, they not only unilaterally violated the rules, they didn't even follow the proper procedure, something they had already been scolded for in the past by the Tribunal.
So, unfortunately, there is no equality to--I can cram in what I want. I can break the procedural rules, and then we will try to sort of squeeze it in this way later and call it equality. It is not equality, Mr. President. That is why we have rules, and if they want to crack it open, we will go to town with new cases. We could have put in 10 new cases. We can put in 15 new cases. So, that is the difficulty before the Tribunal.
We would be very glad, for example, to allow the United States Government, the Non-Disputing Party, which we have made our views clear on how it has been
[Page 3009]
treated in this proceeding by Gramercy. We are sure they would have views on Renco II, but they never were given a chance to do so.
So, all of these are the problems with a Claimant who breaks the rules. And, I'm sorry, but just trying to at the last minute get us to cave on their repeated procedural violations doesn't work for all the reasons that we have articulated.
So, we are sorry that the Tribunal has been put in this uncomfortable position. We did not create the circumstances. We are simply trying to cope with the circumstances.
PRESIDENT FERNÁNDEZ ARMESTO: Let me ask--
MR. FRIEDMAN: You did assert a new jurisdictional objection at the Post-Hearing Briefs stage, which is what prompted this--
(Overlapping speakers.)
MR. HAMILTON: That is true because of your withholding of relevant evidence over time. I'm sorry that this is happening at the end of the case, Mr. President, but if Claimant continues to bring up issues like this we are going continue to push back as
[Page 3010]
necessary to protect the State. I'm sorry about it.
PRESIDENT FERNÁNDEZ ARMESTO: Mr. Hamilton, let me ask Ms. Menaker, I remember you spoke about Renco II.
MS. MENAKER: Yes. I'm sorry. Is that your question? Yes. I did address it.
PRESIDENT FERNÁNDEZ ARMESTO: Yes. Okay. I don't remember whether you spoke about the annulment of Metalclad.
MS. MENAKER: Yes, I did. Let me just say when I spoke about Renco II, I did also reference the dissent--
(Overlapping speakers.)
PRESIDENT FERNÁNDEZ ARMESTO: Okay. Did you speak about--
MS. MENAKER: Metalclad, I did. It was--it is not on a slide. I just mentioned it in response to an argument about the prepublication rule in Perú allegedly having been violated, and that that would constitute or could constitute a fair and equitable treatment violation, and I was making the argument that domestic violations are not necessarily
[Page 3011]
equivalent to international violations and, particularly, in the context of transparency obligations like that, even if they are found in another provision of that same Treaty, and that was an issue that was before the Canadian--the British Columbia Supreme Court many years ago in the Metalclad case where that case was partially set aside.
So, I just--I mentioned that.
PRESIDENT FERNÁNDEZ ARMESTO: Yeah. And did you mention the annulment of Clorox?
MS. MENAKER: No, I didn't. That was a case that we had relied on earlier, and that was what Gramercy mentioned, that that case had been annulled, I believe, by the Swiss courts in their Post-Hearing Brief. They mentioned that.
PRESIDENT FERNÁNDEZ ARMESTO: Okay.
MS. MENAKER: I don't know if my colleague, Jonathan Ulrich, if he addressed that.
PRESIDENT FERNÁNDEZ ARMESTO: Let me finish with you, if I may, Ms. Menaker.
So, Renco II, is it--do you know if it is in the record?
[Page 3012]
MS. MENAKER: It is not in the record. It was one of the cases--
PRESIDENT FERNÁNDEZ ARMESTO: Okay. Do you mind, since you have referred to it, would you mind sending us a copy of Renco II, so that it is in the record.
MS. MENAKER: The Claimant, I believe, already has because it mentioned it in its Post-Hearing Brief.
Then after that--because it was a new Authority, Perú wrote in complaining that they had introduced new Legal Authorities, and the Tribunal said it will keep it there and it would decide the issue at the end of the Hearing. So, that's what the Agreement--
(Overlapping speakers.)
PRESIDENT FERNÁNDEZ ARMESTO: I know.
Ms. Menaker, my question is very specific. Since you have referred to it now, you presumably do not mind to bring it into the record.
MS. MENAKER: Yes.
PRESIDENT FERNÁNDEZ ARMESTO: We can do it.
[Page 3013]
(Overlapping speakers.)
PRESIDENT FERNÁNDEZ ARMESTO: We can validate what the Claimant has done or you can send to us the Renco II copy, whichever you prefer.
MR. HAMILTON: Mr. President, again.
PRESIDENT FERNÁNDEZ ARMESTO: No, Mr. Hamilton, let me finish, please, with Ms. Menaker.
Would--do you mind?
MS. MENAKER: So, you understand that you have the Authority from the Post-Hearing Brief, and you're asking me if--
PRESIDENT FERNÁNDEZ ARMESTO: If you agree that we use it, Ms. Menaker? You have referred to it. Since you have referred to it, the other Party has brought it in. Is there any objection on your side that we have a look at it. It is very difficult to--I mean--
MS. MENAKER: No.
(Overlapping speakers.)
PRESIDENT FERNÁNDEZ ARMESTO: Let me say how the world works, I go into the internet, I type in "Renco II," I will read it and then see what--if what
[Page 3014]
you have said makes sense to me or not because I cannot validate your--
MS. MENAKER: I understand, Mr. President.
PRESIDENT FERNÁNDEZ ARMESTO: So, it is a purely formal question whether these Decisions, which are in the public domain, whether we incorporate them or not.
So, if we can be as flexible, let's just say let's incorporate it. It is what the Claimant wants and you have used it. I don't think that there should be any problem with that.
MS. MENAKER: No.
MR. HAMILTON: Mr. President, you leave us no choice, I'm sorry to say. We are left with no choice. This is what happens, and I'm watching the smirks and chuckles of opposing Counsel that cram these things into the record, specifically for this reason. They briefed it, it is in their Briefs, which have never been published on the internet. It is in their Briefs. We never got a chance to brief it. So, I'm sorry, but this is why people should follow the rules.
So, we are basically left with no choice,
[Page 3015]
Mr. President. We are left with no choice.
Renco II--
PRESIDENT FERNÁNDEZ ARMESTO: Mr. Hamilton, Ms. Menaker did recently refer to Renco II.
(Overlapping speakers.)
MR. HAMILTON: We did it specifically because the issue has been left hanging out. There has been no ruling on it. They have already briefed it, it is sitting in their Briefs together with 10 other sources that they were not authorized to use. We followed the rules. So, I'm sorry, this is exactly the problem with rule-breaking, and it is exactly why it is not okay.
I understand the Tribunal wishes to make reference--or to take notice of Renco II, together with the Dissent, together with the position of the Non-Disputing Party, the United States, which agrees with the Republic of Perú about the interpretation of the Treaty, so, under the circumstances, we understand you are saying you are going to read it anyway. So, we don't know what else we can say.
PRESIDENT FERNÁNDEZ ARMESTO: But the point
[Page 3016]
is--but, Mr. Hamilton, this is not reasonable.
Ms. Menaker has--Ms. Menaker, you have--it is in your slides.
MR. HAMILTON: By necessity because they put it into their Briefs.
(Overlapping speakers.)
MR. HAMILTON: So, we are left with no choice.
That is my point.
PRESIDENT FERNÁNDEZ ARMESTO: Yeah, but now you have chosen to react to Renco II, and now you have made some arguments on Renco II. How do you want us to validate Renco II if we don't put it into the record? I just don't see the reasonability now of not putting it into the record, Mr. Hamilton.
MR. HAMILTON: I think that it's unreasonable that they broke the rules and put us in this position, but, in any event, we understand that the Tribunal is going to take notice of the entirety of the Renco II package that I mentioned at this point in time.
PRESIDENT FERNÁNDEZ ARMESTO: Okay.
MR. HAMILTON: I'm sorry to sound stubborn,
[Page 3017]
but I'm simply applying the rules that apply. I apologize. I'm sorry that we have all been put in this situation again.
PRESIDENT FERNÁNDEZ ARMESTO: Yes, I fully understand your point. But the position is that Ms. Menaker has now referred to these two Decisions, and so, to some extent this is now--this is object of dispute between the Parties, and I think this is Renco II in the annulment of Metalclad, you both--you referred to these two Decisions.
They are not in the--they were in these documents which Claimant wanted to introduce into the record. You objected to that. But now you have reacted to these two. So, I don't know how you want to solve this, Mr. Hamilton.
MR. HAMILTON: As I mentioned, Mr. President, I think that Respondent is left with no choice. I think that the bottom line is that Renco has been put improperly into the record. It has been improperly briefed by Counsel, that I have been watching smirk through this conversation, and therefore, Respondent because it had not been excluded addressed it.
[Page 3018]
And so, I understand the Tribunal is asking for the submission of Renco II, together with the Dissent and the position of Non-Disputing Party, and that would be it. We understand that all other unauthorized material submitted by Gramercy would be excluded, and we understand that we are not to submit any new materials by Respondent either.
PRESIDENT FERNÁNDEZ ARMESTO: Excellent. So, we all agree on that, I think.
MR. FRIEDMAN: Well, no, the--I think Mr. Hamilton smuggled a few things into that answer, purporting to be in agreement, which we don't all agree on.
It's quite clear that Ms. Menaker referred to Renco II, my--and, look, the Tribunal will--the legal Authority that you can get on the internet, I just really don't understand the position, and the second, the issue with the Metalclad annulment was that that's--that wasn't an Authority that we had proposed you take a look at.
It is one that Ms. Menaker for the first time today, I think, suggested bore on one of the issues
[Page 3019]
that she was pleading about. And she said that's relevant because we had relied on an aspect of Metalclad Tribunal Decision that she then said was annulled. So, if you should take account of that, which we are not--we aren't fighting on this.
We aren't resisting the idea that, if they wanted to--it's one Authority, if they wanted to send you the Metalclad annulment to make good what she said during her speech today, we don't really have an objection to that, but by the same token, we had cited the Clorox annulment case, which is one of the 10 that we had proposed that you take a look at, because that was a very recent Annulment Decision by the Swiss courts on the issue for which Respondent was relying on it.
So, I just--that's a kind of equal treatment. And I really have resisted going tit for tat on this idea of Gramercy and Debevoise are rule-breakers. I absolutely resist it.
I think that it is absolutely incredibly against all the rules to try to assert a new jurisdictional defense for the very first time in a
[Page 3020]
Post-Hearing Brief, when all of the evidence on which they made that argument were available to them well beforehand. Certainly, well before the Hearing and at--in time for all of their last briefs.
It is simply--I mean, that's a gross violation of the rules, and most of the authorities that we presented to you were simply in response to that, if you get past even a threshold looking at it, given what the--clarity of the UNCITRAL Rules.
So, I don't want to argue the point. It is not productive. It is late in the day and we should have said our "thank-yous" and "congratulations" and "goodbyes" already, but I did want to just make sure that the housekeeping issue was fairly put and that you have it in front of you.
PRESIDENT FERNÁNDEZ ARMESTO: Very good. We will do the following. We will do the following. Let us go through--we have to go through the record, and we will see where these cases including Renco, Metalclad annulment and Clorox annulment, whether they are relevant for our Decision.
And now I must remind our Secretary and
[Page 3021]
Crystal and the assistant to the Tribunal that, if we find that they are relevant, we will tell you, and if you want to say anything about these cases, which are in the public domain, you are more than welcome to do that. Hopefully, you will not have anything to add. But we will solve it in this way. And, hopefully, we will not need these cases. If we need them, we will let you know and we will give you an opportunity to speak.
But we must--the only problem with this is that we must remember that--to do that, and we must leave a note somewhere at the beginning of the Award so that we do not do this without giving some thought.
And if we are to use any other case which is not in the record, we will also let you know so that you can make arguments.
MR. HAMILTON: Mr. President.
PRESIDENT FERNÁNDEZ ARMESTO: Mr. Hamilton.
MR. HAMILTON: I appreciate the effort. I must say, though, that your comment puts a foot in the door to actually closing the record of this case and opens the scenario that there are going to be more
[Page 3022]
letters, more exchanges, and I think that, at least 15 minutes ago, we were trying to stop all that.
So, we would be very content to run this to ground right now and be done with it because otherwise we can't do cost submissions, we don't know what people are going to be drumming up to put into some letter in three months from now. We can just close the issue right now. We are glad to do it and end the letters and end the uncertainty and end all these procedural issues and then you never have to hear--we never have to hear each other again about--
(Overlapping speakers.)
PRESIDENT FERNÁNDEZ ARMESTO: Well, then let's all agree. Let's all agree. Renco II, annulment of Metalclad and annulment of Clorox we put it into the record. That makes life much easier.
Let's just say these are three publicly-known Decisions. Let's put them into the record. That's the easy solution, and we solve this problem forever. If not, we will go the other way. And I give you the choice, Mr. Hamilton. You choose one way or the other.
[Page 3023]
MR. HAMILTON: Our choice is that Gramercy should have followed the rules, but, in any event, we accept your compromise solution, which is I understand an effort to wrap it up.
(Overlapping speakers.)
MR. HAMILTON: So, Ms. Menaker, do you have any other comment?
MS. MENAKER: No.
PRESIDENT FERNÁNDEZ ARMESTO: A no to my proposal or a no to no further comments? Okay.
(Overlapping speakers.)
MS. MENAKER: No, to no further comments. I'm okay with your proposal, Mr. President.
PRESIDENT FERNÁNDEZ ARMESTO: So, you agree we put these three Decisions into the record.
MR. HAMILTON: We do not object to the Tribunal's choice to take notice of them, given the circumstances that have been created by the conduct of Claimant. Thank you.
PRESIDENT FERNÁNDEZ ARMESTO: Okay. So, can I ask the secretary and the assistant, can you put a number to these three Decisions. Just get them down
[Page 3024]
from the internet. Put a number to them and inform the Parties, and we close this. Excellent. Thank you.
Thank you for that. It would not--
(Overlapping speakers.)
MR. HAMILTON: I only say I never had a chance to say thank you and be nice.
(Overlapping speakers.)
PRESIDENT FERNÁNDEZ ARMESTO: This is a fitting end to this case if we had not had this discussion on these three documents. It is a fitting end, and I think it is also a fitting end that we have found a solution.
So, no further ado. It is now half past 8:00 in Europe, and you have to go to lunch probably in the States and in Canada. Thank you to all of you, and I hope to see you safe and healthy very soon in person. Thank you. Bye.
ARBITRATOR DRYMER: Thank you, everybody.
MS. MENAKER: Thank you, everyone.
MR. HAMILTON: Thank you. Thank you, Dr. Stern, Mr. Drymer. Mr. Armesto. Thank you very
[Page 3025]
much.
(Whereupon, at 2:28 p.m., the Hearing was concluded.)
[Page 3026]
I, Dawn K. Larson, RDR-CRR, Court Reporter, do hereby certify that the foregoing 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 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