IISD | 13 March 2018
Renco failed to comply with formal waiver requirement under U.S.–Peru Trade Promotion Agreement
Renco Group Inc. v Republic of Peru, UNCT/13/1
An arbitral tribunal under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) declared that U.S.-based investor Renco Group Inc. (Renco) failed to comply with the waiver requirement under the United States–Peru Trade Promotion Agreement (TPA). Accordingly, the tribunal declined to exercise jurisdiction over the case.
On April 4, 2011, U.S.-based mining company Renco initiated arbitration proceedings on its own behalf and of its wholly-owned enterprise, Doe Run Peru S.R. LTDA (DRP). Renco alleged that Peru breached its TPA obligations to afford fair and equitable treatment (FET) and national treatment, as well as certain contractual obligations. In an Amended Notice of Arbitration dated August 9, 2011, Renco withdrew the enterprise claim while retaining the claim on its own behalf.
TPA Article 10.18(2)(b) comprehends two different requirements: a formal one, which is the requirement to submit a written waiver giving up the right to initiate or continue before any administrative tribunal or court under the law of any party, or any other dispute settlement procedures, any proceeding with respect to any measure alleged to constitute a breach and a material one, which requires the investor to abstain from initiating or continuing local proceedings in violation of its written waiver.
The scope of the Partial Award of July 15, 2016 is the written waiver accompanying Renco’s Amended Notice of Arbitration. The waiver states that, “to the extent that the Tribunal may decline to hear any claims asserted herein on jurisdictional or admissibility grounds, Claimant reserves the right to bring such claims in another forum for resolution on merits”— “the reservation of rights” (paras. 58–59).
Peru asserted that Renco failed to comply with both the formal and material requirements of TPA Article 10.18(2). It noted that with the “reservation of rights” Renco reserved the right to bring claims in another forum and that, accordingly, Renco’s waiver did not comply with the TPA.
The tribunal’s analysis of the waiver requirement under TPA Article 10.18(2)
The tribunal started its analysis by interpreting under the Vienna Convention of the Law of Treaties the relevant provisions involved in the claim, which establish the procedures that an investor may follow in order to submit a dispute to arbitration—the TPA articles on “Submission of a Claim to Arbitration,” “Consent of Each Party to Arbitration” and “Conditions and Limitations on Consent of Each Party.”
The tribunal noted that its jurisdiction would be established upon a valid arbitration agreement between Renco and Peru, formed when Renco accepted Peru’s standing offer to arbitrate claims by arbitration in accordance with the requirements under the TPA. However, it highlighted that compliance with Article 10.18(2) was a condition and limitation of Peru’s consent to arbitrate, constituting an essential prerequisite to the existence of the arbitration agreement and thus, to the tribunal’s jurisdiction.
Turning to the validity of Renco’s waiver and reservation of rights, the tribunal considered that the wording of the Article 10.18(2)(b) demonstrates that waivers qualified in any way are impermissible, and that this interpretation is consistent with the object and purpose behind this article that is to protect a respondent state from litigating in multiple proceedings. The tribunal also determined that the article constitutes a “no U-turn” provision that precludes the investor to pursue a subsequent claim in domestic forum, including if the claim is dismissed on jurisdictional or admissibility grounds.
To conclude, the tribunal analyzed the consequence of Renco’s non-compliance with Article 10.18(2)(b). It pointed out that it would have been preferable if Peru had raised the waiver objection at the outset of the proceedings, given that the arbitration has been on foot for a long time and that the issue became very complex since the consequences of non-compliance with Article 10.18(2)(b) are very severe.
Tribunal dismisses Renco’s attempt to cure the waiver or sever the reservation of rights and rejects Renco’s argument that Peru abused its rights
In its decision, the tribunal also took into account (1) whether it would be possible to cure the waiver, (2) whether the tribunal could sever the reservation of rights and (3) whether Peru’s arguments and conduct in relation to the waiver constituted an abuse of rights.
Regarding the possibility to cure the waiver, Renco submitted that the defect was only in form and that tribunals can cure formal requirements. Peru contended that the tribunal was not empowered to do so. The majority of the tribunal concluded that the submission of a valid waiver is a condition of the initial existence of a valid agreement and that therefore the tribunal was without any authority. One of the arbitrators accepted that Renco could unilaterally cure its defective waiver.
As to the severability principle, the tribunal concluded that the principle could not be applied in the case because no arbitration agreement came into existence and, therefore, the tribunal had no power to sever the reservation of rights.
Peru had raised for the first time the issue of defective waiver in the Notification of Preliminary Objections, filed three years after the institution of the proceedings. Renco asserted that Peru’s objections constituted an abuse of rights, submitting that Peru’s purpose was not to ensure the due respect of the waiver rights but to evade its duty to arbitrate Renco’s treaty claims. The tribunal concluded that Peru legitimately sought to exercise its right to receive a waiver in compliance with Article 10.18(2)(b). Yet, it highlighted that a possible abuse of rights could arise if Peru argued in any future proceedings that Renco’s claims were time barred because of the three-year period established in Article 10.18(1).
Decision and costs
The majority declared that Renco failed to comply with the formal requirement of Article 10.18(2)(b) by including the reservation of rights in the waiver together with the Amended Notice of Arbitration, that it could not unilaterally cure its defective waiver, and that it failed to establish the requirements for Peru’s consent to arbitrate under the treaty. Consequently, the tribunal dismissed the claims for lack of jurisdiction.
In the Partial Award on Jurisdiction, the tribunal had reserved the question of costs for a later award. In the Final Award, the tribunal decided to depart from the presumption that “costs follow the event” contained in the UNCITRAL Rules given that (a) Peru had only achieved a relative, rather than an absolute, measure of success; (b) the issues raised in the waiver phase of the arbitration were novel and complex; and (c) Peru delayed in raising its objection to the Tribunal’s jurisdiction on the basis of Renco’s non-compliance with Article 10.18(2)(b) of the Treaty. As a conclusion, the tribunal ordered each party to bear its own legal and other arbitration costs and to bear half of the costs of the tribunal and the administering authority.
Notes: The arbitral tribunal was composed by Michael J. Moser (President agreed to by the parties, Austrian national), L. Yves Fortier (claimant’s appointee, Canadian national), and Toby T. Landau (respondent’s appointee, British national). The Partial Award on Jurisdiction of July 15, 2016 is available in English at http://www.italaw.com/sites/default/files/case-documents/italaw7434.pdf and in Spanish at http://www.italaw.com/sites/default/files/case-documents/italaw7435.pdf, and the Final Award of November 9, 2016 is available in English at http://www.italaw.com/sites/default/files/case-documents/italaw7744_1.pdf and in Spanish at http://www.italaw.com/sites/default/files/case-documents/italaw7745.pdf.
Maria Florencia Sarmiento is a teaching and research assistant at the Catholic University of Argentina.