Peru’s State Coordination and Response System for International Investment Disputes

Over the last 20 years, Peru has developed a clear policy for attracting investment, which is reflected, among other things, in the number of signed bilateral investment treaties (BITs) and ratified free trade agreements (FTAs) with investment provisions, and the use of investment contracts by the Peruvian State with foreign investors. [1] These developments, combined with an attractive economic and stable political climate, have contributed to achieving one of the country’s main objectives, namely to significantly increase foreign direct investment.[2]

Needless to say, most international investment protection instruments provide that disputes arising between foreign investors and host States will be resolved by arbitration. Just as Peru has joined the global trend of concluding investment protection agreements, the country has also been no stranger to the considerable increase in international investment disputes observed in recent years. To address this growth in international investment arbitration in line with its investment attraction policy, Peru has created a system for efficiently and effectively resolving potential disputes.

Following Peru’s first international investment dispute in 2003 (an earlier case in 1998 led to an agreement that ended the dispute), a number of aspects involved in the handling and prevention of investment disputes were identified as obstacles to the appropriate defence of the State’s interests. These included the signing of an increasing number of investment protection instruments, the lack of coordination within the State in terms of gathering information and clearly defining the responsibilities of the entities involved, and the lack of a clear process for retaining outside legal counsel and paying the legal costs associated with such proceedings.

Further to an analysis of these and other aspects, Peru’s Coordination and Response System for International Investment Disputes (Sistema de de Coordinación y Respuesta del Estado en Controversias Internacionales de Inversión, or SICRECI) was created in 2006 by Law No. 28933.

SICRECI’s principal objectives as set out under Article 3 of this legislation are:

–          Optimize the response and coordination within the public sector to handle international investment disputes in a timely and appropriate manner.

–          Centralize information on investment agreements and treaties signed by the Peruvian State that refer to international dispute settlement mechanisms.

–          Establish an alert mechanism to warn of emerging international investment disputes.

–          Define coordination procedures for the public entities[3] involved in a dispute.

–          Internalize the costs generated by the public entities involved in a dispute.

SICRECI comprises the Coordinator, a Special Commission and all of the public entities that enter into agreements with national or foreign investors conferring rights or guarantees, or that represent the Peruvian State in agreements that contain investment-related provisions.

The Peruvian Ministry of Economy and Finance is the Coordinator of SICRECI. Its main duties are to centralize information and coordinate the system; keep informed of any emerging investment dispute; receive notification or alerts of the commencement of dispute resolution mechanisms or the direct negotiation stage, as applicable; and establish and maintain a public registry with information on the agreements and treaties set out in the previous paragraph.

The Special Commission is the inter-agency collegiate entity established to represent the State in all stages of international investment disputes, and is composed of the following permanent members:

–          A representative from the Ministry of Economy and Finance (Chair)

–          A representative from the Ministry of Foreign Affairs

–          A representative from the Ministry of Justice

–          A representative from the Private Investment Promotion Agency (ProInversión)

The Special Commission may also include non-permanent members, depending on the circumstances:

–          A representative from the Ministry of Foreign Trade and Tourism, in the event of disputes that arise in the application of treaties with investment provisions

–          A representative from each public entity involved in a dispute

Once it has been notified with the alert of the beginning of a dispute, the Special Commission is, inter alia, responsible for assessing the possibility of reaching a settlement in the direct negotiation stage and participating in these negotiations, depending on the strategy adopted; requesting technical reports from the entities involved on matters pertaining to the dispute; proposing the hiring of legal counsel and other professionals required; appointing arbitrators; facilitating the work of the outside counsel retained for the defence of the State; approving the availability of funds required for its participation in the corresponding negotiations; and determining the responsibility of the public entities involved in the dispute.

The work of the Special Commission is supported by a Technical Secretariat, the core functions of which include conducting an initial assessment of the dispute and preparing a preliminary report that is submitted to the other members; preparing reports on courses of action and strategies and any other information necessary for the Commission to perform its duties; and preparing and keeping the Special Commission’s meeting minutes.

Given that SICRECI is a comprehensive system aimed at preventing as well as handling international investment disputes, the legislation creating it includes a few aspects that should be highlighted. SICRECI involves two main processes: the communication of information regarding investment agreements and treaties signed, and an alert system of the beginning of a dispute. The purpose of the first process is to facilitate access to a registry of public information on investment agreements and treaties so that government officials can monitor the State’s commitments. The second process addresses the direct handling of a dispute.

In addition, SICRECI establishes criteria that must be applied in writing in dispute settlement provisions of investment agreements entered into by public entities, with a view to standardizing and facilitating the actions of SICRECI members. These provisions must:

–          Establish a period of direct negotiation or settlement of at least 6 months before the dispute can be submitted to international arbitration.

–          Establish the recourse to neutral dispute settlement systems, as set out in the regulations of Law No. 28933.

–          Establish the parties’ responsibility for the costs arising from their participation in the arbitration or settlement.

–          Establish the investors’ duty to notify the System Coordinator, without prejudice to their duty to notify their counterpart, where applicable, in order to give effect to the notification of the commencement of the direct negotiation period.

It should be noted that based on the lessons learned in handling international investment disputes, the SICRECI Coordinator is working with the public entities concluding investment agreements with investors to incorporate additional requirements into their dispute settlement provisions, including, for example, the investor’s obligation to present, together with the notification of a potential dispute, detailed information about the dispute, including (i) background, (ii) relevant facts, (iii) clear identification of the disputed points, (iv) clearly defined claims and, where possible, (v) proposals for alternative dispute resolution. The objective is to facilitate the complete and full understanding of the dispute by the Special Commission as soon as it is formally notified of its existence, in order to increase the possibility of achieving a satisfactory outcome in the negotiation stage.

In addition to the registry of public information on investment agreements and treaties, the SICRECI Coordinator is also implementing an early alert system that allows for effective action to be taken with respect to a potential dispute and for taking the appropriate measures to avoid the matter ending up in a dispute that requires the involvement of the Special Commission.

Peru’s initiative in creating the SICRECI system has proven to be efficient and necessary, especially considering the significant increase in the number of cases coming to its attention. Peru currently has nine pending cases, eight of which have emerged since 2010. The SICRECI system has been effective in addressing the number of cases handled by the Peruvian State as well as their broad nature.

In a context where the cases respond to specific situations, regulations and decisions in a variety of sectors and industries, it is increasingly important that the entities involved in the dispute be incorporated into the State’s representation and that appropriate coordination be maintained among them. This not only leads to orderly, efficient and coordinated State action, but it also allows for the clear identification of responsibilities and the internalization of the costs of the measures prescribed by national, regional and local government agencies.

Even more importantly, SICRECI is a clear indication of Peru’s serious approach to its policy of attracting investment. The creation of a system for preventing and handling investment disputes reflects Peru’s intention to create a truly stable and predictable investment climate that recognizes the importance of early dispute identification and resolution as well as the appropriate defence of the State in such proceedings.

Author: Ricardo Ampuero Llerena is a legal advisor in the Special Commission that represents the Republic of Peru in international investment disputes. The opinions expressed in this article are those of the author and do not necessarily reflect the views or policies of the Special Commission or the Peruvian Government.