Peru 

In summary

In this article, we discuss judicial intervention in the arbitration process, specifically the constitutional review in amparo actions against awards. To this end, we analyse the amparo actions against awards, the regulations that have been issued over the years and the recent modification to the New Peruvian Constitutional Procedural Code, which is based on the idea that amparo actions against awards are not so restrictive. Finally, we mention the increase in the number of cases in which Peru has been sued before the ICSID. Political instability is definitely a strong reason to turn to ICSID; for Peru, it is likely that over the years there will be an increase in the number of cases.

Discussion points

• The constitutional control of arbitration process
• Concept and recognition of amparo action against awards
• Law changes and reason for the law changes about the amparo action against awards
• Cases before ICSID against Peru rise

Referenced in this article

• Peruvian Arbitration Law, approved by Legislative Decree No. 1071
• Peruvian Constitutional Procedural Code, approved by Law No. 28237
• New Peruvian Constitutional Procedural Code, approved by Law No. 31307
• Law No. 31583, which that approves some modifications to the Peruvian New Constiutional Procedural Code

Introduction

In the scope of domestic arbitration, over the years, arbitration has become progressively more popular. Part of this popularity is owing to the distrust of judicial authorities and the efficiency that the arbitration process guarantees. Arbitral jurisdiction is recognised in the Peruvian Constitution, but this jurisdiction is always a constant subject of debate among doctrinarians.

The fact that the arbitration jurisdiction is independent from the judicial jurisdiction does not imply that the arbitration process does not have to respect the constitutional rights of the parties, such as due process and effective judicial protection. The protection of these rights has led to discussions over the years on amparo actions against awards, which is a mechanism through which the constitutional judge reviews the decision of an arbitral tribunal and can even annul the award if there is a constitutional right that has been threatened or violated. The Constitutional Court issued a binding precedent in 2011, which explicitly indicates the residual nature of the amparo action and the only circumstances in which the amparo action against an award could be admissible. However, to date, there are provisions in the New Constitutional Procedural Code that are the subject of analysis in this article.

In the scope of international arbitration, the International Centre for Settlement of Investment Disputes (ICSID) is the world’s leading institution for investment dispute resolution, regardless of whether the dispute is between a party and a state or between states. ICSID was established by the Convention on the Settlement of Investment Disputes between States and Nationals of other States known as the ICSID Convention. However, not everyone is able to go to ICSID to submit a dispute. Arbitration before ICSID is only available for disputes between contracting states and parties who are nationals of contracting states.^[1] This means that the basis of consent invoked to establish ICSID can be established in diverse contracts as investment treaties agreements and others that involved both parties.

Peru has been a member of ICSID since 1993. This incorporation is positive as it provides a guarantee for the investors that any disputes arising between them and the state will be judged by international jurisdiction. The statistics show that Peru is one of the countries that has been sued the most at ICSID and has obtained favourable results over the years, but there are still 24 cases ongoing.^[2] In this regard, this article will also indicate the involvement of the Peruvian state in the ICSID court.

Awards and constitutional intervention in Peru

Arbitration has jurisdiction, which means that the decision rendered is completely binding and independent of the judicial system. The questions that legislators have always wondered about are:

• what happens when an arbitral award is issued in the framework of a process that violates the constitutional rights of the parties; and
• would it not be appropriate for the judicial authorities to be able to supervise these processes in some way?

The debate has been wide-ranging and, although the issue has been closed for several years, the publication of Law No. 31583 on 5 October 2022 has reopened the debate.

Brief note about arbitration and constitutional law

In 2004, the Constitutional Procedural Code (CPC) became enforceable through Law No. 28237. This law develops the procedure for all constitutional proceedings, including the amparo action. As stated in article 200 of the Political Constitution of Peru, the amparo action ‘proceeds against the act or omission of any authority, official or person that violates or threatens the other rights recognized by the Constitution’. Also, the CPC allowed amparo actions to be filed against final judicial decisions issued violating access to justice and due process. However, article 5 of the CPC established the circumstances for which the constitutional judge should reject the amparo action. Thus, it established in subsection 2 of article 5 that the amparo action must be rejected when there is an equally satisfactory mechanism to protect any constitutional right that has been threatened or violated.

The CPC only referred to the admissibility of amparo actions against judicial decisions. However, this was not an obstacle for the parties to file amparo actions against the award. Specifically, in 2010 the Constitutional Tribunal decided at the final instance the amparo action filed by IVESUR SA, requesting, among other things, the annulment of the award (STC No. 02851-2010-PA/TC). This process reached the Constitutional Tribunal because the first instance court and the Superior Chamber rejected the amparo action after considering that the award could not be reviewed in the constitutional court as, prior to the amparo action, it was necessary to refer to the process of annulment that the General Arbitration Law (Law No. 26572) established. On this point, the Constitutional Tribunal decided to open the doors of the amparo action against awards indicating that, although there is a process of annulment stipulated in the General Arbitration Law, this process can be insufficient when constitutional rights are involved, so the amparo action is the effective mechanism to defend those rights. For that reason, the Constitutional Tribunal declared the amparo action well founded.

In 2008, Legislative Decree No. 1071 became enforceable. This law derogated the previous General Arbitration Law (Law No. 26572), which allowed the parties to appeal the award before the judicial authorities or before a review arbitral tribunal when it had been agreed in the arbitration agreement or if it was provided in the rules of arbitration. However, Legislative Decree No. 1071 (which is still valid to date), derogated the entire General Arbitration Law – including the aforementioned provision – and stated that the award could only be challenged by an action for annulment, and the purpose is to review its validity on the specific causes of annulment stipulated in article 63.^[3] Therefore, it stated that the judicial authorities are forbidden, under liability, to pronounce on the merits of the dispute or on the substance of the decision or to qualify the criteria, motivations or interpretations stated by the arbitral tribunal.

The fourth supplementary provision states that all legal references to judges for the purpose of resolving a dispute or taking a decision may also be understood as referring to the arbitral tribunal. The 12th supplementary provision establishes that, for the purposes of the provisions of subsection 2 of article 5 of the CPC, the action for annulment of the award is an equally satisfactory and suitable remedy to protect any constitutional right that has been threatened or violated in the process of the arbitration award.

In that sense, the law regulating arbitration clearly states that the action of annulment of the award is:

• the only action available to challenge it;
• not a mechanism for the judicial authorities to review the merits of the dispute; and
• the mechanism to protect any constitutional right threatened or violated in the arbitration process or by the award.

However, the provisions of Legislative Decree No. 1071 led to an analysis of whether the fourth supplementary provision, which states that when referring to decisions of judges it should also be understood as referring to arbitration tribunals, implied that the provision stating that amparo actions against judicial decisions are allowed also means that this action is allowed against awards. Therefore, in 2011 the Constitutional Tribunal decided to establish binding rules for all the judicial authorities by means of the well-known precedent Maria Julia (STC 00142-2011-PA/TC). In this decision, the Constitutional Tribunal established that in accordance with article 63 of Legislative Decree No. 1071, the general rule is that the amparo action against awards does not proceed even if the violation of the right of due process and effective judicial protection is alleged. However, the precedent established three cases in which it is admissible to file an amparo action against an award:

1. when direct violation of binding precedents established by the Constitutional Court is claimed;
2. when the arbitration award has exercised diffuse control over a law declared constitutional by the Constitutional Tribunal or the courts; and
3. when the amparo is filed by a third party who is not a party to the arbitration agreement and is justified by the direct and manifest affectation of their constitutional rights because of the award rendered in an arbitration, unless this third party is a non-signatory part of the arbitral process.

In addition, the precedent states that in the case of scenarios (1) and (2) it is necessary that whoever considers himself to be affected has previously made an explicit claim before the arbitration tribunal and that this has been rejected and that in any case, the judge or the Constitutional Tribunal may resolve the merits of the dispute submitted to arbitration.

For constitutional experts, this precedent reinforced the autonomy of arbitration by preventing improper use of the amparo action even though the Constitutional Tribunal did not give reasoned justification for restricting it to only three circumstances on which the amparo action against an award may proceed.^[4] In fact, while the precedent clearly established the rules for amparo actions against arbitral awards, it did not pronounce on the possibility of filing an amparo action against the enforcement of an award. In this regard, Fernando Cantuarias gave the example of what would happen if an investment award was rendered on the terms of a free trade agreement and the Peruvian state went to the Constitutional Court to file an amparo action. He indicates that if the amparo action was declared admissible under the precedent, it would be in violation of the TLC.^[5] So, the precedent may have established certain rules, but it was not entirely clear for the purposes of all stages of the arbitral process. This may contradict the intended purpose, which is the independence of arbitration as a dispute resolution mechanism.

In 2021, the new Constitutional Procedural Code (NCPC) was issued by Law No. 31307. Although it prohibits the liminal rejection of the amparo action (article 6), this action can be rejected after it is admitted in any of the circumstances indicated in article 7 (previously article 5). Among the causes of rejection, the NCPC has maintained the clause established in subsection 2 of article 5 of the CPC, indicating that the constitutional process – including the amparo action – does not proceed when there are specific and equally satisfactory procedural mechanisms for the protection of the constitutional right threatened or violated.

Recent changes to the NCPC

In October 2022, Law No. 31583 became enforceable, which modifies articles of the NCPC. Among them are articles 42 and 45. Article 42 refers to the competence of the judge. In the NCPC, this article indicated that ‘if the affection of rights originates in a judicial decision, the lawsuit is filed before the constitutional chamber or, if there is none, before the civil chamber on duty in the respective superior court of justice’. The modified article established the following: ‘the constitutional chamber is competent or, if there is none the civil chamber on duty in the respective superior court of justices . . . if the affection of rights originates in: (a) a judicial decision or an award’.

Article 45 establishes the deadline for filing the amparo action. The NCPC established that ‘[i]n case of amparo proceedings initiated against a judicial decision, the deadline for filing the lawsuit is thirty days and begins with the notification of the final decision’. As in the previous article, the modification established by Law No. 31583 consisted of stating the following: ‘in the case of the amparo process initiated against a judicial decision or arbitration award, the deadline for filing the lawsuit is 30 days and begins with the notification of the final decision or arbitration award’. Finally in the fourth final complementary provision that refers to the exoneration of court fees, by means of Law No. 31583 it is stated that ‘constitutional proceedings are exonerated form the payment of court fees, except for . . . amparo action against arbitral awards’.

In conclusion, what the amendments do is make a brief reference to the amparo action against awards. The amendments do not make any significant changes to the validity of the amparo action against awards; in this regard, why were these modifications made? In accordance with the opinion issued by the Congressional Committee on the Constitution and Rules of Procedure of the Congress of the Republic (the Committee), both doctrine and the jurisprudence of the Constitutional Court admit amparo actions against awards even though the CPC and the NCPC do not expressly state this. Along these lines, they refer to the Maria Julia precedent and reaffirm the rules established in that decision for admitting amparo actions against awards.

Likewise, they refer to Case No. 08448-2013-PA/TC, pointing out that through this process, the Constitutional Court has broadened the scope of the amparo action against arbitral decisions issued by the arbitral tribunal in the phase of enforcement of the award as long as it is a decision that lacks regulatory support or is issued in clear violation of constitutional rights. Finally, the Committee refers to ruling 855/2021, dated 26 August 2021, by which the Constitutional Tribunal has admitted the admissibility of amparo action against arbitration decisions issued prior to the arbitration award that affects third parties if there is no other satisfactory mechanism where that decision can be questioned.

After this, they indicate that:

the Constitutional Tribunal in the exercise of its function as guarantor has developed via constitutional interpretation a solid line of jurisprudence with respect to the admissibility of the amparo, allowing amparo proceedings to be brought not only against arbitral awards, but also against arbitral resolutions, other than the award, despite the fact that the constitutional procedural rules in force at the time as well as the current ones did not contemplate such an assumption, so that the incorporation of such an assumption . . . is not necessary . . . ) is not necessary, which is why we insist on the same.^[6]

In this regard, although the changes do not modify in any way the binding precedent of Maria Julia, which expressly establishes the cases in which amparo against an award is admissible, we must clarify the following regarding the reasoning of the Committee:

• It is correct that the Maria Julia precedent establishes that amparo actions may exceptionally be filed against the arbitration award in three scenarios.
• Among those scenarios, it is established that amparo actions against the arbitration award are admissible when the amparo is filed by a third party that is not a party to the arbitration agreement and its claims are sustained on the direct and manifest affectation of its constitutional rights, unless this third party is a non-signatory party. In this regard, Case No. 0844-2013-PA/TC referred by the Committee does not lead to any change, as in the precedent Maria Julia this was already established.
• The Committee in its statement indicates that the Constitutional Tribunal has indicated that an application for amparo can be filed against decisions issued by the arbitral tribunal at the enforcement stage. First, the only decisions made by the Constitutional Tribunal that are binding for other judicial authorities is a precedent. The fact that the Constitutional Court has issued various pronouncements following the Maria Julia precedent does not imply that these are binding.

On the contrary, the only decision of the arbitral tribunal that can be challenged through amparo actions is the award that has incurred in the three cases established in Maria Julia. It is not possible to bring an amparo action against the enforcement of the award issued by the arbitral tribunal. It is different to say that it is possible to file an application for amparo against the decision issued by the judge in the process of enforcement of the award. In this regard, what would be challenged would be the judicial resolution, not the award.

Although the modifications did not make a lot of noise, the arguments used to approve these modifications did. In this regard, it is part of the legislative task to analyse the set of laws and issue new ones or modifications that do not jeopardise jurisdictional advances. Likewise, it is part of the work of the judicial authorities to duly apply the laws and adhere to what is established in them, to avoid issuing rulings that could affect legal certainty.

Peru as a respondent party at ISCID

According to the report issued by ISCID, 41 new arbitration cases were filed in 2022 (both convention arbitration cases as well as additional facility arbitration cases). Similarly, a total of 21 cases were registered that do not follow ICSID rules but are administered by the ICSID Secretariat. South America is the continent that has registered the highest number of cases during 2022, with Eastern Europe and Central Asia in first place. In 2022, Peru was sued by the Bank of Nova Scotia and, in 2023, the company Operadora Ecológica del Titicaca Sac also sued the Peruvian state. In 2022, the Peruvian national company PeruPetro was also sued.

To date, Peru has 24 cases open before the ISCID, being the South American country with the most open proceedings and, in general, the most sued country in the world in recent years, with 11 claims filed between 2021 and 2022. Of the 24 cases that are still pending resolution, there are six cases related to transport companies, some of which are related to road construction and maintenance, eight cases related to oil, gas and mining companies, two cases initiated by companies related to power energy and other powers, three related to construction, two related to information and communication, one related to the precious metals industry, one related to finance and, finally, one related to residual water treatment. This shows, there is no homogeneity regarding the matters discussed in ICSID, although there is a higher number of disputes related to oil, gas and mining.

However, according to arbitration experts, Peru tends to be more conciliatory in ICSID proceedings owing to the high costs involved in international arbitration. The Coordination and Response System for International Investment Disputes, the state entity in charge of defending the interests of the Peruvian state internationally, must subcontract the country’s defence to the most respectable law firms in Peru.^[7]

Even though Peru has had positive results over the years, in 2023, the state allocated a budget of 62,722,069 sol for legal advice and defence in the framework of national and international contractual disputes in charge of the Ministry of Economy and Finance.

The reason why in 2021 and 2022 Peru has been sued in several cases and that in 2023 Peru will continue to have several ICSID claims may result from a multiple number of factors, including the political uncertainty that the country has experienced over the years. State measures such as the expropriation of resources, as well as constant conflicts with the local population, have led investors to believe that the country could be insecure in terms of investment. In this regard, given the situation that the country is going through, it may indicate that there will continue to be lawsuits against the Peruvian state in the international field in the coming years.

Conclusions

The debate on the intervention of constitutional authorities in arbitration proceedings and, consequently, in the decisions adopted by arbitral tribunals has been long. In 2011, with the Maria Julia precedent, an attempt was made to put a stop to all the amparo actions against awards that were being filed. However, it seems that the legislators have a contradictory concept to the precedent and that’s why they considered necessary to modify some articles of the NCPC.

Although the modified articles do not make a pronouncment on the circumstances in which an amparo action against an award is admissible, we are concerned by the reasoning of the Congress at the time of requesting these modifications. From the opinion issued by the Committee, it could be interpreted that the legislature intends to expand the assumptions in which the amparo action against an award is admissible.

On the other hand, in 2021, it caught the attention of many that Peru was one of the most frequently sued in ICSID. Although force majeure events have occurred recently (covid-19), after 2020 Peru has continued to be one of the most frequently sued countries. Between 2021 and 2023, Peru has had two presidents who not only did not have much public approval but also maintained a nationalist narrative that may have scared off investors. In addition, the instability of the currency has not been a good indicator for Peru either. So it would not be a surprise if the state finds itself involved in more ICSID cases in the coming years.

Footnotes