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Arnold & Porter Secures Another Complete Victory for Republic of Peru in International Arbitration

May 16, 2024

On May 14, 2024, an international arbitration tribunal ("Tribunal") constituted under the ICSID Convention and the United States-Peru Free Trade Agreement issued its final award in Kaloti Metals & Logistics, LLC v. Republic of Peru ("Arbitration"), rejecting the entirety of Kaloti's claims on jurisdictional grounds and ordering it to reimburse Peru for 100% of its legal fees, expenses, and arbitral costs.

This latest victory is Arnold & Porter's fifth consecutive complete victory for Peru and contributes to the firm's industry-leading 98% success rate for sovereign States in investment arbitrations. The firm's track record currently stands at 54 positive results out of 55 awards and decisions on behalf of States in investment arbitrations.

The Arbitration concerned a series of gold shipments from Kaloti, a Florida-based subsidiary of a large Emirati metals conglomerate, that were due to be exported from Peru to the United States in late 2013 and early 2014 but were precautionarily seized by Peru's authorities in the context of investigations and criminal proceedings regarding illegal mining, money laundering, and related crimes ("Challenged Measures").

Kaloti claimed that the Challenged Measures had unlawfully interfered with its property rights over the Shipments and its broader operations in Peru, the United States and other countries, in alleged breach of Peru's obligations under several articles in the United States-Peru Free Trade Agreement. On that basis, Kaloti sought compensation of more than USD$154 million.

The Arbitration raised several critical aspects of investment arbitration, including international tribunals' lack of jurisdiction over investments made in violation of national law and international public policy and States' right under international law to adopt measures designed to protect legitimate public interests.

Peru submitted that all of Kaloti's claims fell outside the Tribunal's jurisdiction, including because Kaloti had failed to prove that it owned an investment covered by the protections under the Treaty. Peru also argued that none of the Challenged Measures were contrary to Peru's obligations under the Treaty. Peru also demonstrated that Kaloti had failed to comply with its obligation to conduct reasonable due diligence and instead ignored garish red flags that would have indicated to any responsible company that the gold had been illegally mined.

Ultimately, the Tribunal agreed with Peru that Kaloti's claims were utterly and wholly meritless and should be rejected.

The Tribunal also concluded that there was no evidence of an actual business enterprise "that involve[d] a long-term commitment to operating and creating value in Peru," nor any evidence of "an investment of a long-term duration rather than an operation to support Kaloti's purchase and sale of gold, an operation based in Miami." Therefore, the Tribunal ordered Kaloti to reimburse Peru for 100% of its arbitration costs, including the totality of the legal fees that the State incurred in the Arbitration.

Recently, Arnold & Porter secured another positive outcome in a security for costs application filed on behalf of its client, the Republic of Costa Rica, in José Alejandro Hernández Contreras v. Republic of Costa Rica. The Tribunal ordered the claimant to provide a guarantee for USD$1.2 million.

The Arnold & Porter team in the Kaloti case was led by partners Patricio Grané Labat and Paolo Di Rosa, and included counsel Álvaro Nistal, senior associates Andrea Mauri Paricio, Tim Smyth, Katelyn Horne, and Paloma García Guerra, associates Ana Pirnia, Julia Calderón Carcedo, and Peter Saban, as well as foreign associate Agustín Hubner. Partner Mélida Hodgson assisted with oral argument at the hearing.