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Aguaytia Energy, LLC v. Republic of Peru (ICSID)

Why it matters

This case clarifies the scope of stabilization clauses in investment contracts, distinguishing between freezing existing laws and creating substantive rights. It confirms that such clauses do not guarantee most-favored-nation treatment or protect against future discrimination unless explicitly stated. The decision is significant for investors relying on stability agreements in Peru and similar regimes.

Summary

Aguaytia Energy, a US company, invested in Peru's energy sector and entered into a Stability Agreement with the Peruvian government in 1996. The agreement guaranteed stability of certain laws, including non-discrimination, for ten years. Aguaytia later claimed that Peru violated this agreement by discriminating against it in favor of local competitors through regulatory actions. The tribunal, applying the Peru-USA BIT and Peruvian law, interpreted the Stability Agreement strictly: it only froze the legal framework as of 1996, not creating a substantive right against future discrimination. The tribunal found no evidence that Peru had changed the relevant laws or that Aguaytia had a legitimate expectation of non-discrimination beyond the frozen framework. The claim was denied, and costs were shared equally as per the agreement's arbitration clause.

The detail

Parties: Aguaytia Energy, LLC v. Republic of Peru

Case number: ICSID Case No. ARB/06/13

Outcome: Claim denied. Each party bears its own legal costs and shares ICSID costs equally.

Applicable law: Peru-USA Bilateral Investment Treaty; Aguaytia Stability Agreement; Peruvian law

Issues in play: The dispute centered on whether Peru's Stability Agreement with Aguaytia created substantive rights against future discrimination or merely froze existing laws. The tribunal held it only stabilized the legal framework, not granting a substantive right to non-discrimination.

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