Gramercy Funds Management LLC and Gramercy Peru Holdings LLC v. Republic of Peru, ICSID Case No. UNCT/18/2
ICSID · Investment (ICSID and treaty) · Peru · 6 Dec 2022
Why it matters
This award is significant for its detailed analysis of whether sovereign bonds constitute a protected investment under the ICSID Convention and the FTA. The Tribunal held that the bonds were an investment because they were part of an overall economic operation (agrarian reform) and contributed to Peru's economy. It also clarified the standard for arbitrariness under the FTA, requiring a measure to be 'willful disregard of due process' or 'shocking to the judicial conscience.' The case is a landmark for sovereign debt disputes and the application of the Salini test to financial instruments.
Summary
The case arose from Peru's agrarian reform in the 1960s, which issued bonds (Bonos Agrarios) to compensate landowners for expropriated land. Hyperinflation and currency devaluation eroded the bonds' value. In 2001, Peru's Constitutional Tribunal ordered the government to pay the bonds at their original value adjusted for inflation. However, in 2013, the Tribunal reversed itself, ruling that payment should be based on the bonds' nominal value, drastically reducing the amount. Peru then issued decrees implementing this decision. Gramercy, a US investment fund, purchased a large number of these bonds and claimed that the 2013 decision and subsequent decrees violated the US-Peru FTA. The Tribunal first upheld jurisdiction, finding that the bonds constituted an investment under the ICSID Convention and the FTA because they were part of the agrarian reform program, a long-term economic operation contributing to Peru's development. On the merits, the Tribunal rejected all claims. It held that the decrees were not arbitrary because they were based on a legitimate policy choice to limit fiscal liability and were not capricious. The 2013 Constitutional Tribunal decision did not amount to a denial of justice because it was a reasoned change in jurisprudence, not a manifestly unjust ruling. The measures were not expropriatory as they did not deprive Gramercy of all value; the bonds still had some value. The national treatment and effective means claims also failed. The award is notable for its thorough discussion of the definition of investment in the context of sovereign bonds and the high threshold for finding a violation of the minimum standard of treatment.
The detail
Parties: Gramercy Funds Management LLC and Gramercy Peru Holdings LLC v. Republic of Peru, ICSID Case No. UNCT/18/2
Case number: italaw/cases/3879
Outcome: The Tribunal dismissed all claims. It found that the Decretos Supremos were not arbitrary, the Resolución TC Julio 2013 did not constitute a denial of justice, the impugned measures were not expropriatory, and there was no breach of the effective means clause or national treatment standard. Claimants were ordered to bear their own costs and pay 75% of Respondent's costs.
Applicable law: United States-Peru Free Trade Agreement (FTA), UNCITRAL Arbitration Rules (2013), ICSID Convention
Issues in play: The case involved the interpretation of the FTA's minimum standard of treatment (Art. 10.5), expropriation (Art. 10.7), national treatment (Art. 10.3), and effective means clause (via MFN). The central collision was between Peru's sovereign right to regulate its agrarian debt and the investor's right to fair treatment and protection against arbitrary measures.
Read the full decision at italaw ↗
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