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Kaloti Metals & Logistics, LLC v. Republic of Peru (ICSID)

Why it matters

This case clarifies the threshold for establishing an investment under the US-Peru TPA, particularly for gold trading operations. The Tribunal's strict application of the Salini criteria and its finding that Kaloti's activities were mere commercial transactions rather than an investment reinforces the distinction between trade and investment. It also underscores the importance of proving ownership or control over assets and demonstrating a genuine commitment of resources in the host state.

Summary

Kaloti Metals & Logistics, LLC (KML), a Florida-based company, claimed that Peru expropriated its investment in gold trading operations in Peru without compensation, violating the US-Peru Trade Promotion Agreement (TPA). KML alleged that Peruvian authorities seized five gold shipments and disrupted its business. Peru objected to jurisdiction, arguing KML had no 'investment' under the TPA. The Tribunal analyzed whether KML's activities met the definition of investment under Article 10.28, applying the Salini criteria: contribution, duration, risk, and significance for development. KML argued it had an investment through ownership of gold and a going concern business enterprise in Peru. However, the Tribunal found KML failed to prove it owned or controlled the seized gold, as the gold was purchased from third parties and title passed only upon delivery. Regarding the going concern, KML's operations in Peru were limited to leasing an office, hiring staff for weighing and assaying gold, and facilitating exports. The Tribunal concluded these activities were ancillary to KML's gold trading business in Miami and did not constitute a substantial commitment of resources, long-term engagement, or assumption of investment risk. The lease was short-term, service contracts terminable on 30 days' notice, and the risks were ordinary commercial risks. Thus, KML did not have an investment in Peru. The Tribunal upheld Peru's jurisdictional objection, dismissed the claim, and ordered KML to pay Peru's costs and legal fees.

The detail

Parties: Kaloti Metals & Logistics, LLC v. Republic of Peru

Case number: ICSID Case No. ARB/21/29

Outcome: The Tribunal upheld Peru's objection to jurisdiction ratione materiae, dismissed the claim, and ordered Kaloti to pay Peru USD 3,509,234.41 in legal fees and USD 367,949.63 in ICSID costs.

Quantum: USD 3,877,184.04

Applicable law: United States-Peru Trade Promotion Agreement (TPA), ICSID Convention, ICSID Arbitration Rules (2006)

Issues in play: The definition of 'investment' under Article 10.28 of the TPA and the Salini criteria were central. The Tribunal considered whether Kaloti's gold trading operations in Peru constituted an investment, focusing on contribution, duration, risk, and significance for the host state's development.

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