The law firm successfully defended Peru against a US $1 billion claim by Freeport-McMoRan over the application of a stabilization agreement.

On May 17, 2024, an international arbitration tribunal constituted under the ICSID Convention and the United States-Peru Trade Promotion Agreement issued its final award in the Freeport McMoRan Inc. v. Republic of Peru arbitration, rejecting the entirety of Freeport’s claims.  This is a landmark decision in favor of Peru that resolves an over 20-year dispute between the mining company and Peru, for which the claimant sought over US $1 billion in damages.

This latest victory contributes to Baker Botts lawyers’ 99.7% success rate for its sovereign clients in Latin America, having saved more than US $50 billion in claims against the Republic of Peru, alone.

The dispute concerns the imposition of royalties, taxes, and applicable penalties on the Peruvian entity, Sociedad Minera Cerro Verde (“SMCV”), by the Republic of Peru.  Freeport McMoRan is the majority shareholder of SMCV.

In 1998, SMCV and the Ministry of Energy and Mines entered into a 15-year stabilization agreement with respect to a US $237 million investment project to expand the copper cathodes production capacity of the leaching plant, the “Leaching Project.”  In 2006, SMCV completed the construction of a Concentrator Plant to produce cooper concentrate.  Starting in 2008, the Peruvian tax authorities started to assess royalties and taxes that remained unpaid with respect to products produced from the Concentrator Plant. 

Freeport alleged that Peru breached the 1998 stabilization agreement by imposing royalties, taxes, and penalties on SMCV with respect to products produced from the Concentrator Plant.  Freeport also submitted claims under Article 10.5 of the US-Peru Trade Promotion Agreement (“TPA”), alleging that Peru breached Freeport’s legitimate expectations and acted in an arbitrary and non-transparent manner.

The Tribunal unequivocally found in favor of Peru.  The Tribunal concluded that mining stabilization agreements are intended to cover the specific mining project for which they are concluded (in this case, the Leaching Project), and not the entire mining unit or concession where the mining project is developed, as Freeport had alleged.  The Tribunal, thus, found that Peru acted in accordance with the applicable stabilization agreement.  The Tribunal further concluded that Peru acted in compliance with its obligations under Article 10.5 of the US-Peru TPA and that Peru’s actions were reasonable, consistent, and transparent.  The Tribunal also found that it lacked jurisdiction over claims based on penalties and interest imposed on disputed tax assessments.

The Baker Botts team in the Freeport case was led by partner Jennifer Haworth McCandless and special counsel María Carolina Durán, and included partner Alejandro Escobar and associates Natalia Zuleta, Verónica Restrepo, and Ana Martínez Valls.  Also leading the team was Stanimir A. Alexandrov from Stanimir A. Alexandrov PLLC who worked with the Baker Botts team as co-counsel in this case.  The team also worked with Peruvian counsel, Ricardo Puccio, from Estudio Navarro & Pazos Abogados.

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