Summary

Republic of Peru's Memorial on Jurisdiction and Counter-Memorial on Merits

3 October 2022

TABLE OF CONTENTS

I. INTRODUCTION

A. Summary of key facts

B. Claimant's claims should be dismissed

1. The Tribunal lacks jurisdiction over Claimant's claims

2. Claimant's claims rely on a conspiracy theory that is unsubstantiated and baseless

3. In any event, Claimant's claims fail on the merits

4. Claimant is not entitled to any compensation

II. FACTS

A. Maple Gas began operating the Aguaytía Integrated Project in 1994

B. By 2014, Maple Gas was in a steep downward spiral, defaulted on a multi- million USD loan, and was seized by its creditors

1. By 2014 Maple Gas had already begun reporting significant net financial losses

2. Maple Gas was violating environmental and other regulations

3. Maple Gas depleted its Block 31 oil fields

4. Maple Gas did not pay its only external supplier of feedstock, Aguaytía Energy, and was unable to secure a new supplier

5. By 2014, Maple Gas had defaulted on a multi-million dollar loan, and it was seized by creditor banks

C. In 2015, certain investors acquired Maple Gas' debt from the Creditor Banks

1. At the time they were considering investing in Maple Gas in 2015, Messrs. Katabi and Hanks were aware of that company's serious problems

2. Messrs. Katabi and Hanks tried, but failed, to secure an agreement for crude feedstock from CEPSA

3. In October 2015, various holding companies were created and used to acquire Maple Gas' debt

4. The acquisition of Maple Gas' debt did not trigger a government-wide conspiracy

D. Maple Gas' financial, regulatory, and commercial problems worsened in late 2015 and 2016

1. Maple Gas continued in 2015 and 2016 to report significant losses, face sanctions, and deplete the Block 31 oil fields

2. Maple Gas destroyed its relationship with Aguaytía Energy

3. Maple Gas also alienated CEPSA

E. As a result of Maple Gas' underutilization of the Pucallpa Refinery, Petroperú stepped in to ensure continued supply of fuel products to the Ucayali region

F. Maple Gas refused to make necessary updates to the Refinery or to provide RAD Services to Petroperú

G. In June 2017, Mr. Holzer decided to invest in Maple Gas, even though it was already in a downward spiral

1. Mr. Holzer is not a qualified or experienced investor in the oil and gas sector

2. Mr. Holzer decided to invest in Maple Gas, a company on the brink of financial ruin

3. In June 2017, Mr. Holzer allegedly invested in Maple Gas through Jancell

H. In 2017, Maple Gas was on the brink of financial ruin, failed to meet the objective criteria to obtain a license for Block 126, and failed to obtain the requisite Government approvals

1. The existing licensee of Block 126 had fallen behind schedule

2. Maple Gas was ineligible for the Block 126 License because it did not satisfy the relevant objective criteria under Peruvian law

3. Maple Gas also failed to secure the requisite approvals to obtain the Block 126 License

4. Block 126 was not a realistic option for Maple Gas

I. In December 2017, Maple Gas shut down its refining operations

1. Maple Gas' decision to cease operations generated anxiety in the local community

2. Petroperú sought to reassure the local population that it would not face a shortage

J. In 2018, Maple Gas ceased paying rent for the Pucallpa Refinery, and Petroperú terminated the Refinery Lease Agreement for cause

1. In May 2018, Maple Gas unilaterally suspended its payment of rent

2. In that same month of May 2018, and despite having refused to pay rent on the Refinery, Maple Gas made an extraordinary request for access to the Sheshea oil field

3. In August 2018, Petroperú terminated the Refinery Lease Agreement for cause

4. An independent arbitral tribunal subsequently confirmed that the Refinery Lease Agreement had terminated due to Maple Gas' breach thereof

K. In August 2018, Maple Gas entered into bankruptcy proceedings and was subsequently declared insolvent

L. In early 2019, the License Agreements for Blocks 31-B, 31-D, and 31-E terminated due to Maple Gas' breach thereof

1. Maple Gas failed to comply with Article 18 of the Blocks 31-B and 31-D License Agreement

2. In any event, by February 2019 Maple Gas had already lost its qualification to maintain the Blocks 31-B and 31-D License Agreement

3. Maple Gas' insolvency triggered the termination of the Block 31-E License Agreement

M. In August 2019, following an inspection authorized by the Lima Tribunal, and finding the Pucallpa Refinery abandoned and in disrepair, Petroperú assumed possession thereof

N. Two independent arbitral tribunals rejected Maple Gas' claims that Petroperú interfered with Maple Gas' business, commercial relationship with other suppliers, and operation of the Pucallpa Refinery

1. The ICC Tribunal considered and expressly rejected Maple Gas' claim that Aguaytía Energy had colluded with Petroperú to interfere with Maple Gas' business

2. The Lima Tribunal considered and expressly rejected Maple Gas' claim that Petroperú had interfered with Maple Gas' business and had prevented Maple Gas from paying rent on the Pucallpa Refinery

3. In this arbitration, Claimant is repeating the claims that the ICC and Lima Tribunals already expressly rejected

III. JURISDICTIONAL OBJECTIONS

A. Claimant did not comply with the three-year limitations period established in Article 10.18.1 of the Treaty

1. Article 10.18.1 of the Treaty precludes claims for alleged breaches and alleged loss in respect of which Claimant had actual or constructive knowledge before 24 November 2017

2. The Critical Date is 24 November 2017

3. Claimant first knew of the alleged breaches prior to the Critical Date

4. Claimant first knew of the alleged loss or damage prior to the Critical Date

B. The claims based on measures that took place before Claimant made its investment fall outside of this Tribunal's jurisdiction ratione temporis

1. The Treaty's temporal reach does not extend to measures that occurred prior to the Date of Investment

2. Claimant made its investment on 15 June 2017

3. The Tribunal lacks jurisdiction ratione temporis over Claimant's claims concerning Petroperú and the Pucallpa Refinery

4. The Tribunal also lacks jurisdiction ratione temporis over Claimant's remaining claims

C. The Tribunal lacks jurisdiction ratione materiae because Claimant has failed to establish the existence of a protected investment

D. The Tribunal lacks jurisdiction ratione materiae over Claimant's claims relating to Petroperú

1. Treaty Article 10.1.2 limits the scope ratione materiae of the Treaty's investment chapter

2. Claimant has not demonstrated that Peru delegated governmental authority to Petroperú

3. Claimant has not demonstrated that Petroperú was exercising delegated governmental authority in this case

IV. MERITS

A. Claimant has not substantiated its claim of composite breach

1. To substantiate its composite breach claims, Claimant must demonstrate the existence of an underlying pattern or purpose

2. Claimant invents a baseless theory in an attempt to connect the State acts of which it complains

3. Claimant's composite breach claims should be dismissed

B. Claimant's claims relating to Petroperú should be rejected because the latter's conduct is not attributable to Peru under international law

1. Petroperú's conduct is not attributable to Peru under Article 5 of the ILC Articles

2. Petroperú's conduct is also not attributable to Peru under Article 8 of the ILC Articles

C. Claimant's claim that Peru violated the Minimum Standard of Treatment Provision is meritless and should be rejected

1. The Treaty expressly prescribes the customary international law minimum standard of treatment

2. The threshold for breach of the customary international law minimum standard of treatment is high

3. The evidence shows that Peru did not violate the Minimum Standard of Treatment Provision

D. Claimant's claim that Peru violated the Expropriation Provision is meritless and should be rejected

1. The Treaty and general international law establish the requisite elements of an indirect expropriation

2. There was no indirect expropriation of Claimant's investment in Maple Gas

V. DAMAGES

A. Claimant bears the burden of proof with respect to each element of its damages claims

B. Claimant has failed to prove that it incurred loss or damage

1. The Treaty requires that Claimant show that it incurred loss in its capacity as an investor

2. Claimant does not even claim, let alone establish, that it sustained losses in its capacity as an indirect shareholder in Maple Gas

3. Claimant cannot claim for loss or harm to an asset over which Claimant never had any rights

C. Claimant has failed to prove causation

1. The Treaty requires the claimant to prove causation

2. Claimant has made no effort to establish through evidence the requisite causal link

3. In any event, the alleged conduct of which Claimant complains did not cause the alleged harm

D. Claimant has failed to prove quantum of its alleged loss

1. Claimant bears the burden of proving quantum

2. Claimant's Block 126 Application Damages Claim is unsubstantiated, speculative, and inaccurate

3. Claimant's Refinery Damages Claim is unsubstantiated and inaccurate

E. Even if Claimant were entitled to damages, such damages would need to be reduced based upon Claimant's contributory fault

F. Claimant applies the incorrect interest rate

VI. REQUEST FOR RELIEF

I. INTRODUCTION

1. This arbitration arises out of an ill-advised investment made by Claimant Worth Capital Holdings 27 LLC ("Claimant") in Maple Gas Corporation Del Perú S.R.L. ("Maple Gas"), a failing oil and gas company in the Republic of Peru ("Peru"). Not long after Claimant made its purported investment, Maple Gas ceased all operations, defaulted on its contractual obligations, and was declared insolvent, facing mountains of debt--including two arbitral awards totalling more than USD 29.3 million resulting from contractual breaches and other misconduct by Maple Gas. Unsurprisingly, Claimant and its sole owner, Mr. Charles Holzer, now rue having carelessly invested millions of US dollars ("USD") into an enterprise that was teetering on the edge of collapse. Although they bear sole responsibility, they have initiated this arbitration in an attempt to shift responsibility to Peru, in the misguided hope that the United State- Peru Trade Promotion Agreement (the "Treaty") will serve as an insurance policy against their poor business judgment.

2. For the reasons expounded in this Counter-Memorial, all of Claimant's claims should be rejected, for several reasons: they fall outside the jurisdiction ratione temporis and ratione materiae of this Tribunal; they rest almost entirely on a manifestly nonsensical conspiracy theory, for which there is not a shred of evidence; and they fail to meet the two most basic elements of an internationally wrongful act of a State under customary international law: attribution and the breach of an international obligation of a State.

...

678. This is precisely the type of poor "business judgment" that tribunals have taken into account when reducing damages for contributory fault. Claimant here acquired its investment "during a tumultuous [period],"1509 and "[i]t would stretch the bounds of plausibility"1510 to accept that a "well-informed"1511 investor would have considered the acquisition of Maple Gas in June 2017 to be a wise investment. Thus, even assuming that Claimant had suffered compensable loss and that such loss was to some extent caused by the alleged breaches (quod non), any damages awarded to Claimant would need to be radically reduced due to Claimant's own deficient due diligence and poor business judgment.

F. Claimant applies the incorrect interest rate

679. As noted by the Gold Reserve v. Venezuela tribunal, the "purpose of pre-Award interest is to ensure Claimant is properly compensated for the [treaty] breach that has occurred."1512 Here, Claimant claims that it should receive pre-award interest at a rate of 6.1% because, according to Claimant, that rate reflects "the relevant pre-tax cost of debt."1513 However, the proposed interest rate should be rejected, for at least the following reasons.

680. First, Claimant has not demonstrated that it needs to be compensated for its cost of debt. As affirmed by the Vestey v. Venezuela tribunal, any pre-award interest must "compensate the victim for its actual losses. It is not to reward it for risks which it does not bear"1514 (emphasis added). Accordingly, tribunals have declined to impose interest rates that would reward the claimant for risks to which they were not actually exposed. For instance, the Burlington v. Ecuador tribunal refused to apply an interest rate that "include[d] a reward for all the risks involved in doing business."1515 The tribunal determined that such "element of reward for risk. . . is inappropriate here because [the claimant] no longer bears the risk of operation."1516 In such a situation, "the [claimant] entitled to interest compensating it for the time value of money, but it is not also entitled to compensation for the risks it did not bear."1517 Here, Claimant has made no effort to prove that it was forced to borrow--and bear risk--as a result of the breaches

681. Second, Claimant's proposed approach is speculative: As explained by Thibaud Senechal, "this market risk of debt is often difficult to estimate and depends on many assumptions and variables that could lead to arbitrary results."1519

682. For the foregoing reasons, the Tribunal should reject Claimant's proposed pre-award interest rate of 6.1%. Pre-award interest should not reflect Maple Gas' cost of debt, but rather the opportunity cost of earning interest in a deposit account. Therefore, as noted by AlixPartners, pre-award interest should be limited to a significantly lower rate (such as SOFR+2%, a potential replacement for LIBOR, or UST+2%, which represents the risk-free rate)

VI. REQUEST FOR RELIEF

683. For the reasons set forth in this Counter-Memorial, the Republic of Peru respectfully requests that the Tribunal:

a. dismiss all of Claimant's claims for lack of jurisdiction and/or lack of admissibility;

b. dismiss for lack of merit any and all claims in respect of which the Tribunal may find that it has jurisdiction;

c. reject Claimant's request for compensation, should the Tribunal find that it has jurisdiction and that there is merit to any of Claimant's claims; and

d. order Claimant to pay all costs of the arbitration, including the totality of Peru's legal fees and expenses, expert fees and expenses, and all other expenses incurred in connection with Peru's defense in this arbitration, plus compounded interest on such amounts until the date of payment, calculated at the risk-free US Treasury Bill rate.

Respectfully submitted,

...

Footnotes omitted