Duke Energy Int’l Peru Investments No. 1 Ltd. v. Republic of Peru

Issue Discussed: Functus Officio

Submitted by Linsey M. Routledge, Troy Shuman

Date Promulgated: September 14, 2012


Duke Energy Int’l Peru Investments No. 1 Ltd. v. Republic of Peru, (892 F. Supp. 2d 53)

Case Number: 11-1602

Court: United States District Court for the District of Columbia

Issue Decided: Under what circumstances is it appropriate to remand an award to the arbitrator(s) for clarification?

Short Answer:  An ambiguity in the award is an appropriate reason to seek clarification from the arbitrators.  In this case, an order directing the Republic of Peru to pay “the actual interest rate(s) stipulated for that period by [the Republic of Peru] for refunds to taxpayers” was not ambiguous and did not require remand for clarification.

Pursuant to Legal Stability Agreements (“LSA”) with the Republic of Peru, Duke Energy (“Duke”) agreed to invest in Egenor, SSA. Included in the LSA were agreements regarding income tax and arbitration under the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (“ICSID”).

In 2001, the Republic of Peru claimed that Duke had underpaid its taxes and owed $48 million. In 2003, Duke commenced arbitration before an ICSID tribunal. Duke claimed that the assessed taxes violated the LSA. The Panel found for Duke awarding it approximately $18 million. Peru challenged this finding before an ICSID Convention committee. In 2011, that challenge was rejected. However, while the appeal to the ICSID was pending, the Republic of Peru passed Law 29191, which increased the interest rates applicable to funds returned for overpayment. After the resolution of the appeal, the Republic of Peru made payment plus interest at the rate effective prior to the alteration of the Peruvian Code. Duke accepted these funds subject to a reservation of the right to challenge the applicable interest rate and assert that the new higher rate was applicable.

In 2011, Duke sought confirmation of the Award and a judgment awarding the difference between the interest paid and the amount required under the amended Peruvian Code. The Republic of Peru argued that the exception to the functus officio doctrine for remanding ambiguous awards for clarification was applicable because the amendment was an unforeseen contingency creating questions as to how the Tribunal intended the new provisions of the tax code to apply. The Republic of Peru thus sought remand to the ICSID tribunal, or dismissal under the forum non conveniens doctrine.

In addressing the Republic of Peru’s arguments, the Court noted that remand was an exceptional remedy as it frustrates efficiencies of arbitration.  It went on to explain that remand is warranted only where an award is so ambiguous that a court is unable to discern how to enforce it.

Applying these standards, the Court rejected the Republic of Peru’s position by holding that the Award was clear on its face in stating that “the actual interest rate(s) stipulated for that period by [the Republic of Peru] for refunds to taxpayers.” The Court found that the phrase could only mean that the “plain language of the Award allow[ed] for the interest rate to fluctuate freely.” Similarly, the Court held that the Award’s application of the statutory rate was clear and denied remand for clarification.

[1] Linsey M. Routledge is Senior Counsel and Troy Shuman is an Associate at Clyde & Co US LLP.