• Copy the reference
  • Tutorial video

Lawyers, other representatives, expert(s), tribunal’s secretary

Correction and Interpretation of Partial Final Award

A Partial Final Award (the "PFA") was rendered in this arbitration and served on the parties on June 2, 2015. On July 2, 2015, both sides timely applied, pursuant to Article 30(1) of the ICDR Rules, for an interpretation and correction of the Award. The Claimant also applied for an additional award.
Article 30(1) provides:

Within 30 days after the receipt of an award, any party, with notice to the other parties, may request the tribunal to interpret the award or correct any clerical, typographical or computation errors or make an additional award as to claims presented but omitted from the award.

The Tribunal requested and received responses (the "Responses")1 to each side's application (the "Applications") on July 20, 2015. Having duly considered both the Applications and Responses, and having deliberated thereon, the Tribunal issues this "Correction and Interpretation of Partial Final Award" (the "Correction"). In deciding these Applications, the PFA is incorporated herein by reference. All terms and abbreviations used in this Correction have the same meaning as those used in the PFA.

Incorrect denomination of the Platform Maintenance Claim

As an initial matter, both Claimant and Respondents point out an error in the PFA contained in the decretal paragraphs. The PFA denied the Respondents' Platform Maintenance Claim but then erroneously referred to that claim in one place as the "Pipeline Maintenance Claim" and as the "Pipeline Abandonment Claim" in another. There is no controversy over this correction and, therefore, the Tribunal corrects the PFA in the following respects:

On page 96 of the PFA, ¶ VI.C. should read:

"DENIES Purchaser's Platform Maintenance Claim."

On page 98 of the PFA, ¶ VI.F.(2) should rea d.

"Seller is awarded its reasonable costs and counsel fees in connection with its defense of the Platform Maintenance Claim and Profit Distribution Claim."

Correction of Amounts that Savia paid to SUNAT for VAT taxes

There is also a need to correct the PFA to reflect the correct figures for Savia's payment of the various VAT tax liabilities. The PFA, in ¶ 65, used the chart in ¶ 5 of Ernesto Ballón's2 witness statement dated February 8, 2013. That chart is reproduced below.

Tax YearPayment DatePayment Amount in US Dollars
2001 March 17, 2010 $1,139,244.19
2002 August 31, 2012 $11,998,170.93
2003 March 24, 2010 $7,847,797.39
2004 November 21, 2011 $11,674,652.59
2005 November 21, 2011 $11,770,399.25
2006 November 13, 2012 $27,614,850.25
2007 August 28 and 29, 2012$12,249,506.00

The Tribunal, however, overlooked the fact that Mr. Ballón had corrected his testimony in a subsequent witness statement dated April 16, 2013. That corrected witness statement, at ¶ 5, set forth the following payment information:

Tax YearPayment DatePayment Amount in US Dollars
2001 March 17, 2010 $1,139,244.19
2002 August 31, 2012 $11,998,170.88
2003 March 24, 2010 $7,847,806.20
2004 November 21, 2011 $11,674,652.59
2005 November 21, 2011 $11,770,408.52
2006 November 13, 2012 $27,123,206.28
2007 August 28 and 29, 2012$12,257,954.71

Thus, as a first matter, ¶ 65 of the PFA will be corrected to reflect the payment information immediately above, based on Mr. Ballón's corrected witness statement. The figure s in ¶ 6 above will be used, for example, in calculating amounts owed as set forth in ¶ VI.A.(1) of the PFA (which references PFA ¶ 65).

Treatment of Interest received from SUNAT

The parties disagree regarding the interpretation of the PFA as it deals with the treatment of the interest that Savia received or may receive from SUNAT on VAT tax refunds. Claimant contends that it is entitled to such interest. Respondents contend that Claimant is entitled only to that portion of the interest attributable to periods subsequent to the date(s) that Claimant either paid the VAT tax in the relevant year, or reimbursed Respondents for such taxes. The matter is complicated by the fact that SUNAT pays interest at a higher rate (about 14.5% per annum) than the New York statutory rate (9% per annum) referred to in the PFA.
The figures in the chart at ¶ 6 above represent the amounts that Savia paid to SUNAT. They do not reflect the dates of indemnity payments by Claimant or the dates and amounts of reimbursement that may have been made by SUNAT.
As Respondents explain in Respondents' Response at pages 3 et seq. there are several scenarios under which interest needs to be credited. It is axiomatic that the purpose of interest is to compensate for the loss of the use of funds. It is also clear that the Tribunal's direction that Claimant pay 9% simple interest on the VAT taxes that Savia advanced to SUNAT should not result either in depriving Respondents of compensation for the loss of the use of funds, or a windfall to Respondents under the scenario by which they would retain SUNAT's interest payments while, at the same time, collecting 9% from Claimant.
Before resolving these issues, however, it is important to state several propositions that will govern the discussion below. New York law is the governing law under the parties' agreement. The 9% interest rate was set pursuant to New York Civil Practice Law and Rules (the "CPLR") § 5004 that provides:

Interest shall be at the rate of nine per centum per annum, except where otherwise provided by statute.

CPLR § 5001(b) states:

(b) Date from which computed. Interest shall be computed from the earliest ascertainable date the cause of action existed, except that interest upon damages incurred thereafter shall be computed from the date incurred.

Having the above in mind, several examples should suffice to describe how interest payments are to be credited. All of the dates below are hypothetical and are used for the sake of example only.

A. Example 1. On March 17, 2010 Savia pays SUNAT $1,139,244.19 for 2001 VAT taxes owed. On May 1, 2010, Claimant reimburses Savia the $1,139,244.19 that it paid. On March 18, 2013 SUNAT reimburses Savia $1,634,815.41—$1,139,244.19 in taxes and $495,571.22 in interest at the 14.5% rate. In that case, Respondents keep $1,139,244.19 plus 9% interest (not 14.5%) from March 17, 2010 (the date that Purchaser was deprived of the use of its funds) through May 1, 2010. Claimant gets a credit for the difference between that sum and $1,634,815.41. The Tribunal recognizes that this gives Seller the benefit of the difference between the SUNAT interest rate and 9%. Purchaser may argue that this effectively rewards Seller for its breach. However, New York law provides that—absent a higher interest rate reflected either in the parties' agreement or an applicable New York statute—Purchaser is only entitled to 9% from the date it incurred its damages, i.e. from the date it was deprived of the use of its funds.

B. Example 2. On March 17, 2010 Savia pays SUNAT $1,139,244.19 for 2001 VAT taxes owed. On August 31, 2015, the Final Award is rendered in the arbitration. On March 18, 2016 SUNAT reimburses Savia $3,617,100.30—$1,139,244.19 in taxes and $2,477,856.11 (15 years of interest at the 14.5% rate). In that case, Respondents keep $1,139,244.19 plus 9% interest from March 17, 2010 through March 18, 2016. Claimant gets a credit for the difference between that sum and $3,617,100.30.3

C. Example 3. On March 17, 2010 Savia pays SUNAT $1,139,244.19 for 2001 VAT taxes owed. On August 31, 2015, the Final Award is rendered in the arbitration. Claimant pays the Final Award (or Purchaser successfully executes on a resulting judgment) in an amount equal to $1,139,244.19 for the taxes plus 9% simple interest from March 17, 2010 through Purchaser's receipt of the funds. SUNAT never reimburses Savia (or does so only after Respondents are paid). In that case, Respondents keep everything that they receive, and Claimant gets credit for 100% of the SUNAT refund whatever and whenever that may be.

Application to order the release of funds from the Escrow Amount

Seller also contends that the Tribunal neglected to rule on one of its requests for relief, and asks the Tribunal to correct the PFA (or issue an additional award) requiring Purchaser to authorize the release to Seller from the Escrow Amount of all claims that were awarded to Purchaser and that Seller may satisfy directly. Seller states that it requested this relief4 and that the PFA did not address it.
Seller, in support of its position (see Part B. of its Application), cites to § 2.3(b)(i) of the SPA Amendment and §§ 3 and 4 of the Indemnification Escrow Agreement ("EA") in which, according to Seller, the parties agreed that the Escrow Amount would be held only to secure individual claims made under the SPA—not to secure, generally, any and all claims that Purchaser might assert. Thus, argues Seller, when Seller satisfies a particular claim, it is entitled to a release of the corresponding amount from the Escrow Amount. Purchaser, says Seller, cannot simply keep the Escrow Amount intact after a particular claim is satisfied. As Seller states:

Section 3 of the EA makes clear that if Seller pays any indemnification claims from non-escrowed funds and thereby satisfies such claims, then Purchaser must submit a "Purchaser's Release Certificate", stating that Seller has satisfied an Indemnification Item independent of the EA and that Seller is then entitled to a corresponding release of the same amount of funds from the Escrow Amount.

The foregoing applies even though Purchaser may have other unresolved claims pending against the Escrow Account. There is no provision in the SPA or the EA that allows Purchaser to block the release of funds in escrow relating to a resolved claim (or extend the escrow period for that claim) to utilize such funds to pay its other, unresolved claims.

Pages 7-8 of Seller's Application, footnote omitted and emphasis in original.

Purchaser on the other hand points to certain outstanding claims that were not made or resolved in the arbitration, and claims that the SPA and the EA, read together, permit Purchaser to hold the Escrow Amount to secure the possible eventual payment of such claims.
Seller in return points to SPA Amendment § 2.3(b)(i) which provides that, if Purchaser timely asserts a claim under SPA Article 7 or 8 "the Indemnification Escrow Period shall be extended solely with respect to such asserted claim, and the amount of such claim shall be retained in the Indemnification Escrow Amount or Supplemental Escrow Amount until a final determination of liability is made pursuant to Article 7 or Article 8." (Emphasis added). At that point, argues Seller, the amount retained to secure that asserted claim (and no other) must be returned to Seller.
Purchaser, however, argues that other outstanding claims that it has asserted outside of the arbitration are equally entitled to the benefits afforded to claims asserted in the arbitration and that it would be inconsistent with the terms of the SPA and the EA to declare that one particular portion of the escrowed funds must—at the time a claim is made—be earmarked for that claim and that claim only.
The PFA dealt with this scenario at ¶ 304 where it explained:

At ¶ 354(b) of Claimant's Reply Mem., Seller requests that the Tribunal "Order Respondents to pay or authorize the release to Offshore of all sums retained from the Purchase Price or in the Escrow Amounts related to the indemnification claims discussed in this memorial." The Tribunal notes that even the payment to Purchaser out of the Escrow Amount of all the amounts awarded to Purchaser in this Award is likely to leave the Escrow Amount with funds remaining, especially as these relate to the Supplemental Escrow Amount established to secure unknown environmental claims. The Tribunal, however, may not have been presented with all claims asserted by Purchaser and is therefore not in a position to quantify the amount of any excess funds to be returned to Seller. Instead, the Tribunal trusts that Purchaser will cooperate in the return of any funds presently being held in escrow that are not needed as security for the payment of outstanding claims arising out of SPA Article 7 or Article 8.

After consideration, the Tribunal sees no need to change the direction in PFA ¶ 304 quoted above. Indeed, Purchaser states that "At the time the Partial Final Award was issued, those [other outstanding] claims exceeded the balance in the Escrow Amount." See, Purchaser's Response at page 5. While Purchaser's asserted claims might deplete the Escrow Amount if all were decided in its favor, there may well be funds remaining after all claims are resolved. In that regard, the Tribunal notes Purchaser's statement in footnote 10 of its Response that "Purchaser is in the process of updating its estimate of the value of all outstanding claims and is mindful of the Tribunal's concluding observations in paragraph 304 of the Award."
Taking all of the above into account, the Tribunal declines to issue an additional award as requested by Claimant.

Reasonable attorneys' fees and costs awarded on claims subject to the Basket

Claimant asserts that the Tribunal lacked jurisdiction to award fees related to the claims that were determined in Respondents' favor, but subject to the Basket and not collectively large enough to exceed the $15 million threshold. As an initial matter, the Tribunal disagrees that the issue is one of arbitral jurisdiction as opposed to contractual interpretation. Either the parties' agreement permits an award of fees and costs on these claims or it does not. The Tribunal is clearly empowered to interpret the agreement in this respect.
On the merits, PFA § VI.F.(1) awards to Purchaser its reasonable costs and counsel fees in connection with those claims subject to the "Basket" requirement—namely, the Pipeline Abandonment and EIS Environmental Claims, the Health and Safety Claims and the Vacation Claims. All of these were determined in Purchaser's favor, but the totality of these claims did not reach the Basket threshold and are, therefore, not payable, at least at this time.
Seller points to SPA § 8.5(a) that provides:

Purchaser Indemnitees shall not be entitled to recover any amount of Losses (except as provided below) under Section 8.2(a)(i) and Section 8.2(a)(ii)... until and unless the aggregate amount of liability for all Losses which are subject to the Basket for which Claim Notices are delivered by Purchaser to Seller exceeds $15,000,000 (the "Basket"), and should such Losses exceed the Basket, then Seller shall be liable for the full amount of all such Losses and not just any such excess.

Because the Purchaser's entitlement to recover "any amount of Losses" does not accrue until the threshold is reached, Claimant argues that there can be no fees and costs awarded on claims subject to the Basket unless and until the totality of such claims exceeds $15,000,000. In other words, absent recognized claims subject to the Basket that exceed $15 million, there can be no "Loss," and hence no award of fees or costs.
In response, Purchaser points to SPA § 10.7(c) that provides:

The arbitrators are authorized to include in their award an allocation to any Party of such costs and expenses, including attorneys' fees, as the arbitrators shall deem reasonable.

Purchaser argues that it would be inconsistent with SPA § 10.7(c), quoted above, for the Tribunal to hold that Purchaser's fees in successfully prosecuting its claims against the Basket were not recoverable. Purchaser disputes Seller's interpretation of the word "Loss" and contends that the fees that it seeks were incurred in its successful effort to claim the right to apply its claims against the Basket—not necessary to collect those claims (unless the totality of those claims exceeded the Basket).
Seller argues on the other hand that § 10.7(c) must be read together with § 8.5(a) and that reading § 10.7(c) to authorize the grant of attorneys' fees and costs for claims subject to the unattained Basket threshold would make § 8.5(a) superfluous.
In response, Purchaser contends that the two provisions can be harmonized by interpreting the restriction in § 8.5(a) as precluding only the recovery of attorneys' "fees and costs in connection with the underlying proceedings in Peru out of which Purchaser's Basket claims for indemnification arise." Purchaser's Response at page 7 (emphasis in original).
After consideration, the Tribunal agrees with Purchaser that the term "Losses" as used in § 8.5(a) relates only to costs and fees incurred in dealing with the merits of the underlying claims in proceedings other than this arbitration. Such "Losses" do not include the expense of having to arbitrate against Seller to establish the validity of such claims. To read it otherwise would be inconsistent with the unqualified language in § 10.7(c) that gives the Tribunal the unrestricted authority to award reasonable fees and costs.
The Tribunal declines to "correct" the PFA to eliminate counsel fees and costs awarded to Purchaser for those claims subject to the Basket.5
For all the reasons set forth above, the PFA is corrected in the following respects:

A. On page 96 of the PFA, ¶ VI.C. should read:

"DENIES Purchaser's Platform Maintenance Claim."

On page 98 of the PFA, ¶ VI.F.(2) should read:

"Seller is awarded its reasonable costs and counsel fees in connection with its defense of the Platform Maintenance Claim and Profit Distribution Claim."

B. The chart in ¶ 65 of the PFA is deleted in its entirety and the chart, set forth above in ¶ 6 of this Correction is substituted in its place.

C. The interest to which the parties are entitled shall be paid in accordance with the interpretation set forth in ¶¶ 8-12 above.

D. All other applications for correction or interpretation or for an additional award are DENIED.

Whole document
Click on the text to select an element Click elsewhere to unselect an element
Select a key word :
1 /

Instantly access the most relevant case law, treaties and doctrine.

Start your Free Trial

Already registered ?