In The Renco Group Inc v The Republic of Peru (UNCT/13/1) an UNCITRAL tribunal decided to depart from the presumption that the unsuccessful party bears the costs of the arbitration, and instead ordered each party to bear its own costs and half of the arbitration costs. In doing so, the tribunal considered Peru's conduct and its effect on the efficient running of the arbitration.
The dispute was based on a claim by Renco for damages from Peru after Peru failed to fulfil its promise to clean up contamination in the soil at a smelting and refining complex in the town of La Oroya, Peru, which it had sold to Renco in 1997.
Under Article 10.16 of the US-Trade Promotion Agreement ("TPA") a claimant may submit a claim to arbitration on its own behalf and/or on behalf of the enterprise of the claimant that is a juridical person that the claimant owns or controls.
However, Article 10.18(2) contains a condition that no claim may be submitted to arbitration unless the relevant Notice of Arbitration is accompanied by a written waiver by the claimant of any right to initiate or continue before any administrative tribunal or court under the law of any party, or other dispute settlement procedures, any proceeding with respect to any measure alleged to constitute a breach referred to in Article 10.16 of the TPA.
Renco filed an amended Notice of Arbitration in August 2011, which was accompanied by a written waiver. The final sentence of the waiver stated: "To the extent that the Tribunal may decline to hear any claims asserted herein on jurisdictional and admissibility grounds, the Claimant reserves the right to bring such claims in another forum for resolution on the merits."
Peru challenged the tribunal's jurisdiction and argued that Renco's waiver did not conform to the requirements of Article 10.18(2) as it contained a reservation of rights. However, Peru did not raise this objection until March 2014, after Renco had filed its Memorial on Liability, including witness statements and expert reports.
The tribunal dismissed Renco's claims, in a partial award on jurisdiction on 15 July 2016, on the basis that its waiver did not comply with the requirements of the TPA. The tribunal said that the form of the waiver was as important as the material action in complying with the waiver – and that Article 10.18(2) did not permit any reservation of rights, which was exactly what Renco's waiver was purporting to do. Further, if deemed operable and permissible, the wording would have the effect of depriving Peru of the waiver defence in any subsequent proceedings.
The Tribunal reserved its decision on the question of costs, and invited the parties to present supplementary written submissions on the issue.
Costs – summary of the parties' submissions
Peru pointed to Article 42(1) of the UNCITRAL Rules, which establishes a presumption that the costs of an arbitration is to be borne by the unsuccessful party, and argued that Renco should therefore bear its costs. Peru also pointed to the fact that Renco had opposed every attempt Peru made to expeditiously determine the merits of its objection to the waiver.
Renco argued that Peru's delay in raising its objection to the waiver caused Renco to incur substantial and unnecessary expense of a full merits filing, and that Peru should therefore bear its costs in this regard.
Costs – award
The tribunal noted that Article 42(1) of the UNCITRAL Rules did establish a presumption that the costs of the arbitration shall in principle be borne by the unsuccessful party, and that as Renco had failed to establish the requirements for Peru's consent to arbitrate under the TPA, Renco is to be regarded as the "unsuccessful party".
However, the tribunal also stated that it is entitled to have regard to the circumstances of the case in order to determine whether it is reasonable to apportion the costs of the arbitration between the parties, and reasoned that there were three circumstances which justified a departure from the presumption that the unsuccessful party must pay the costs:
Peru achieved a relative, rather than absolute, measure of success;
the phase of the arbitration which related to the issues relating to the waiver involved novel and complex issues; and
Peru's delay in raising its objections to the tribunal's jurisdiction.
In particular, the tribunal stated that it was "troubled by the manner in which Peru's waiver objection had arisen in the context of the arbitration" and that it considered that "the proceedings could have been conducted more efficiently if Peru had raised a clear and specific objection to the reservation of rights in Renco's written waiver at the very outset of the arbitration".
However, the Tribunal did note that Peru's waiver objection had not been "tainted by any ulterior motive to evade its duty to arbitrate Renco's claims". Therefore, the tribunal considered that Peru should not be required to pay Renco's costs, and an order that each party pays its own costs (and half of the arbitration costs) was appropriate in the circumstances.
This case highlights the fact that the way in which a party conducts an arbitration can be taken into account by an arbitral tribunal, and have significant consequences.
Parties should take two things away from this decision; firstly, they should ensure that any waiver(s) it is required to submit to a tribunal and/or opposing party at the start of an arbitration is in the exact form required. Secondly, parties should ensure that they consider, as early in the proceedings as possible, whether any waiver given by an opposing party, is adequate.
As a final point it should be noted that whilst Renco may have been the unsuccessful party in this arbitration, its waiver of other dispute resolution processes was held to be invalid, and Renco is therefore free to bring new proceedings against Peru in a separate forum.