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Quantum matters – Mining claim against Peru

Peter Harris Peter Harris

In a claim against Peru, an ICSID Arbitral Tribunal awarded US$18.2 million in damages to Canadian mining company Bear Creek Mining Corporation (Bear Creek) on 30 November 2017.


In November 2009, the President and Council of Ministers of Peru enacted Supreme Decree 083. This declared that the Santa Ana silver mining project (near the Bolivian border) was a public necessity and authorised Bear Creek to acquire, own and operate the corresponding concessions. Following local opposition to the project, Supreme Decree 032 was adopted in June 2011. This revoked Supreme Decree 083 and the finding of public necessity, thereby eliminating the legal prerequisite for Bear Creek’s ownership of the mining concessions. Bear Creek alleged that the Respondent’s revocation of their mining concessions for the Santa Ana Project breached the investment protections afforded by the Free Trade Agreement (FTA) between Canada and Peru and sought damages for expropriation.

Position of the parties

The parties took differing approaches to the calculation of damages.

Claimant’s approach

The Claimant requested minimum compensation of US$224.2 million in relation to the Santa Ana Project and an additional US$170.6 million representing the reduction in value of the related Corani Project.

The Claimant considered US$224.2 million to be the fair market value of the Santa Ana Project on the date of expropriation using the discounted cash flow (DCF) method. To justify the use of this method the Claimant attempted to prove that Santa Ana would have been able to continue operations and move into the production phase but for the actions of the Respondent. They cited other successful cases with mineral reserve projects at a similar stage of production to support their claim. 

Additional compensation of US$170.6 million was requested for the hindrance to the Corani Project, another of the Claimant’s metal mining projects in the region. The Claimant argued that as a direct consequence of the alleged Santa Ana expropriation, their enterprise value dropped. This prevented them from obtaining financing for the Corani Project. The quantum was calculated as the change in the Claimant’s share price before and after the alleged expropriation. A DCF analysis was not prepared as this would have required subjective assumptions.

The Claimant requested interest at 5%, i.e. a rate equivalent to Peru’s external cost of debt financing from private lenders. Interest at 5% was to be compounded annually from the publication of Decree 032 up to the date of payment of the award.

Respondent’s approach

According to the Respondent, Bear Creek was entitled at most to its sunk investment costs of US$18.2 million, representing the amount invested in Santa Ana after the public necessity declaration. Alternatively, in the event that the Tribunal found the breach to be non-expropriatory, no damages should be awarded. 

The Respondent conceded that the fair market value was the most appropriate standard for this type of case.  However, the Respondent disagreed on the definition of fair market value. Given that the asset was not a going concern and had no history of profitability, the use of an income-based measure of value, such as DCF, would have been highly speculative and therefore unsuitable.

In the event any damages were awarded, the Respondent calculated an interest rate of 0.72% annually using the average spread for the Respondent’s sovereign credit default swap, plus a risk-free rate adjustment. 

Approach taken by the Tribunal

The Tribunal awarded Bear Creek its sunk investment costs of the Santa Ana Project of US$18.2 million on the basis that the Respondent was liable for an unlawful indirect expropriation. The Tribunal considered that the evidence presented by the Claimant was insufficient to support Bear Creek’s claim that a hypothetical purchaser of the Santa Ana Project would have been willing to pay the price calculated by the DCF method. Moreover, the Tribunal was unconvinced that there was evidence that the project had an ability to produce profits in the particular circumstances it faced and therefore could not be considered viable in the short term.

The Claimant’s claims for compensation for the Corani Project were dismissed as the Tribunal was unable to find adequate proof of causation for losses suffered as a consequence of the Respondent’s breach of the FTA.

The Tribunal agreed with the Claimant and awarded interest on damages at a compound annual rate of 5%, on the basis that this was a commercial but conservative rate, from the publication of Decree 032 until the date of payment of the award.


This case shows that Tribunals are not willing to accept the award of damages on an income-based measure of value, such as DCF, when the generation of profits is not considered sufficiently certain and the project appears not to be viable in the short term. In this case, the damages awarded were assessed by reference to the sunk investment costs suffered by the Claimants. Sunk costs were deemed an appropriate award by the Tribunal on the basis that neither the FTA nor international law provided an option to award punitive damages. Given the Tribunal’s conclusion that compensation could not be calculated on expected profitability, costs invested by the Claimant were deemed the only remaining alternative.

Case information

Claimant: Bear Creek Mining Corporation

Respondent: Republic of Peru

Case ref:  ICSID Case No. ARB/14/21

Arbitrators: Professor Karl-Heinz Böckstiegel, President

Dr Michael Pryles, Arbitrator

Professor Philippe Sands QC, Arbitrator

Ms. Mercedes Cordido-Freytes de Kurowski, Secretary of the Tribunal


  1.  International centre for settlement of investment disputes, ICSID Case No. ARB/14/21, 2017

For further information, please contact Peter Harris or Ellie McBride