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October 25, 2015

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Hi Noel. I was really excited to read about Gramercy moving forward on this, if only to see how it plays out (plus another Argentine type soap opera would be very enjoyable). Do you know how the plaintiffs plan on using the FTA though? I haven't seen any explanation of this. Thanks!

Well, the plaintiffs probably don't have a legal strategy yet, but they're going to claim expropriation under Chapter 10 of the agreement and submit a claim to ICSID. The details are in Chapter 10.16, here:

https://ustr.gov/sites/default/files/uploads/agreements/fta/peru/asset_upload_file78_9547.pdf

ICSID is the likely venue, although others are possible.

Will it work? I doubt it, but who knows? Arbitral tribunals are not bound by precedent. This April, and ICSID panel refused to hear a case about Greek bonds. On the other hand, an Argentine case is going to a panel. I can see grounds for dismissal (see Article 10.13 in particular) but again, who knows?

The main thing to note is that arbitration is slow. Even if Peru loses, nobody will see any money until 2020 at the earliest; more likely 2022-24.

Question: I can see an argument that Lima should pay up something and make nice, but doesn't the existence of the vulture fund business model kind of ruin the very idea of settling with your creditors?

After all, whatever they offer, if it isn't full payment of the highest colourable valuation of the claim (and we're talking a over/under of $500m to $6bn here - there is a lot of scope to pad it), it's always open to the vultures to reopen the issue and come back looking for more.

If Peru could expect that the $500m would close the book on the whole business, that would make a lot of sense, but if it's just $500m of danegeld and the buggers will be back in a year's time, well, telling them to whistle is more attractive by about $500m.

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