BEFORE THE INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES Bear Creek Mining Corporation Claimant, v. Republic of Perú Respondent. Case No. ARB/14/21 Respondent’s Rejoinder on the Merits and Reply on Jurisdiction April 13, 2016 Counsel for Respondent: Stanimir A. Alexandrov Juan Pazos Marinn Carlson Ricardo Puccio Sala Jennifer Haworth McCandless Navarro & Pazos Abogados Sidley Austin LLP Av. Del Parque 195 San Isidro 1501 K Street, N.W. Lima, Perú Washington, D.C. 20005 TABLE OF CONTENTS Page I. Introduction ..........................................................................................................................1 II. Factual Background .............................................................................................................9 A. Bear Creek’s (Lack of) Experience..........................................................................9 B. Bear Creek Unlawfully Acquired the Santa Ana Concessions ..............................17 1. Perú’s Constitution Prohibits Any Direct or Indirect Acquisition of Mines Within 50 km of Perú’s Borders ................................................................19 2. Bear Creek Violated Article 71 of the Peruvian Constitution ...................28 3. Foreign Investors in Perú’s Border Zones Successfully Follow Proper Procedures under Article 71, and Bear Creek’s Purported Counter- Examples Are Not Comparable .................................................................39 4. Bear Creek Does Not Succeed in Its Search for Validation of Its Circumvention of Perú’s Constitution .......................................................54 5. Conclusion on Bear Creek’s Unlawful Acquisition of the Santa Ana Concessions................................................................................................60 C. Bear Creek Did Not Have the Support of the Local Communities That Is Necessary to Construct or Operate a Mine ............................................................61 1. A “Social License” from Affected Communities Is an Essential Component of Any Mining Project............................................................62 2. Bear Creek Can Only Claim Any “Support” by Inappropriately Narrowing the Scope of the Relevant Communities to Those That Supported the Project .................................................................................76 3. The DGAAM and MINEM Did Not Approve or Endorse Bear Creek’s Social Outreach Efforts ..............................................................................89 D. The Surrounding Communities Opposed the Santa Ana Project, Leading to Massive Protests That Paralyzed the Region .........................................................96 1. Bear Creek Failed to Work With All of Its Neighboring Communities ....99 i 2. After Warning Signs in Prior Months, in October 2008 Thousands Protested Against the Santa Ana Project and the Company’s Site Was Sacked and Burned ..................................................................................107 3. The February 2011 Public Hearing and Large-Scale Protests Outside It Confirmed That Many in the Surrounding Communities Rejected the Santa Ana Project .....................................................................................113 4. The Protests in March-June 2011 that Paralyzed the Department of Puno Targeted the Santa Ana Project................................................................118 5. If Bear Creek Were To Return Today, the Local Communities Would Again Reject the Santa Ana Project .........................................................130 E. The Government Worked in Good Faith to Quell and Address All of the Causes of the Protests .......................................................................................................132 1. Perú Attempted To Calm the Social Uprising Through Dialogue with the Protestors..................................................................................................133 2. Perú Enacted Many Measures to Respond to the Social Crisis, Not Just the Two Measures of Which Bear Creek Complains ....................................141 F. Both the Temporary Suspension of the Review of Bear Creek’s EIA and Supreme Decree No. 032 Were Appropriate, Legitimate, and Proportional Measures ......144 1. The Temporary Suspension of the EIA Review So That It Could Proceed in Calmer Times Was Legal, Reasonable, and Appropriate ....................145 2. Supreme Decree No. 032 Was a Legitimate and Proportional Response to the Massive Regional Protests and the Revelation that Bear Creek Had Unlawfully Acquired the Santa Ana Concessions ...................................151 G. Alleged Statements by Peruvian Officials Trying to Find a Solution to the Company’s Problem Do Nothing to Prove Bear Creek’s Case ...........................163 H. Bear Creek Cannot Show that, But For Supreme Decree No. 032, the Santa Ana Project Would Have Proceeded to the Extraction Phase, Much Less Would Have Been a Successful Mine .......................................................................................165 1. Bear Creek Had to Overcome Many More Legal Hurdles Before It Could Ever Have Constructed a Mine or Exploited Silver at Santa Ana ...........169 2. Other Stalled Mining Projects in Perú Illustrate the Uncertainties of Mine Project Development, Including for Reasons Unrelated to Government Measures ..................................................................................................198 III. The Tribunal Lacks Jurisdiction to Hear Claimant’s Claims...........................................204 ii A. Investment Treaty Arbitration and the ICSID Arbitral Process Do Not Protect Unlawful Investments or Those Made in Bad Faith ............................................206 1. Investments That Are Made in Violation of the Law of the Host State Are Not Protected ...........................................................................................206 2. Investments That Are Made in Bad Faith Are Not Protected ..................217 B. Claimant Obtained the Santa Ana Concessions Illegally and in Bad Faith, and Therefore Claimant Has No Right to the Protections Contained in the Perú- Canada FTA .........................................................................................................221 C. Conclusion on Unlawful and Bad Faith Investments ..........................................226 D. Respondent Is Not Estopped from Asserting in These Proceedings that Claimant Obtained the Santa Ana Concessions Unlawfully ...............................................227 1. Respondent Became Aware of Claimant’s Illegal Scheme Only in 2011 and Claimant Has Not Established Any of the Elements of Estoppel .....228 2. Claimant’s Appeal to Peruvian Law Is Irrelevant....................................238 E. Claimant’s Violations of Peruvian Law Invalidate Its Claimed Investment at Santa Ana .......................................................................................................................238 F. The Tribunal Lacks Jurisdiction Because Claimant Does Not Own the Investments Upon Which It Bases Its Claim .......................................................239 IV. Perú Did Not Breach the FTA .........................................................................................241 A. Supreme Decree No. 032 Did Not Expropriate Claimant’s Investment in the Santa Ana Concession ...................................................................................................241 1. Supreme Decree No. 032 Is a Legitimate Exercise of Respondent’s Police Powers ......................................................................................................242 2. Claimant Cannot Meet the Heightened Standard for Indirect Expropriation Under Annex 812.1 of the FTA ...............................................................257 3. Claimant Possessed Limited Rights at Santa Ana, and Respondent Could Not Have Expropriated Rights That Claimant Never Held .....................266 4. Conclusion on Expropriation ...................................................................268 B. Respondent Afforded Claimant Fair and Equitable Treatment in Accordance with the FTA ................................................................................................................269 iii 1. The FTA Does Not Guarantee Fair and Equitable Treatment Beyond the International Minimum Standard of Treatment, Which Places a High Burden on Claimant .................................................................................270 2. Claimant Has Not Identified a Principle of Customary International Law Regarding Fair and Equitable Treatment That Respondent Allegedly Violated ....................................................................................................279 3. Claimant’s FET Claim Fails Because It Cannot Prove that Respondent’s Actions Fell Below the International Minimum Standard for Fair and Equitable Treatment .................................................................................282 4. Claimant Cannot Import an Autonomous FET Standard Into the FTA ...291 C. Respondent Did Not Violate Other Provisions of the FTA .................................298 1. Respondent Afforded Claimant Full Protection and Security in Accordance with the FTA ........................................................................298 2. The FTA Contains No Unreasonable or Discriminatory Measures Clause, and Claimant Cannot Import Such a Clause from Another Treaty ..........304