Peru: Arbitrators Who Were Imprisoned In Peru Have Been Released, But Remain Subject To Significant Restrictions On Their Freedom Pending Corruption Investigations

Introduction

As has been widely reported, on 4 November 2019 the Peruvian Preparatory Investigation Court ordered the “preventative detention” of fourteen arbitrators who sat as arbitrators in cases between Odebrecht - the Brazilian construction company at the centre of the Operation Carwash corruption scandal in Brazil - and the Peruvian government.

The arbitrators were sentenced to imprisonment pending the investigation of allegations that they accepted bribes from Odebrecht in order to rule in the company’s favour in the arbitrations. There has been widespread concern in both the Peruvian and international arbitration community that arbitrators, including Mr Fernando Cantuarias Salaverry, an arbitrator of international renown who sits on the ICC court, have been imprisoned, apparently on the basis of an incorrect interpretation of the Peruvian arbitration system, pending the investigation into allegations of corruption. The President of the ICC wrote letters to the Peruvian Minister of Justice and the Criminal Appeals Court protesting against the detention of Mr Cantuarias. The Spanish Arbitration Club and the IBA have also supported Mr Cantuarias.

The arbitrators appealed their sentences, and on 27 November 2019, the First Criminal Court of Appeals Specialised in Corruption Offences decided the appeal filed by the arbitrators, thereby partially revoking the preventative detention. However the Court imposed a new order which still substantially restricts the freedom of the arbitrators. The terms on which the detention was revoked by the Court are described below.

The Order of 27 November 2019 of the First Criminal Court of Appeals

• The Court revoked the detention of Messrs. Cantuarias Salaverry, Castillo Freyre, Abanto Verástegui, Rivera Reyes, Kundmüller Caminiti, Espinoza Rimachi, Zapata Velasco and Linares Prado. However the order now prohibits the arbitrators from leaving the country for the next eighteen months.
• In the cases of Messrs. Castillo Freyre, Rivera Reyes and Kundmüller Caminiti, the Court revoked their arrest warrant, subject to the payment of bail.
• In the case of Mr. Álvarez Pedroza, the Court revoked his detention order, but placed him under house arrest.
• However, in relation to other arbitrators the Court of Appeals confirmed the Preparatory Investigation Court’s Order and confirmed the house arrest imposed on Messrs. Cassina Rivas and Cassina Ramón, respectively, and the detention of Messrs. Campos Flores, Pardo Naváez, Martin Tirado, García Rojas and Pebe Romero.

We discuss below some of the key aspects of the Court of Appeals’ Procedural Order.

The case of Mr. Castillo Freyre

The prosecutor claimed, based on a witness’s evidence, that Mr. Castillo Freyre received “indirect bribery” in the form of adjusted fees in an ad-hoc arbitration proceeding.

The Court considered that the adjustment of arbitration fees is not a sufficient basis to deprive a person of their liberty, or capable of establishing a degree of suspicion sufficient to determine that Mr. Castillo Freyre committed the alleged crimes. However, the question of whether the adjustment of the arbitration fees constituted indirect bribery will be analysed during the criminal proceeding.

Nevertheless, due to the severity of the offences which Mr. Castillo Freyre has been accused of, and the complexity of the facts on which the accusations are based, the Court considered it appropriate to prohibit Mr Castillo Freyre from leaving the country for the next 18 months.

The case of Messrs. Cantuarias Salaverry and Kudmüller Caminiti

The accusations against Messrs. Cantuarias Salaverry and Kundmüller Caminiti are based on the fact that they fixed arbitration fees higher than the scales published by the Lima Chamber of Commerce (“LCC”) in an ad-hoc proceeding. The prosecutor contends that the fixing of fees at this level was done in accordance with an illegal agreement between the arbitrators and Odebrecht pursuant to which the arbitrators agreed to issue an award favourable to the company. This agreement, according to the prosecutor, would constitute “indirect bribery”.

The Court correctly considered that the arbitration fee scales published by the LCC are not binding for ad-hoc proceedings. Also, the Court considered that the Peruvian Arbitration Act permits the arbitrator to fix the arbitration fees on the basis of a number of factors, including the amount in dispute and the number of claims. Therefore, the Court considered that it could not conclude that the fixing of the arbitration fees arose from an illegal agreement with Odebrecht.

These arbitrators were also accused because Mr. Cantuarias Salaverry and Cánepa Torre (the party-appointed arbitrators in the ad-hoc proceeding) met with the parties’ representatives (both Odebrecht’s and the Peruvian Governments’ representatives) three times before the proceeding. The prosecutor claims that in those meetings agreements were reached to impose high arbitration fees in return for issuing an award in Odebrecht’s favour.

The Court however considered that there is no evidence that proves that those meetings were held in order to reach an illegal agreement. The Court noted that the witness’s statement which implicated these arbitrators did not refer at all to the ad-hoc proceeding in which Messrs. Cantuarias Salaverry and Kundmüller Caminiti sat on the tribunal. Therefore, the Court considered that the prosecutor’s allegations were based on mere inferences. Furthermore, the Court considered that Article 23 of the Peruvian Arbitration Act allows the arbitrator and the parties to meet prior to the start of the proceeding.

Nevertheless, taking into account the severity of the offences of which Messers. Cantuarias Salaverry and Kundmüller Caminiti are accused, and the complexity of the facts on which the accusations are based, the Court also prohibited these arbitrators from leaving the country for 18 months.

The affected arbitrators can require the Court to clarify the grounds for its decision. After receiving the written explanation of the Court’s grounds, if the arbitrators disagree with those grounds, they can file a constitutional action for measures being taken which impede their liberty and, in the case of the arbitrators whose detention has been confirmed, they can file an appeal seeking its annulment.

Conclusion

Many will welcome the revocation of the detention orders of at least some of the arbitrators, and the recognition by the Peruvian Court of Appeals that the prosecutor’s case against three of the arbitrators was based upon inferences rather than facts, and proceeded from a misunderstanding of the Peruvian Arbitration Act and the manner in which fees in ad hoc proceedings are set. Still, the Court has prohibited certain of the arbitrators, including Mr Cantuarias, from leaving the country for eighteen months, in view of the severity of the offences which they have been charged with.

It remains to be seen how these events will impact on Peru’s development as a key centre for arbitration in Latin America, and in particular on the willingness of international arbitrators to sit on tribunals involving the Peruvian state.

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