Tambogrande update: Manhattan seeks arbitration

Manhattan seeks arbitration

Tambogrande Update – February 19, 2004

From: CooperAccion, Peru

On February 16, Manhattan announced that it will commence arbitration proceedings regarding Centromin’s decision concerning the option agreement for the Tambogrande mining project. Centromin is Peru’s publicly-owned mining company and was Manhattan’s potential partner in the development of the Tambogrande mine.

According to the option agreement between Centromin and Manhattan, the company was obliged to demonstrate, by December 1, 2003, that it complied with a number of ‘qualifying conditions.’ On December 10, 2003, Centromin announced that Manhattan had failed to comply with said conditions. According to the terms of the option agreement, Manhattan consequently lost the opportunity to participate in the development of the mine.

Manhattan is challenging Centromin’s decision.

Does Manhattan have a hope?

According to a preliminary legal analysis undertaken by the Mesa Técnica’s legal team, Manhattan hasn’t got much of a chance.

There are two principal impediments:

A. According to the option agreement, Manhattan has the right to challenge Centromin’s decision. However, Manhattan only had thirty days to initiate arbitration proceedings following notification, by Centromin, of its decision. Centromin communicated its decision to Manhattan on December 10, 2003. Manhattan didn’t announce its decision to initiate arbitration proceedings until February 16, 2004 – well outside the thirty-day window.

This analysis appears to be shared by the government. In yesterday’s edition of Gestión, Jaime Quijandría, who was recently renamed as Minister of Energy and Mines, is quoted as saying that Manhattan brought its request for arbitration outside the time frame contemplated by the option agreement. According to the Minister, a legal analysis that he requested from ProInversión supports this position.

B. Even if it were possible to initiate arbitration proceedings at this late date, Manhattan doesn’t appear to have a persuasive argument:

• last year rumours circulated that Manhattan would argue that it had been unable to acquire a partner that satisfied the option agreement qualifying conditions due to the government’s failure to carry out legally-mandated EIA hearings (i.e. uncertainty generated by the government’s ineptitude scared off potential partners). Such rumours were buoyed up by the testimony of the then Minister of Energy and Mines, Hans Flury, in a special meeting of the Environment and Ecology Sub-commission of the Peruvian Congress on November 26, 2003. Minister Flury reported that Manhattan had requested an extension of the option agreement deadline, claiming that due to force majeure, it was unable to fulfill its obligations. The Minister explained that Manhattan’s request had been denied by Centromin. However, in a November 28, 2003 press release, the company denied that it had requested such an extension.
• the option agreement contemplates circumstances in which a party is unable to comply with the conditions of the contract for reasons of force majeure. In such cases, the party is obliged to communicate its inability to satisfy the terms of the contract within five days of the occurrence of the event/circumstances that impede compliance. According to publicly-available information, Manhattan never transmitted such a communication to Centromin. In fact, it was Manhattan’s argument on December 1, 2003 (option agreement deadline) that it complied with the contract qualifying conditions, a position that was subsequently rejected by Centromin. It would be highly questionable for Manhattan to now argue that it failed to meet its contractual requirements due to forces beyond its control.
• this leaves Manhattan with its original argument - that it was in compliance with the qualifying conditions on December 1, 2003 - a position that seems difficult to substantiate.

And if Manhattan succeeds in initiating arbitration proceedings?

Should arbitration proceedings somehow be initiated, the option agreement dictates that:

• the arbitration be presided over by the Arbitration Tribunal of the National Institute of Mining and Petroleum Law;
• the process be governed by the General Arbitration Law and the Arbitration Regulation of the National Institute of Mining and Petroleum Law;
• there be three arbitration officers. One chosen by the company, one chosen by Centromin and the third to be chosen by the first two arbitration officers;
• once the arbitration officers are chosen, Manhattan has twenty days to present its case; and
• the decision is final; there is no right to appeal.

CooperAccion
Jr. Berlin 1353
Miraflores, Lima, Peru
tel: 444-0316
fax: 445-0908