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Judicial Decision Denies Municipalidad de Lima's Petition to Vacate Arbitral Awards
On March 12, 2024, Judge Ana C. Reyes of the District of Columbia Circuit denied the petition by the Municipalidad de Lima to set aside two arbitral awards. This ruling concludes a protracted legal battle over a concession contract between the Municipalidad de Lima and Rutas de Lima S.A.C., involving allegations of corruption and contractual disputes.
Background of the Dispute:
The dispute originated from a 2013 concession contract where Rutas de Lima, comprising subsidiaries of Odebrecht S.A., was tasked with constructing, improving, and maintaining key highway sections in Lima. Rutas de Lima was to generate revenue from toll booths, including the new Chillón Toll Unit (NCTU), which opened in 2016. The Municipalidad de Lima subsequently closed the NCTU and refused to approve toll rate increases or compensate Rutas de Lima for the resulting losses. In 2016, Brookfield acquired a 57% stake in Rutas de Lima, with Odebrecht retaining 25%, and Sigma holding 18%. Amid the "Lava Jato" scandal involving Odebrecht's bribery scheme, Brookfield proposed modifying the contract to facilitate a third party's acquisition of Odebrecht's stake. The Municipalidad de Lima rejected this proposal, preserving the existing company structure.
Arbitration Proceedings:
In 2018, Rutas de Lima initiated arbitration for compensation due to the NCTU closure. The tribunal, seated in Washington D.C. under UNCITRAL rules, rejected the Municipalidad de Lima's corruption claims and awarded Rutas de Lima damages for lost revenue and future toll collection at the NCTU. A second arbitration in 2019 addressed the Municipalidad de Lima's refusal to permit a toll rate increase, resulting in another award favouring Rutas de Lima. Despite these rulings, the Municipalidad de Lima continued to dispute the awards, challenging the arbitral tribunal's impartiality and the alleged bribery by Rutas de Lima to secure the contract.
Annulment Proceedings:
The Municipalidad de Lima sought to vacate both arbitral awards under the Federal Arbitration Act (FAA), which allows for vacatur on grounds such as corruption, evident partiality, arbitrator misconduct, and exceeding arbitral powers. The D.C. Circuit consolidated the two petitions and focused on two primary grounds for vacatur: fraud and arbitrator misconduct.
Fraud Allegations:
The court found that the Municipalidad de Lima failed to demonstrate that alleged fraudulent actions by Rutas de Lima deprived it of a fair hearing, or that such fraud could not have been discovered during the arbitration with reasonable diligence. Additionally, the court ruled that the new evidence presented was insufficient to prove a connection between Odebrecht’s alleged bribery and the concession contract.
Arbitrator Misconduct:
The Municipalidad de Lima argued that the arbitral tribunal's refusal to admit certain evidence, including annexes to an indictment, constituted misconduct. However, the court noted that the Municipalidad de Lima had the opportunity to present this evidence but did not request its admission. The tribunal’s discretion in evidentiary matters was upheld, as the exclusion did not prejudice the arbitration’s fairness.
Conclusion and Future Implications:
The D.C. Circuit’s decision underscores the high standard for vacating arbitral awards on grounds of corruption and evidentiary exclusion. The Municipalidad de Lima's inability to substantiate claims of fraud and misconduct resulted in the court’s denial of the petition. Following this decision, the Municipalidad de Lima announced plans to appeal, emphasizing that the D.C. Circuit did not affirm the validity of the concession contract. Meanwhile, a third arbitration concerning the ongoing dispute over the contract's termination by the Mayor of Lima remains pending, with a recent order from the Constitutional Court of Peru suspending NCTU toll collection due to alleged violations of free transit rights.
Tags : #Arbitration #LegalDecision #DCourt #ConcessionContract #Lima #Odebrecht #MunicipalidadDeLima #RutasDeLima #FAA #UNCITRAL
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