PERU Law and Practice Contributed by: Renzo Salvatore Monroy Pino, Roberto Shimabukuro Miyasato, Aníbal Urtecho Gómez and Alexander Montenegro, Monroy & Shima Abogados
8. Damages and Valuation 8.1 Remedies
• assets with established secondary markets; and • recent arm’s length transactions involving similar investments. Market value is less common for unique or specialised investments, such as early-stage mining projects or infrastructure concessions with specific terms. Asset-Based/Cost Approaches Cost-based methodologies value investments based on amounts invested or replacement costs. These approaches are typically used for: • early-stage projects without operating history; • situations where DCF would be too speculative; and • assets valued primarily for their physical compo- nents rather than their income-generating capacity. In Lupaka Gold , the claimant presented sunk costs as a “sanity check” on DCF valuations but did not rely on costs as the primary valuation method. Selection of Appropriate Methodology Tribunals consider multiple factors when selecting valuation methodologies: • stage of investment development (greenfield ver- sus operating business); • availability and reliability of historical financial data; • nature of treaty violation and its timing; • reliability of future cash flow projections; and • expert evidence regarding industry standards for similar projects. The Lupaka Gold tribunal’s acceptance of DCF meth- odology for a mine approaching but not yet in com- mercial production reflects modern practice in favour- ing income-based approaches over purely cost-based methods when sufficient evidence supports reliable projections. 8.3 Recovering Interest and Legal Costs Arbitral tribunals have the power to award interest on compensatory sums. Interest compensates the inves- tor for the use of money from the date of damage to effective payment.
Arbitral tribunals in investment disputes have broad discretion to award different types of remedies. Invest- ment treaties signed by Peru typically do not impose specific limits on types of remedies, beyond those limits recognised in international law. The most common form of remedy is monetary com- pensation for damages suffered. Tribunals calculate damages based on the value of the affected invest- ment and consequential losses. 8.2 Methodologies for Quantum Assessment Discounted Cash Flow (DCF) Methodology DCF is the preferred methodology for valuing operat- ing businesses or projects with reliable financial pro- jections. This approach projects future cash flows and discounts them to present value using an appropriate discount rate that reflects project risk. In Lupaka Gold , the tribunal applied DCF methodol- ogy, with the following notable features. • Dual scenarios ‒ experts valued the investment under two production scenarios (355 tonnes per day and 590 tonnes per day), reflecting different levels of planned expansion. • Conservative adjustments ‒ risk premiums of 3.3% (base scenario) and 6.9% (expansion scenario) were added to reflect uncertainty regarding pro- jects not yet in commercial production. • but-for analysis ‒ experts compared actual value (nil after expropriation) with projected value in the absence of treaty breaches. • Treatment of planned acquisitions ‒ the tribunal allowed inclusion of revenues from a processing plant the investor planned to acquire, finding it “highly probable” that the acquisition would have occurred but for the breaches. Market Value When active markets exist for comparable assets, market-based valuation provides objective evidence of value. This methodology is particularly relevant for: • publicly traded companies (market capitalization);
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