PERU Presidency of the Council of Ministers INDECOPI

Transcription

1 ISSUED BY : BANKRUPTCY PROCEEDINGS COMMISSION OF LIMA SUR DEBTOR : DOE RUN PERÚ S.R.L CREDITOR : MINISTRY OF ENERGY AND MINING SUBJECT MATTER : ACKNOWLEDGMENT OF CLAIMS SOURCE AND ASSESSMENT OF CLAIMS ACTIVITY : NON-FERROUS METAL SMELTER OPERATION SUMMARY: Resolution No /CCO-, dated February 23, 2011, is hereby REVOKED inasmuch as it determined that the request for acknowledgment of claims filed by the Ministry of Energy and Mining against Doe Run Perú S.R.L. is ungrounded, and AMENDED to acknowledge the existence of claims in favor of said public entity against Doe Run Perú S.R.L. for a total principal amount of USD 163,046,495.00, which shall rank fifth in the order of preference. It is hereby further established that the Ministry of Energy and Mining is a non-related creditor of Doe Run Perú S.R.L. pursuant to section 12 of the General Bankruptcy Law. After analyzing the case, this Division concludes that, contrary to the decision issued by the court of first instance, the evidence included in the case file, the relevant environmental laws and the provisions of the Peruvian Civil Code supplementarily applicable hereto, demonstrate the existence, source, ownership, and amount of the claims asserted by the Ministry of Energy and Mining, resulting from the compensation owed to such public entity by Doe Run Perú S.R.L due to said company s failure to finance and commission the Sulfuric Acid Plant and Modification of the Copper Circuit of the La Oroya Metallurgical Complex project, as undertaken under the Environmental Management and Enhancement Program (PAMA, for its acronym in Spanish) approved by Supreme Decree No EM and its regulatory and supplementary provisions. Further, it is hereby established that Resolution No /CCO-, dated February 23, 2011, is NULL AND VOID inasmuch as it stated that the request for additional prayer for relief submitted by the Ministry of Energy and Mining on December 7, 2010, was inadmissible. Said resolution is hereby amended to classify such request as a request for claim acknowledgment extension, and the Bankruptcy Proceedings Commission of Lima Sur is hereby requested to initiate the applicable proceedings in that regards. M-SC1-02/1A. 1/38

2 Lima, November 18, 2011 I. BACKGROUND 1. By means of a written request dated September 14, 2010, as supplemented on December 7, 2010, the Ministry of Energy and Mining (hereinafter, MEM) demanded the acknowledgment of environmental claims against Doe Run Perú S.R.L. (hereinafter, DRP) 1 for an amount of USD 163,046, (principal) and USD 87, (interest) to rank fifth in the order of preference, resulting from the investment DRP failed to make for the performance of the project for the final stage of the Environmental Management and Enhancement Program (hereinafter, PAMA), crated under Supreme Decree No EM 2 and undertaken by the debtor upon the signing of Empresa Metalúrgica La Oroya S.A. Share Transfer, Capital Increase and Share Subscription Contract (hereinafter, the privatization contract) on October 23, In its request, the MEM pointed out that, following a series of successive extensions granted under various industry regulations 3, DRP failed to finance the project named Sulfuric Acid Plant and Modification of the Copper Circuit of the La Oroya Metallurgical Complex (hereinafter, the project), which, according to the MEM, had been valued by the debtor itself in USD 163,046,495.00, as stated in the document entitled Official Cash Flow MEM, attached to the document entitled PAMA Project Construction Plan Remainders/Modification of the Copper Circuit/Copper Sulfuric Acid Plant, filed by the debtor on January 27, 2010 with MEM s General Mining Office. 3. In a written communication issued on November 12, 2010, as supplemented on November 17, 2010, DRP opposed the acknowledgment of the claims asserted by the MEM on the following grounds: Doe Run s bankruptcy was made public by means of an article published in El Peruano Official Gazette on August 16, Environmental Protection Regulations for the Mining and Metallurgical Industry. By means of Supreme Decree No EM, dated December 29, 2004, the MEM established a series of provisions to allow mining companies to request, on or before December 31, 2005, an extension of the performance term for one or more of the specific projects listed in the approved PAMA, which extension could in no case exceed a total of three years, unless an additional year was granted by the MEM s Office of Mining Environmental Issues, for exceptional reasons. Following the submission of a request by DRP on December 20, 2005, by means of Ministerial Resolution No MEM/DM, dated May 29, 2006, the MEM partially approved the exceptional extension request for all of the stages of the Sulfuric Acid Plants Project of the PAMA for the La Oroya Metallurgical Complex until October 31, Law No , published on September 26, 2009, granted a new extension for the financing and completion of the Sulfuric Acid Plant and Modification of the Copper Circuit Project of the La Oroya Metallurgical Complex Project, fixing a non-extendable term of 10 (ten) months for the financing of the project and of 20 (twenty) months for the construction and commissioning stage. Supreme Decree No EM, published on October 29, 2009, provided inter alia that the extended terms should commence as of the effective date of the aforementioned law, and the term for the construction and commissioning of the project would commence as of the expiration of the term for the financing stage. 2/38

3 (i) (ii) (iii) (iv) (v) the obligation undertaken by DRP in favor of the MEM is not that of completing the project, but merely that of abiding by a legal duty that is the means through which the company seeks to perform the actual obligation undertaken by it, that of protecting (or, according to the debtor, preventing the development of any activities that may damage) the environment; even assuming that DRP undertook to complete the PAMA project, said obligation could be enforced in bankruptcy proceedings, since DRP s obligation consists in performing the PAMA by completing the project to achieve the environmental goal of reducing polluting emissions to the maximum levels allowed by the environmental laws in force. Therefore, DRP s obligation does not consist in investing a specific amount of money in the project, because the environmental protection sought by the obligations under the PAMA cannot be estimated in monetary terms on the ground that they are public order imprescriptible inalienable duties that may not be disposed of, waived, offset and terminate..neither the duty to complete the project may be estimated in monetary terms, since compliance with the maximum environmental pollution levels allowed could be achieved with an investment greater or lower than the debtor s projections, which are only an estimation of the total cost of the works necessary for such purpose. to support the allegations in the previous paragraph, DRP mentioned two cases in which the achievement of the environmental goals in the PAMA did not depend on the amount invested by the mining companies under the control of the Supervisory Organism for Energy and Mining Investment (OSINERGMIN); given that the rule of law must govern all acts of the Public Administration, in the event of DRP s failure to achieve the maximum pollution levels allowed specified in the PAMA, the MEM is only empowered by law to impose the fines set forth in the applicable laws and regulations, and, if such failure is not cured, to order the temporary or definite suspension of the company s activities. However, in no case is the MEM allowed under environmental laws to collect from the debtor the estimated investment amount required for the project; therefore, DRP s obligation to comply with the PAMA does not fall within the definition of claim in Section 1 of the General Bankruptcy Law (hereinafter, the LGSC, after its acronym in Spanish), since a creditor s right to demand performance of an obligation resulting from a legal relationship necessarily presupposes that said obligation be patrimonial in nature, i.e., susceptible of having an economic value, and that the breach thereof entitle the creditor to take any such measures as may be necessary to seek specific performance or otherwise the relevant compensation; which characteristics are not present in the claims invoked by the MEM, since such Ministry is not legally entitled to demand enforcement of a patrimonial obligation; 3/38

4 (vi) (vii) The MEM lacks standing to seek acknowledgment of the alleged claim invoked since, as the State s powers regarding compliance with the PAMA are limited to the supervision and control of the achievement of the environmental goals fixed in the applicable program, the body now entitled under the applicable laws to make any such demand is the Environmental Assessment and Control Commission (hereinafter, the OEFA after its acronym in Spanish), and not the MEM;. allowing the alleged claim invoked by the MEM, following its acknowledgment, to be part of DRP s meeting of creditors would constitute a legal absurdity, as it would entail, on the one hand, to somehow allow the State to intervene in the private decisions of the meeting, given the high percentage of DRP s total debt represented by the aforementioned claims; and, on the other hand, to condition the powers of the State on environmental law matters to the will of a group of individuals comprising the meeting, something entirely unacceptable given the undeniably national interest the State seeks to protect with the achievement of the goals established in the environmental policies through the PAMA; (viii) even if MEM s claims were acknowledged, their order of priority would still remain uncertain given the impossibility to determine whether, due to the nature of the legal interest protected by the PAMA, they should be rank above employees wages and social security contributions or otherwise rank fifth in the order of priority as they lack the special nature required to rank among the top four claims, which would give rise to the absurd notion that the environmental interests represented by said claims can be set aside by the financial interests of a group of individuals. (ix) (x) should the meeting of creditors decide to put DRP into liquidation, the debtor company would definitely cease to operate, which would result in the automatic termination of its obligations under the PAMA. However, the Peruvian State, through the MEM, would still have a claim thereunder, which would amount to unjust enrichment as provided by in section 1954 of the Civil Code; and DRP has already made payments to and undertaken obligations with several suppliers for over USD 16,000, for the purpose of commencing the project. Therefore, the acknowledgment of the claims invoked by the MEM would also force DRP to pay the amount of such claims twice. 4. By means of a written communication dated December 7, 2010, the MEM addressed the challenges raised by DRP alleging that: (i) section 4.5(a) of the privatization contract defines investment as the amounts effectively disbursed for feasibility, technical and/or financial studies, including environmental studies and the disbursements required for DRP to fulfill its obligations under the PAMA, as expressly undertaken by the debtor in section 5.1 of the 4/38

5 aforementioned contract, which shows that DRP not only made a generic commitment to protect the environment, but also, and mainly, the express commitment to make the agreed environmental investments to perform the PAMA by means of the construction and commissioning of the project; (ii) (iii) (iv) (v) (vi) (vii) in this line, the performance of a project developed for the protection of the environment is, undoubtedly, quantifiable, as shown by the fact that the debtor itself quantified it in the amount of USD 163,046, in the report filed with the General Mining Office on January 27, 2010, and in the MEM s foreclosure on two letters of guarantee following DRP s breach; the PAMA performance supervision and control is in no way limited to the inspection of the environmental goals fixed by said program and the imposition of penalties in case of the failure to achieve them, but includes the procurement of the investments committed by the debtor under the privatization contract, as irrefutably demonstrated by the administrative resolutions through which the MEM rejected the project financing plan submitted by DRP, declared that said company had breached the obligations undertaken under section 2 of Law No , and sections 3.1 and 5.1 of Supreme Decree No EM, and finally declared that DRP had breached the PAMA in Resolution No MEM-DGM/DTM; DRP seeks to show that the sole consequence of its breaching the PAMA is the imposition of the applicable penalties by the Osinergmin and the OEFA, disregarding the fact that, notwithstanding the imposition of such penalties, the Peruvian State is also entitled to demand, through the MEM, the reimbursement of the value of the project as the result of the breach of an obligation to act, so that the MEM can undertake, through the applicable legal mechanisms, the completion of the final stage of the PAMA; the consequences of the breach of the commitment to invest made by DRP to achieve the goals of the PAMA must be governed by the applicable provisions of the Civil Code, as said investment commitment results from the privatization contract. contrary to the debtor s allegations, the environmental investment commitment undertaken by DRP before the MEM is entirely quantifiable, as it constitutes an obligation to act that can be financially assessed, a case acknowledged in the bankruptcy law and Indecopi s case law on the subject matter; the privatization contract and the laws and regulations issued thereafter to supervise the fulfillment of the obligations undertaken thereunder by DRP show that the MEM is entitled to enforce the invoked claims; (viii) the State s participation in meetings of creditors as the owner of claims acknowledged by the Commission in bankruptcy proceedings can in no way constitute a legal 5/38

6 absurdity; it is rather a legitimate enforcement of the State s right to participate in the decisions to be made on the new terms and conditions for the payment of claims, which is a common and undisputed practice when the State participates in a meeting as the owner of tax claims, in which case it is impossible to assert that the administration s tax policy is in any way subordinated to the decisions made by the meeting; (ix) (x) (xi) the invoked claims should rank third in the order of preference, as the State has a duty to guarantee their full payment pursuant to Supreme Decree No EM; the unjust enrichment alleged by DRP can in no way take place, since the amount of the invoked claims will be destined to the completion of the applicable project for the last stage of the PAMA; and should any other creditors exist whose claims result from the partial performance of the project, the amounts owed to them shall be offset from the amount claimed by the MEM for the purpose of preventing the double payment alleged by the debtor. 5. By means of a written request dated December 7, 2010, the MEM requested the expansion of the claims invoked in its request dated September 14, 2010, stating that the total amount of the claims invoked against DRP ascends to USD 181,287,921.00, in capital, and USD 77,650,260.71, in interests. The remaining claims invoked by the MEM in its expansion request include the following items: (i) USD 4,000, for the failure to renew a letter of guarantee that expired on November 10, 2009; (ii) USD 14,241, for the failure to renew a letter of guarantee that expired on January 8, 2010; and (iii) USD 77,737, in interests accrued between January 17, 2010 and the date of publication of commencement of the bankruptcy proceedings. 6. In that same request, the MEM further stated that: (i) (ii) it reiterated its claim that the performance of the project should be governed by the provisions of the Civil Code, pointing out that the privatization contract, having law status under section 62 of the Political Constitution of Peru and section 1357 of the Civil Code, is governed by private law, despite being a public law contract; and DRP s failure to fulfill its obligation to finance the project within the ten-month term resulting from the last extension granted by Law No , immediately caused the impossibility to commence the second stage of the project, which constitutes a quantifiable obligation to act; 7. On December 15, 2010, DRP submitted a written answer to the MEM s request, stating as follows: 6/38

7 (i) (ii) (iii) (iv) (v) (vi) none of the obligations undertaken by DRP under the privatization contract were expressly governed by private law- Said contract merely contains a declaration of equivalence between the environmental obligations undertaken by the previous owner of Metaloroya and the ones undertaken by DRP by operation of law. On the contrary, sections 4.1 and 4.5 of the privatization contract state the total amount of the investment, equal to USD 120,000,000.00, can include all amounts resulting from the PAMA, given the total amount of the environmental investments made by DRP as of the date thereof exceed the sum of USD 300,000,000.00, wherefore, even in the scenario proposed by the MEM, the debtor would have already fulfilled its obligations; sections five and six of the privatization contract merely describe a distribution of environmental responsibilities between the parties regarding commitments, requirements and legal duties, but in no case establish patrimonial obligations; DRP denies having breached the PAMA, because it considers that, by virtue of the last extension granted by Law No , the term for the completion of the project would expire in April, 2012, wherefore it denies having acknowledged, in the report submitted by it to the General Mining Office on January 27, 2010, to have an outstanding debt with the MEM for a total of USD 163,046, and, especially, to have breached any undertaken obligations; it is not true that Resolution MEM-DGM/DTM definitively declared that DRP breached the PAMA since, despite the fact that Resolution No MEM/CM, issued by the Mining Council dismissed the application for review filed against said decision, DRP commenced litigious-administrative proceedings against it that remains outstanding as of the date hereof; it reiterated that the environmental enhancement programs imposed by law (and not contract) upon DRP cannot be quantified because the fulfillment thereof can only be determined depending on the results of the applicable programs in terms of the reduction of polluting emissions; and even accepting the MEM s contention that the performance of the project by DRP is an obligation to act governed by the provisions of the Civil Code, it would be impossible to demand fulfillment of any obligation whatsoever in this case, since, given that the obligations are obligations to act, the fulfillment thereof cannot be legally enforced, or could otherwise only be performed by a third party at the debtor s expense or compensated by the payment of damages. 8. On December 20, 2010, DRP submitted a written communication reiterating the statements made in its prior communications and opposing the claim acknowledgment expansion and the modifications to the order of preference requested by MEM. 7/38

8 9. By means of Resolution No /CCO-, dated February 23, 2011, the Bankruptcy Proceedings Commission (hereinafter the Commission) dismissed the request submitted by the MEM on the following grounds: (i) (ii) (iii) (iv) (v) (vi) the analysis of the laws and regulations governing the PAMA shows that the goal of said program is the reduction or elimination of the emissions and/or leakages resulting from mining and metallurgical activities until reaching the maximum environmental pollution values allowed by the competent authorities, for which purpose the mining companies must make investments towards the achievement of said goal; notwithstanding the foregoing, the applicable environmental laws and regulations only allow the administrative authorities in charge of supervising abidance by the PAMA to impose administrative penalties such as fines, temporary suspensions, or the temporary or permanent interruption of the company s activities, and do not purport the existence, upon the total or partial breach of the PAMA, of an obligation to act in favor of the applicable authority as the result failure to complete the applicable project within the aforementioned program, or the possibility that said authority undertake the performance of the last stage of the PAMA; in any event, the breach of the PAMA can give rise to other kinds of liabilities, such as the obligation to pay damages to the State or any third parties; the privatization contract was entered into by Centromin Perú and DRP, and the MEM is not mentioned in it as the holder of any right whatsoever or the representative of any of the contracting parties; section four of the privatization contract details an investment commitment made by DRP that differs from the goals established in the PAMA. Nevertheless, the analysis of a letter sent by Centromin Perú to DRP on February 14, 2003, shows that Centromin Perú reported that the debtor indeed honored the aforementioned investment commitment; DRP s liability on environmental matters stems from the law, not the privatization contract, since the obligations imposed by the PAMA of Metaloroya preexisted the execution of said contract; (vii) DRP s declaration in the report submitted to the General Mining Office on January 27, 2010 did not entail the recognition of any debt whatsoever or the quantification thereof, but merely an estimation of the approximate value of the investment needed for the performance of the project; (viii) the criteria governing previous decisions by Indecopi s Tribunal regarding the quantification of obligations to act are not applicable to this case, since the MEM has failed to prove the existence, source or ownership of the alleged credits; and 8/38

9 (ix) the claim acknowledgment expansion and the modification of the order of preference requested by the MEM on December 7, 2010 are inadmissible for having been submitted following the expiration of the applicable term, given that the applicable request was filed after DRP was notified of the credit acknowledgment request, in breach of the provisions of section 428 of the Code of Civil Procedure, which applies to these administrative proceedings in a supplementary manner. 10. On March 7, 2011, the MEM filed an appeal against Resolution No /CCO-, on the following grounds: (i) (ii) (iii) (iv) (v) pursuant to the express provisions of the laws and regulations applicable on the subject matter and the privatization contract itself, the performance of the PAMA necessarily entails the mandatory abidance by the investment process approved by the MEM in its capacity as competent authority, which, in turn, entails the performance of obligations undertaken by the debtor. However, the Commission erroneously assimilates the goals of the PAMA to the duty to perform said obligations in furtherance of such goals; the powers granted to the State are not limited to the imposition of the administrative penalties set forth in the applicable laws upon the breach of the PAMA, but include the right to demand the fulfillment of DRP s obligations under the applicable laws and the contract by exercising its ius imperium, which power has been vested on the MEM; the Commission failed to take into account the fact that the pollution reduction goals established by the PAMA can only be achieved by means of the performance of the obligations to act (investments) imposed upon the debtor under the privatization contract and the applicable laws, which obligations are entirely different and independent from any such compensatory obligations as may result in favor of the State or any third parties for the breach of the PAMA, pursuant to the provisions of the appealed resolution; the legal source of the credit invoked by the MEM is Supreme Decree No EM, which governs the creation and performance of the PAMAs and undoubtedly establishes MEM s rights over the aforementioned claims; and reiterated the allegations made before the court of first instance. 11. By means of Resolution No /CCO-, dated March 14, 2011, the Commission granted the appeal filed by the MEM and elevated the proceedings to Antitrust Division No. 1 (hereinafter the Division). 9/38

10 12. By means of a communication submitted on April 24, 2011, the representative of the MEM requested a meeting with the Division s Technical Secretary to explain its position regarding the appeal: 13. On May 23, 2011, DRP acknowledged receipt of the appeal filed by the MEM and pointed out that: (i) (ii) (iii) (iv) throughout the proceedings, the MEM has contradictorily modified the source which, in its opinion, gives rise to the invoked credits, since it originally alleged that the supposed obligation to act breached by DRP resulted from the law and then stated that it resulted from the privatization contract, to finally claim, in its appeal, that its claims were grounded on both sources. However, none of these allegations undermines the terms of the appealed decision regarding the fact that DRP s actual obligation to perform the PAMA consists in reducing the maximum allowed pollution levels resulting from its activities, i.e., safeguarding an interest in the protection of the environment which, due to its very nature, is governed by public law and therefore, among other things, inalienable, which makes it impossible to quantify it; therefore, making the investments required to complete the project constitutes an administrative duty, not an obligation governed by the Civil Code. To understand the difference between both legal devices, we must take into account that the duty is only the formal vehicle, without patrimonial content, that allows citizens to fulfill an administrative obligation that may or may not be necessary, enforceable or punishable, depending on whether or not it is actually fulfilled; we can therefore conclude that the obligation to fulfill the PAMA results from the law, the breach of which can only give rise to liabilities and sanctions under the applicable laws on the matter, and the fulfillment of which can only be achieved in such a way that allows the attainment of the goal thereof, the beneficiary of which is not a specific creditor but rather the Nation as a whole; and it reiterated its claims on the debt acknowledgment scenarios proposed by DRP in the report filed with the General Mining Office on January 27, 2010, the possibility to quantify the alleged obligation, and the appellant s standing to act in these proceedings. 14. By means of written communications filed with the Division on July 5 and 13, 2011, the MEM expanded the grounds of its appeal on the following terms: (i) the origin and enforceability of the invoked claims can only be fully understood in the context of the privatization contract, by which the Peruvian State transferred ownership of its mining company to a private company in order to allow said economic activity to remain feasible, a goal that required, as an essential condition, that the private company abide by the environmental obligations imposed to protect the environmental interests 10/38

11 affected by mining activities. Therefore, the State retains a duty of care as the previous holder of the company s shares, which is to remain in full force until the satisfactory achievement of all of the transference conditions; (ii) (iii) (iv) (v) (vi) (vii) within the aforementioned context, the fulfillment of the environmental obligations resulting from the PAMA were an intrinsic part of the execution of the privatization contract itself, which proves that the MEM is entitled to directly demand the completion of the project, given that said contract, with the status of law, was amended by a special legal regime granting such right to the MEM, since the State is a single and indivisible legal entity, which fact was erroneously disregarded in the appealed decision; the appealed decision makes no sense inasmuch as it states that the quantification of the financing and construction of the project is not an obligation enforceable against DRP, as it would otherwise be impossible to explain why the debtor itself requested the State to extend the terms for the performance of the aforementioned project and quantified it; the fulfillment of the obligations resulting from the MAPA is an essential condition for the continuation of DRP s mining activities, which fact justifies, on its own, the inclusion of the claims invoked by the MEM in the bankruptcy proceedings; the fact that the environmental obligations are imposed by law in no way affects the right to demand the completion of the projects resulting from the PAMA for the achievement of the environmental commitments expressly undertaken by DRP upon the execution of the privatization contract, which case is similar, for example, to those in which the contracting parties divide among themselves the payment of the applicable taxes levied on their economic transaction; taking into account the fact that the fulfillment of the PAMA has an undeniably significant social impact, it constitutes a joint and severable obligation of the State, which, in order to prevent environmental pollution, forces the State to complete the project, through the MEM, once the invoked claims are acknowledged and paid as part of the bankruptcy proceedings, for the purpose of safeguarding a higher interest as is that of public health and the environment, taking into account that, despite the fact that, as of the date hereof, DRP has interrupted all of its activities, the emissions produced by it during the time it carried out such activities continue to pollute the environment to this date; and it had a legal right to increase the amount of the invoked claims, despite the fact that it was duly notified to DRP, because the commission had failed to assess the admissibility of its original request pursuant to section 1428 of the Civil Code. 15. As the result of the request filed on April 24, 2011, a meeting was held on September 23, 2011 with the members of the Office of the Division s Technical Secretary and the representatives of 11/38

12 both parties, for the purpose of the latter presenting the former with their views on the appealed matter. 16. By means of a communication dated November 8, 2011, DRP reiterated the claims made during the proceedings regarding the existence, source, and amount of the claims invoked by the MEM, an added that, even if said claims could be deemed a compensation, the amount and payment thereof should necessarily be decided by a court of law. 17. On November 9, 2011, the representatives of the MEM and DRP participated in an oral hearing. There, the representatives of both parties reiterated the claims made during the proceedings, and the representative of the MEM stated as follows: (i) the invoked claims consist in the financial quantification of the obligation to complete the project undertaken by DRP, and not a compensation; and (ii) despite the fact that DRP s obligation was, originally, a statutory one, it was contractualized by the execution of the privatization contract, and became a claim enforceable under section 1 of the General Bankruptcy Law. 18. By means of a written communication submitted on November 17, 2011, DRP reiterated its claims questioning MEM s right to the applicable claims. II CONTENTIOUS ISSUES II.1 Determining whether the amounts invoked by the MEM against DRP qualify as claims under section 1 of the General Bankruptcy Law. II.2 Determining whether, should such amounts qualify as claims admissible under bankruptcy proceedings, the administrative authority can prove the existence, source, ownership, and amount thereof by means of the verification of the following facts: II.2.1. II.2.2. II.2.3. II.2.4. II.2.5. The partial breach of Metaloroya s PAMA as the result of the failure to complete the project. Whether or not such breach, once verified, can be attributed to DRP. The consequences of the breach of DRP s obligations: the consideration that can be demanded from the debtor as the result of its breach. The quantification of the consideration owed by DRP. The entity entitled to demand delivery of the consideration form DRP. II.3 Determining the ranking of the claims invoked by the MEM within the order of preference, if applicable. 12/38

13 II.4 Determining whether the Commission was right in dismissing the claim extension request filed by the MEM by means of its request dated December 7, III ANALYSIS OF THE CONTENTIOUS ISSUES III.1 The definition of claim in the General Bankruptcy Law 1. Section 1 of the General Bankruptcy Law defines the subjects, elements and institutions participating in or comprising the Peruvian bankruptcy system. Subsection (e) defines claim as a creditor s right to obtain a given consideration promised by the debtor as the consequence of an obligation relationship. 2. DRP has questioned whether the amounts invoked by the MEM qualify as claims in the terms of the previous paragraph, pointing out that they are merely a legal duty representing a vehicle for the achievement of the true purpose of its obligation: the protection of the environment by reaching the maximum environmental pollution levels allowed. The debtor further claims that this environmental care obligation cannot be financially valued or, therefore, quantified, considering that the protection of the environment is an unwaivable, inalienable, imprescriptible, and public interest. The debtor further claims that, in reality, its obligation is not an obligation to act (the PAMA project), but rather a negative obligation, or one not to act, i.e., not to pollute the environment in excess of the maximum levels allowed. 3. This Tribunal believes it is essential, to begin the analysis of the subject matter, to clarify the scope of each one of the elements mentioned by DRP. Given that the concepts of consideration, interest and obligation relationship used in or resulting from section 1 of the General Bankruptcy Law are governed by Civil Law, they must be applied hereto as defined by said branch of the legal system Obligation relationship is the complex legal relationship that links two or more parties for the achievement of social or economic goals revolving around certain lawful ends protected by law. Such relationship results from the coexistence of one or more legal power relationships - duties between the creditor and the debtor: on the one hand, the creditor s power to compel - i.e., to use the means granted to him by the law in a coercive manner- the debtor to deliver the consideration owed; on the other hand, the debtor s obligation - and eventually the attachment of his assets - to deliver such consideration to satisfy the creditor s interests The Civil Code does not define these concepts in any way whatsoever. However, they are mentioned in several sections of the Books on the Law of Obligations and the Sources of Obligations, and it is mainly legal scholars that have undertaken the task of defining their scope. See Diaz Picazo, Luis, Fundamentos del Derecho Civil Patrimonial. Editorial Civitas, volume 2, fifth edition. Madrid 1996, page 127; Palacios Martines Eric y Núñez Sáenz Ismael. Teoría General de las Obligaciones. Jurista Editores, first edition, pages 47 and /38

14 5. The consideration is the specific action the debtor must complete to satisfy the creditor s interest, which makes it the subject matter of the obligation relationship inasmuch as it constitutes the projected action the future completion of which will allow the achievement of the intended goals that gave rise to the legal relationship 6. Pursuant to the Peruvian Civil Code, it can consist of an obligation to give (assets), to act (services), or not to act (avoiding acting in a given manner). 6. The interest or goal is generally the economic benefit the creditor expects from the delivery of the consideration owed by the debtor, though the relationship can, in some cases, answer to goals that are not necessarily lucrative or patrimonial in nature. Such is the case, for example, of a non-for-profit civil association obtaining a loan for the expansion and conditioning of facilities destined to strictly charitable services. 7. Establishing the creditor s interest is important for three reasons: a) the source of any obligation must be a lawful interest capable of being protected by the law; b) it is only once such interest is known that we can actually verify whether the consideration owed is conducive thereto; and c) in the event the consideration is not duly given, it is possible to assess the damages resulting from the failure to satisfy the interest previously known to the debtor As results from the previous paragraphs, even if we acknowledge the value of defining and using the concept of creditor s interest or goal for the emergence and effectiveness of the obligation relationship, we cannot assimilate that concept to the purpose of the obligation, which, as mentioned before, is the consideration owed, which is indeed essential in identifying a claim under section 1 of the General Bankruptcy Law. 9. In this case, the alleged purpose of the obligation (the obligation relationship), as stated by DRP, is none other than the interest or goal sought with the performance of the project s PAMA: the protection of the environment, which can indeed not be valued from an economic point of view and is clearly a public need, as it concerns the life, health and integrity of the population affected by the debtor s mining activities. 10. However, as mentioned above, the interest is entirely different from the consideration. Despite the fact that the interest may not be patrimonial in nature (as in this case), the structure of the obligation relationship, as defined above, demands that the consideration always be patrimonial in nature, accounting for the goal of the relationship. It is precisely in this kind of legal relationships that the patrimonial vehicle the parties or the law establish to satisfy the interests affected by the obligation relationship become essential. 6 7 Diez Picazo. Luis, Op. cit. page 236. Ibid., pages /38

15 15/ And it is precisely the identification of that patrimonial vehicle (consideration), as subject matter of the obligation relationship, that allows the creditor to lawfully use the mechanisms granted to him by the law to satisfy his credit interests in the event of breach by the debtor: once the consideration is clearly identified, the creditor may enforce it or, where this is not possible, demand an economic redress (compensation), which is only possible where the applicable consideration can be financially quantified. 12. Now that the elements comprising or related to the definition of claim under section 1 of the General Bankruptcy Law have been duly clarified, we must determine the source of the invoked claims, as resulting from the statements of the MEM. III.2 Source: The law or the contract? 13. During the proceedings and the oral hearing, the representative of the MEM has insisted in that, despite the fact that DRP s environmental obligations resulted from Supreme Decree No EM, the specific obligation to finance and construct the Sulfuric Acid Plant and Modification of the Copper Circuit of the La Oroya Metallurgical Complex project has its source in the privatization contract entered into by Centromín Perú and DRP in 1997, which contractualized the environmental obligations that were originally statutory in nature. 14. In turn, DRP holds that the environmental obligations resulting from Supreme Decree No EM and its regulations are only administrative in nature - they allow the imposition of penalties but in no case empower the State to collect the amount of any unmade investments as the result of the alleged breach of the PAMA. DRP further adds that, by executing the privatization contract, it merely undertook such obligations - initially undertaken by Centromín - but in no way created a financially quantifiable civil obligation. 15. Book VII of the Peruvian Civil Code (entitled Sources of Obligation) lists the following sources of legal obligation relationships: (i) Contracts. (ii) Business management relationships. (iii) Unjust enrichment. (iv) Unilateral promises. (v) Tortious liability. 16. It is this Division s opinion that the sources of civil obligations are not limited to the ones listed in the previous paragraph. Said list mentions those sources which, commonly, give rise to most obligation relationships -such as contracts and tortious liability-, but merely as an example, as it does not include the source which, though exceptionally, also indirectly gives rise to patrimonial obligations: the law. 17. It is perfectly possible to impose upon individuals, by means of a statutory provision, the obligation to deliver a patrimonial consideration -either to give, to act, or not to act- to the State

16 itself or to other individuals, as is the case, for example, with tax or child-support obligations. Note that in none of the aforementioned examples the obligation relationship is based on a consideration representing any kind of financial benefit to the debtor, but rather answers to public or social interests. 18. Supreme Decree No EM, governing the PAMA, and any successive regulations on the matter, are aimed at effectively protecting the environment against the high pollution risks resulting from the development of mining activities, by means of the implementation of measures aimed at controlling and preventing the environmental impacts thereof through the inclusion of any such techniques and processes as may be deemed adequate for the attainment of such goal Among the measures to be implemented for the achievement of the aforementioned goal, DRP s PAMA (originally undertaken by Centromín and later by the debtor by virtue of the privatization contract) included a series of investment and commissioning stages for the technologies required for the treatment of hazardous effluents and wastes generated by mining activities, the last of which stages consists in the financing and construction of the Sulfuric Acid Plant and Modification of the Copper Circuit of the La Oroya Metallurgical Complex project. 20. This Division agrees with DRP in that the source of the obligation resulting from the PAMA is the law regulating such environmental enhancement program, and not the privatization contract entered into between the bankrupt company and Centromín, since, through the latter, DRP merely undertook the preexisting environmental obligations originally undertaken by Centromín pursuant to Supreme Decree No EM. However, this does not alter the fact that the obligation to build the sulfuric acid treatment plant stems from the aforementioned Supreme Decree and any regulations and amendments thereof. 21. The MEM has noted that sections four and five of the privatization contract 9 undoubtedly create a financially quantifiable obligation to act to be fulfilled by DRP. Regarding the environmental commitments of the bankrupt company, said provisions state as follows: (...)SECTION FOUR INVESTMENT COMMITMENT 8 9 SUPREME DECREE No EM, ENVIRONMENTAL PROTECTION REGULATIONS FOR THE MINING AND METALLURGICAL INDUSTRY Section 3.- Purpose. The purpose of these regulations is: a) To set forth the prevention and control measures to be implemented in order to harmonize the development of mining and metallurgical activities, and the protection of the environment. b) To protect the environment against the risks resulting from any such dangerous agents as may be released by mining and metallurgical activities, preventing them from exceeding the maximum levels allowed. c) To encourage the adoption of new techniques and processes for the enhancement of the environment. See pages 178 to 215 of the case file. 16/38

17 17/ THE COMPANY (DRP) hereby undertakes to invest, within a term of five (5) years following the execution of this contract, the amount of USD 120,000, (one hundred and twenty million United States Dollars) for the achievement of the goals listed in section 4.5 hereof in its Metallurgical Complex of La Oroya, as described in the background of this contract. It is understood that THE COMPANY shall have a maximum of five (5) years to complete such investment and that no annual requirements have been agreed upon. (...) 4.5 For all purposes under this section, investment shall mean any and all amounts disbursed for: A) Feasibility studies, technical and/or financial studies, including environmental studies, and any disbursements necessary to fulfill THE COMPANY S obligations under the Environmental Management and Enhancement Program (Metaloroya s PAMA), described in section five, and any other environmental requirements resulting from the applicable laws. (...) SECTION FIVE COMPANY S LIABILITY ON ENVIRONMENTAL MATTERS (...) THE COMPANY hereby assumes liability only for the following environmental matters: 5.1 The fulfillment of the obligations resulting from the Metaloroya s PAMA and any such amendments as may be or have been issued by the competent authorities pursuant to the applicable laws in force, regarding the effluents, emissions and wastes generated by: A) THE COMPANY S smelting and refining facilities. B) THE COMPANY S service and lodging facilities. C) The zinc ferrite deposits existing as of the date of execution hereof, including all such zinc ferrites as may be added by THE COMPANY should it fail to return them within three (3) years following the date of execution hereof, or to pay the amount set forth in section 5.6. (...) (emphasis added). 22. The cited text shows that, regardless of the fact that the relevant sections expressly mention the obligations undertaken by DRP for the fulfillment of the PAMA, this does not mean that the source of such obligations is the privatization contract, or, even less, that Centromín or any State body other than the MEM who has executed said contract is entitled to collect the invoked amounts. 23. The sections cited above merely reflect the declaration whereby DRP acknowledges and defines its environmental obligations and liabilities as the new company in charge of the mining activities of the La Oroya Metallurgical Complex, which preexisted the privatization contract by law, for the purpose of differentiating them from other environmental obligations for which Centromín remained liable. 24. For that same reason, it is also impossible to hold, as claimed by DRP during the proceedings, that, in any event, the investment commitment resulting from section 4.1 of the privatization

18 contract - including the environmental issue - has been more than fulfilled because the total value of the company s investments since the commencement of its activities in the La Oroya Metallurgical Complex largely exceeds the aforementioned amount. At least when it comes to environmental commitments, the liquidation of the investment necessary for the fulfillment thereof cannot be subject to an amount established in the privatization contract - which was also generic, as it included not only environmental investments, but also all investments required for mining activities -, since certain laws and regulations governing the PAMA were issued precisely to facilitate the expansion of the originally estimated environmental investments in the event the parties discovered, during the performance of the program, that the environmental impact of mining activities justified the expansion of such investment and the extension of the term for their effective disbursement, which motivated the enactment of Supreme Decree No EM and its complementary provisions. 25. Now, the fact that the obligation to complete the project is not based on the privatization contract but on the law, in no way diminishes the importance DRP s declaration in sections four and five of the contract cited above has for the development of mining activities and the remaining commitments undertaken by said company under the privatization contract. As can be seen in the analysis to be made in the following sections, it is clear that, regardless of the distribution of liabilities before third parties that expressly results from the contract, the fulfillment of the environmental investment commitments undertaken by DRP within the stipulated terms was essential for the effective performance of the privatization contract itself by the debtor, and it is precisely because it constitutes an essential condition that it was mentioned in such instrument. 26. Pursuant to the document entitled Remainder Construction Project Plan: Modernization of the Copper Circuit - Copper Sulfuric Acid Plant, filed by DRP with the MEM s General Mining Office on January 27, , the completion of the project entailed DRP: (i) financing the project by the creation of an environmental trust depending on the company s income, and the delivery of letters of guaranty to ensure such financing in case of breach; and (ii) constructing and commissioning the project. 27. The aforementioned document was drafted based on the provisions of sections 2 and 3 of Law No , as well as the provisions of section 2 and subsequent sections of its Regulations, See pages 87 to 97 of the case file. LAW No , extending the term for the financing and completion of the sulfuric acid plant and Modification of the Copper Circuit of the La Oroya metallurgical complex project. Section 1.- Purpose of the law The purpose of this Law is to declare the decontamination of the environment in the city of La Oroya, department of Junin, a public need of preferred social interest. Section 2.- Extension of the project completion term The term for the financing and completion of the Sulfuric Acid Plant and Modification of the Copper Circuit of the La Oroya Metallurgical Complex Project is hereby extended, as suggested by the La Oroya Technical Commission, created 18/38