French Claims Against Peru

Facts

French nationals represented by the Banque de France et des Pays-Bas had presented various claims against the Peruvian Government. As no settlement was achieved, the Peruvian Government decided to pay the French creditors. In order to pay the creditors, Peru consented to set-off the sum of 25 million francs against the proceeds of a loan that it was negotiating with French financial establishments in 1910. The Peruvian Congress refused to approve the loan. On 31 December 1912, a Peruvian law was promulgated pursuant to which the Peruvian Government was authorized to submit, in agreement with the French Government, the claims of the French creditors to an arbitral tribunal in The Hague. However, it stated that in no case could the Peruvian Government consent to be bound to make a disbursement exceeding 25 million francs. The Government was likewise authorized to submit to the Arbitral Tribunal all  other French claims that might be brought and that appeared to be well founded. In conformity with this law, an arbitration agreement was signed on 2 February 1914.

The most important claim was that of the Dreyfus Brothers and Company. The claim had its origins in a contract concluded with the Peruvian Government in 1869 and modified by other contracts, and had been the subject of numerous disputes before the Peruvian courts. In 1880, Dreyfus Brothers and Company entrusted the decision of the questions in dispute to the Supreme Chief of the Republic, the dictator Nicolas de Pierola, who seized power in December 1879 after the disappearance of the legitimate government. Using his exceptional powers, President de Pierola undertook a settlement of the dispute and fixed the balance of debt to Dreyfus Brothers and Company at the sum of more than 3 million Pounds Sterling. A Peruvian Law of 26 October 1886 abrogated all internal governmental acts performed by Nicolas de Pierola.

In addition to principal, Dreyfus Brothers and Company claimed accrued interest.

Besides the claim of Dreyfus Brothers, the Tribunal examined five other claims raised by French creditors represented by the Banque de Paris et des Pays-Bas, as well as the claims of five other creditors.

Decision of the Arbitral Tribunal

The Tribunal considered that the amount due to Dreyfus Brothers had been legally and finally fixed by the decision of Nicolas de Pierola. The Tribunal reasoned that De Pierola was proclaimed Supreme Chief of the Republic by elected assemblies, reinforced by several plebiscites, that he exercised the legislative, executive and, in part, the judicial power; that on 28 July 1881, he voluntarily resigned these functions, but was immediately invested with the Presidency of the Republic by the National Assembly; that his Government was recognized, in particular by France, England, Great Britain, Germany and Belgium. Moreover, the Tribunal adopted the grounds of a decision of the High Court of Justice of England, of the Court of Appeals of Brussels, and of an award of the Franco-Chilean Arbitral Tribunal, all of which had held that the De Pierola Government represented, and was authorized to act on behalf of, the nation.

The Tribunal held that the Peruvian Law of 26 October 1886 could not be applied to the detriment of foreigners who had acted in good faith.

The Tribunal denied the claim for accrual of interest, because accrual can arise only from an express contractual stipulation, or from circumstances of fact, clearly evidencing the consent of the debtor to assume such an onerous obligation. This condition had not been met in this instance, but since the debt is due and payable, interest at 5% is payable from the due date of each of the sums composing it. 

 With regard to the claims of the other creditors represented by the Banque de Paris et des Pays-Bas, two of them had withdrawn their claims; to the other one, the Tribunal granted the sums that the Peruvian Government acknowledged that it owed. The Tribunal refused the accrual of interest. Consequently, the Peruvian Government had to pay to the French Government the sum of 25 million francs, which was apportioned among the creditors represented by the Bank in proportion to the sums due to them. As the Arbitration Agreement authorized the Tribunal to fix time periods for payment, the Tribunal ordered that payment be made in annual installments of 5 million francs.

With regard to the claims of the five creditors who were not represented by the Bank, two of the claims were rejected as not being justified either in law or in fact. One claim was not disputed. With respect to another claim, the Peruvian Government had only disputed the interest for the late payment claimed by the creditors. The Tribunal considered that this was unjustly disputed, the debt being due and payable and the Government having been given formal notice of it. 

The last claim was based on the arbitrary detention of a French citizen. The Tribunal fixed the amount of damages at 25,000 francs.

Case information