Lao court disregards results from international arbitration seated in Macau

The Vientiane Capital People’s Court of the Lao People’s Democratic Republic (Laos) has rejected the results of a lengthy process of international arbitration which, in February this year, awarded compensation of around USD175 million (MOP1.41 billion) to the claimant, the Macau-based firm Sanum Investments Ltd (Sanum), over a commercial dispute in Laos.

The dispute centered on allegations of contractual breaches and conflicts over the terms of engagement between the two parties.

It was between the Macau-based firm and a Laos-based gaming and banking group (ST Groups Ltd, ST Vegas Co. Ltd, and Sithat Xaysoulivong) that developed Savan Vegas and a slot club in Vientiane at the border with Thailand.

After the decision from the tribunal appointed by the International Chamber of Commerce (ICC), which has an office in Macau, Sanum requested the Vientiane Capital People’s Court (Commercial Chamber), decide the recognition of the foreign arbitral award in Laos.

The court has jurisdiction as provided in Article 52 of 2010 Amended Law on Economic Dispute Resolution, Articles 363 and 364 of the 2012 Amended Law on Civil Procedure of Lao PDR, as well as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Arbitral Tribunal) (New York Convention), June 10, 1958, to which both Laos and Macau are parties.

The procedure related to the enforcement of the international dispute resolution center’s (arbitration center) decision because the respondents have their assets in Laos.

In an unprecedented decision, the Judges of the Vientiane Capital People’s Court, after hearing from the Laotian legal representative, rejected the decision.

The court claimed the dispute had already been decided by Lao courts in the past and that the “decisions and judgments were final.”

The ST Group and its representatives said the request from the Sanum side was “groundless and the Arbitral Award of the International Arbitration Centre of the ICC, Macau, China PRC No. 25100/PTA/XZG, dated 16 October 2023, violated social security and public order, territory, [and was] contrary to the laws and the Constitution of Lao PDR.”

The court said the decision reached by the ICC Tribunal, which is located in Macau and based on the rules set by the New York Convention, of which Laos is also part, “contravene[s] the laws and the Constitution of Lao PDR.”

Its final decision was that the request from the Macau company’s legal representatives for the execution of the ruling of the ICC were not “reasonable enough” and ordered the request to be dismissed in whole.

The ruling not only contradicts the decision of the ICC and its conventions but also potentially jeopardizes the position of Laos in attracting or securing foreign investment because the local courts seem to be claiming the decisions of international bodies do not apply to their jurisdiction and only the decisions of Laotian courts are valid.

This would be a breach by Laos towards Macau of an international convention to which both countries subscribe.

As the Times has previously reported, the ICC decision was a significant milestone for Macau becoming an important place for international arbitration dispute cases.

It also marked a significant moment in the application of Macau’s revised arbitration law of 2019, under which this case was decided.

The expert opinion

American lawyer Gary B. Born was asked about the refusal of recognition of an arbitral award under the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

Born is the chair of the International Arbitration and International Litigation practices at the international law firm Wilmer Cutler Pickering Hale and Dorr LLP and the author of commentaries, casebooks, and other works on international arbitration and litigation.

He said he was asked to address the following: “Whether the [Laos] Court had basis under Article V(1)(a) of the New York Convention to refuse recognition of the Award for the invalidity of the arbitration agreement under the law of Lao PDR,” or “Whether the [Laos] Court had basis under Article V(2)(b) of the New York Convention to refuse recognition of the Award on the basis of the public policy of Lao PDR.”

“In addressing these issues, I reach the following conclusions,” Born noted.

First, Article V(1)(a) of the New York Convention requires the application of the law of the arbitration agreement in determining the validity of that agreement, in this case, the law of Macau (see Section II.A below).”

“In my opinion, the ICC Tribunal correctly held that the Arbitration Agreement is valid under Macau law.”

“Second, the New York Convention imposes strict international limits on the application of the public policy exception under Article V(2)(b) of the New York Convention, which exclude principles of res judicata (see Section II.B below).”

“It is well-settled that the New York Convention imposes a presumptive mandatory obligation to recognize international arbitral awards,” said Born.

“The text of the New York Convention clearly imposes a mandatory rule requiring contracting states to recognize and enforce foreign and non-domestic awards, except only upon a showing that one of the exceptions under Article V applies.”

“Article III provides that ‘[e]ach contracting state shall recognize arbitral awards as binding’ and enforce awards in accordance with the Convention and its national procedural rules.”

“Article V provides that ‘recognition and enforcement of the award may be refused …only if’ one of the specified exceptions applies.”

Born noted that “In its judgment, the [Laos] Court acknowledged that the Arbitration Agreement – contained in Clause 2(10) of the Master Agreement – entitled any one of the parties to resubmit a dispute to international arbitration even ‘after mediation and decisions made by Lao courts, if one of the parties is unsatisfied with the results of the case proceedings.’”

“However, according to the Court, such agreement ‘is an invalid agreement in accordance with the 2012 Amended Law on Civil Procedure of Lao PDR,’ as well as the ‘Constitution of Lao PDR’ because the underlying disputes ‘concerning the Master Agreement dated 30 May 2007, and Joint Venture Agreement for Slot Club at Lao-Thai Friendship Bridge, Thanaleng Border, dated 4 October 2008’ ‘were already settled and decided by the courts of Lao PDR’,” a fact that the same expert noted was “contrary to the express provisions of the New York Convention.”

Born concluded that for the reasons mentioned and others, related to the justification given by the Laos court making use of the local law and not the Macau law, where the ICC Arbitration is located, “the [Laotian] Court erred in applying the law of Lao PDR in determining the validity of the Arbitration Agreement and in refusing to recognize the Award on the grounds that the Arbitration Agreement was invalid under the law of Lao PDR.”

Good arbitration vs

Bad legal system

While the arbitration panel that delivered the unanimous decision on the merits in favor of Sanum against the ST Group and its affiliates comprised a trio of internationally renowned arbitrators with extensive expertise drawn from diverse legal traditions and jurisdictions, the enforcement of the ICC decision seems to clash with Laos’ singular legal system, the decisions of which have been the subject of many comments in the past.

According to academic research published by the University of Melbourne in the “Southeast Asian Legal Research Guide: Introduction to Lao PDR & its Legal System,” the “Laotian legal system is not determined by a democratic parliament or by legal precedent but by the arbitrary rule of Laos’ single party. The main source of law is legislation. There are two types of legislation: legislation of general application and legislation of specific application.”

Nicholas C Auclair in “Civil Liberties and Human Rights” has extensively researched Laos in an article titled “A country study: Laos.”

He noted “Laos’ criminal justice system is controlled by the party and the government. There are few legal restraints on government actions, including arrests, which are often arbitrary in nature.”

Auclair noted nonetheless that “there is a system for prosecuting criminal behavior. Common crimes are evaluated at the local village level. More serious cases, especially politically sensitive ones, are referred to higher authorities. Tribunals operate at district and provincial levels with judges appointed by the government.”

The co-arbitrators on the Macau tribunal included Robert H. Smit, V.K. Rajah SC, and Vera van Houtte, who presided.

Since Laos has also signed several bilateral investment treaties (BITs) with other jurisdictions, including China, this type of agreement between the two countries regarding the promotion and protection of investments from respective countries in each other’s territory might be used, in this case, to a court action this time against Laos for failing to protect such interests included in the BITs provisions.