It ain’t over until the final roll of the dice

Investments in Laos lead to dispute

Lao Holdings NV (Dutch incorporated) and its Macau subsidiary (together, “the investors”) had gaming investments in Laos. The investors had entered into commercial arrangements with a Laotian conglomerate in respect of its investments.

The investors filed treaty claims under the Laos-Netherlands BIT and the Laos-PRC BIT in August 2012 respectively. They accused Laos of reneging on its earlier commitments and embarking on a series of arbitrary government actions in cahoots with the Laotian conglomerate. The two, separate arbitrations were governed by the ICSID Additional Facility Rules, 2006 and the UNCITRAL Rules, 2010 respectively, with Singapore designated as the seat of the arbitration.

Laos argued that the claims should be dismissed as there was evidence of illegal conduct by the investors, including bribery, corruption and embezzlement. The two arbitrations were not formally consolidated, but they were largely conducted in parallel and involved joint hearings. 

Un-freezing the arbitral record

Two days before the merits hearings in the arbitrations, the investors and Laos entered into a settlement and the arbitrations were suspended. There were two key provisions in the Settlement Deed:

• The arbitrations might be revived if Laos committed a material breach of the settlement.

• If the arbitrations were revived, no party would be permitted to add any new claims/evidence or claim any additional relief not already sought in the proceedings.

The arbitrations were revived three years later, due to Laos’ material breaches. Laos subsequently applied to the tribunals to admit additional evidence in support of its allegations of corruption. The additional evidence included new documentary evidence and sworn testimony. 

While interpreting the scope and effect of the restriction with respect to evidentiary matters in the Settlement Deed, the tribunals confirmed that they would normally defer to the parties’ agreement. However they said that they retained a “residual discretion” to admit fresh material if there were “compelling circumstances”. 

The tribunals held that corruption issues are of overriding importance to the rule of law and the integrity of the arbitration process. As such, they should have the benefit of all relevant documents to bottom out the allegations. The tribunals admitted most of the new evidence to the record based on these compelling circumstances. The tribunals also permitted the investors to add further evidence to rebut Laos’ new evidence.

In their final awards, the tribunals dismissed the investors’ claims, including because of the investors’ manifest bad faith. They found that the investors had engaged in corruption and manipulation of Laotian officials. 

Challenges to awards are rejected by the Singapore courts

The investors applied to the Singapore International Commercial Court (SICC) to set aside the two awards. The SICC dismissed the set aside applications. The investors then appealed to the Singapore Court of Appeal on the basis that: (i) the tribunals did not follow the arbitral procedure agreed between the parties when they un-froze the arbitral record to admit fresh evidence; and (ii) the investors were not given an opportunity to be heard on the determinations made in the final awards. Both grounds were rejected.

As to the first ground, the Court held that the issue relating to the admission of fresh evidence centred on the construction of a restrictive provision in the Settlement Deed (in particular, its scope and effect), which was in the domain of the arbitral tribunal. The court of the seat would not interfere with a tribunal’s finding on the construction of a contract unless its interpretation is “simply not open on any view of the text”. 

The Court was of the view that the tribunal’s construction of the Settlement Deed to admit fresh evidence in compelling circumstances was not only possible, but was also the correct one. This was because the BITs and the relevant arbitral rules gave a discretionary power to the tribunal to regulate the procedure and evidence presented in the arbitrations, notwithstanding the restrictions agreed by the parties in the Settlement Deed.

Commentary

Party autonomy is a central feature of the arbitration process. The ability of the parties to tailor an appropriate procedure for their disputes is one of the key reasons of its success. The Court of Appeal’s decision recognises clear limits to this principle in practice. In essence, parties cannot agree to close the arbitral record as a tribunal has a residual discretion to review and admit fresh evidence, particularly where it relates to corruption.

The decision walks a tight rope between balancing principles of party autonomy with the legitimacy of the arbitral process. It almost equates the role of a BIT tribunal to that of a national court having a pro-active role and duty to review evidence of corruption. In fact, the SICC went so far as to suggest that an agreement between the parties can never prevent a tribunal from reviewing fresh evidence of corruption. 

Judgment: Lao Holdings and Sanum v Laos