Laos has won over foreign investors in the latest arbitration of an international court case involving the casino industry.
The International Centre for the Settlement of Investment Disputes (ICSID) tribunal has dismissed a case lodged by Dutch firm Lao Holdings NV (LHNV) against the Lao government claiming that it breached the bilateral investment treaty between the Netherlands and Laos.
The tribunal said LHNV “failed to meet its burden of proof” for the case, ordering the company to pay to the Lao government about USD 481,623 for the expended portion of the government’s advances to ICSID.
What is LHNV?
LHNV is an Aruba-based company that was established by two American entrepreneurs, Mr. John Baldwin and Mr. Shawn Scott.
Aruba is an island and a constituent country of the Kingdom of the Netherlands in the southern Caribbean Sea. Aruba is often referred to as one of the offshore tax havens in the Caribbean.
Two businessmen established the firm in 2007 to make a foray into Laos’s casino industry.
Apart from LHNV, they also set up Sanum Investments (Sanum) in Macau with the same purpose.
According to ICSID, Mr. Baldwin and Mr. Scott used various corporate structures partnered with a Lao conglomerate, ST Holdings, in two casino projects and three slot machine clubs in Laos located near its border with Thailand.
One of the casinos, the Savan Vegas Hotel and Casino, was built and operated successfully, but the second casino, Paksong Vegas Casino was never built.
Within three years of the establishment of the partnership, there was a falling out between two businessmen and their local partner.
ST Holdings ceased cooperation with Sanum, initiated litigation against it and closure of Sanum out of Thanaleng, the most profitable of the slot clubs.
Mr. Baldwin testified that ST Holdings was closely connected to influential politicians in the Lao government, saying that ST Holdings “orchestrated a series of wrongful government acts against LHNV,” as quoted by ICSID.
This led to the result of driving LHNV out of Laos, and the wealth created by the investment and expertise of Mr. Baldwin and his associated companies was appropriated for the Lao government, Mr. Baldwin claimed.
Mr. Baldwin and his associates initiated arbitrations by LHNV under the bilateral investment treaties between Laos and the Netherlands and by Sanum pursuant to a similar investment treaty between Laos and Macau.
Although Sanum obtained an award against ST Holdings from the Singapore International Arbitration Centre for over USD 200 million, the ICSID tribunal said Sanum is not a claimant before this tribunal, and it does not purport to address its claims.
The tribunal added, however, it is evident that Mr. John Baldwin is involved in both LHNV and Sanum, and as he was the directing mind of both companies, and their principal witness, references will be made to Sanum from time to time as part of the background to the disposition of the LHNV claims.
What was Lao government’s position?
According to ICSID, the Lao government’s position was that it has been “dragged into” a business dispute between private parties, namely LHNV, Sanum and ST Holdings.
The Lao government said business efforts of LHNV and Sanum in Laos were characterized by bribery and corruption, adding that their claims ought to be dismissed because of the absence of “clean hands” as well as on the merits.
In response, Mr. Baldwin and his associates said the government failed to show any evidence that they tried to find the people who took the bribes.
Dismissing LHNV’s claims
The tribunal said it concluded that the LHNV claims must be dismissed, adding the dispute grew out of a commercial fight between private businesses.
It admitted that the Lao government became involved in aspects of the dispute as a regulator of the gambling business in Laos, as a shareholder in Sanum, and through its responsibility for the administration of justice in Laos.
However, the tribunal added that Mr. Baldwin and his associates failed to establish the facts necessary to ground liability in international law under the bilateral investment treaties between Laos and the Netherlands.
“No bribery and corruption”
The tribunal also said it found that the Lao government has not established bribery and corruption against Mr. Baldwin and his associates on “clear and convincing evidence”.
“While the government has not always behaved appropriately, and politics undoubtedly played a role in the worsening relations between the government and the claimants, LHNV has failed to demonstrate any legitimate expectations or establish other violations of the bilateral investment treaties including fair and equitable treatment,” the tribunal said.
“In all instances, LHNV has failed to meet its burden of proof,” it concluded.