14 August 2018

Demystifying Laos’ International Arbitration Scene

The Lao People’s Democratic Republic (“Laos”) has been credited as one of East Asia’s fastest growing economies by the World Bank. Bounded to the north by China, to the northeast and east by Vietnam, to the south by Cambodia, to the west by Thailand, and to the northwest by Myanmar, Laos is a landlocked but resource-rich country that extends approximately 1050KM northeast to southeast.

In a recent ASEAN Investment Report 2017 it was revealed that foreign direct investment flows into Laos remained high and that its strategic position as a CLMV member state (CLMV being an acronym for Cambodia, Laos, Myanmar and Vietnam) resulted in a steady hike in foreign interest. Despite this increase in global awareness however, Laos’ framework for international dispute resolution remains relatively unused and underdeveloped.

As of today, there has been no public record of any foreign arbitration award which has successfully obtained certification from the Lao PDR Peoples’ Court (“Lao Court”). Major investors appear hesitant to designate Laos as their seat of international arbitration, and are often seen to opt for countries with a more well-established set of arbitration rules such as the Kuala Lumpur Regional Centre for Arbitration (now the Asian International Arbitration Centre or, “AIAC”) or the Singapore International Arbitration Centre (“SIAC”).

Laos’ Existing Framework for International Arbitration– A Deterrent to Users?

With Laos focusing on foreign investment, it is apt to consider the arbitration scene as in the event of any disputes, especially with foreign investors, the majority of agreements provide for arbitration as a method for dispute resolution. Do note however that not all foreign investment projects beget international disputes. Some arbitration may be domestic in nature, and for parties to ascertain whether a dispute is in fact subject to international commercial arbitration, they would have to meet certain legal criteria. It is for this reason that when considering a seat of international commercial arbitration, decisions are made based on one main factor: the national arbitration law of the seat.

For Laos, the national laws applicable to both domestic and international arbitration are:

  1. The Law on Resolution of Economic Disputes No. 06/NA (17 December 2010) (“Law on Resolution of Economic Disputes”) which sets out the principles, regulations and measures for economic dispute resolution through arbitration or mediation; and
  1. The Law on Civil Procedures No. 13/NA (4 July 2012) which governs the dispute resolution procedures for civil matters, including the recognition and enforceability of domestic and foreign arbitration awards.

Both these laws are not based on the United Nations Commission of International Trade Law 1985 (“UNCITRAL Model Law”) which is widely acknowledged as being the dominant law dealing with international commercial arbitration. The fact that Laos’ existing legal framework does not adopt UNCITRAL Model Law is a huge deterrent to parties, especially foreign parties that are unfamiliar with Laos’ laws. Additionally, Laos is not a party to the new Hague Convention on Choice of Court Agreements, which came into force in October 2015 (“Hague Convention 2015”). The Hague Convention 2015 has been considered as a rival to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), which Laos acceded to in June 1998, as it features provisions that promote international trade and investment as well as the enforcement of foreign judgments.

In recent years, Laos established the Centre of Economic Dispute Resolutions (“CEDR”) and the Office of Economic Dispute Resolution (“OEDR”), which operate at the central and provincial levels respectively, as mediation or arbitration centres for commercial disputes. The CEDR and OEDR are gaining the attention of local investors as an alternative dispute resolution mechanism compared to the court system, though majority of the matters are referred to mediation rather than arbitration. Note at present, CEDR does not have its own arbitral rules and operates under the provisions of Law on Resolution of Economic Disputes.

When it comes to investors, the majority prefer to designate international arbitration as the dispute resolution mechanism in a seat with well-established rules, such as the SIAC or the AIAC. This is because under the Law on Resolution of Economic Disputes, while foreign arbitration awards are recognised and enforced with the same status as that of local judgements, they are subjected to certification by the Lao Court on the following:

  1. parties to the arbitration are national of member countries to the New York Convention;
  2. the arbitration award does not violate Laos’ Constitution, laws and regulations relating to national security, social peace and environment;
  3. the party obliged to repay any debt under the arbitration award has properties, activities, shares, money or other assets in Laos; and
  4. the arbitration proceedings did not violate any procedural laws and regulations.

All that said, if the CEDR and OEDR are not considering plans to modify their marketing strategy already, they should definitely consider doing so now as many foreign investors will turn to arbitration first in the event of any disputes.

Our Thoughts on Developing Laos’ International Arbitration Scene

Being boxed in by other more mature ASEAN countries like Malaysia and Singapore, Laos’ international commercial arbitration scene certainly has a lot of hurdles to get through before it can realise the full potential of what the country has to offer. A 2015 international arbitration survey concluded that the three most important reasons given by parties for selecting a seat of arbitration were:

  • neutrality and impartiality of the local legal system;
  • national arbitration law; and
  • the country’s track record for enforcing agreements to arbitrate and arbitral awards.

The fact that Laos does not adopt the UNCITRAL Model Law is therefore the biggest contributor to the country’s underdeveloped international commercial arbitration scene. The UNCITRAL Model Law is a familiar face among all arbitration users the world over for its allusion to consistency and neutrality, as well as its liberal take on arbitral laws.

Thus, when looking into the future, the best way for Laos to encourage parties to utilise its arbitration institutions would be to adopt the UNCITRAL Model Law. Any departures from the UNCITRAL Model Law are likely to be viewed with suspicion by the international community.

A good dispute resolution framework is important to Laos becoming a holistic investment destination. Foreign investors need to be confident in the fact that the country they are looking to invest in has all the laws in place to ensure their risks are minimised.

If you have any questions or require any additional information, please contact Aparat Sanpibul or the ZICO Law partner you usually deal with.

This alert is for general information only and is not a substitute for legal advice.