Tribunal revives suspended ICSID arbitration against Laos following “material breach” of settlement agreement

On 15 December 2017, an ICSID tribunal decided that Laos had “materially breached” a settlement agreement relating to its treaty dispute with the Dutch claimant, Lao Holdings N.V.  The “material breach” of the settlement agreement permitted the tribunal to “revive” the previously-suspended ICSID arbitration between the parties.

On 14 August 2012, Lao Holdings initiated an ICSID arbitration against Laos under the Laos-Netherlands BIT.  A subsidiary of the claimant, Sanum Investments Limited, separately initiated UNCITRAL arbitration against Laos under the China-Laos BIT.  In June 2014, the parties entered into a settlement agreement with respect to their treaty dispute.  At the time, the ICSID tribunal issued a consent order suspending the arbitration pending performance of the parties’ obligations under the settlement agreement.

Lao Holdings and Sanum later alleged that Laos had “materially breached” the settlement agreement which,  according to its terms, allowed the ICSID tribunal to “revive” the arbitration.  On 4 July 2014, Lao Holdings filed an application with the ICSID tribunal to revive the arbitration, which was rejected (due to the tribunal finding that Laos had not committed a “material breach”).

On 26 April 2016, Lao Holdings submitted a second “material breach application”.  The second time around, the ICSID tribunal determined, inter alia, that: (1) Laos’ imposition of a percentage-based tax (rather than flat lump sum tax) amounted to a material breach of the settlement agreement; and (2) Laos’ failure to discontinue criminal investigations against the claimants constituted a material breach of the agreement.  On that basis, the tribunal decided that the arbitration “is revived”.  The decision is available here.