Defenses based on alleged corruption-related activities by investors have become popular by States in investment arbitration. Given the seriousness of such accusations, one of the most important tasks for arbitral tribunals is undoubtedly to sort out legitimate defenses based on well-established facts of corruption from unfounded insinuations. Therefore, the approach undertaken by arbitral tribunals regarding the standard of proof is of paramount importance.
Recently, the standard of proof to apply was analyzed in an award rendered in the Lao Holdings v. Laos1 case by an arbitral tribunal composed of Ian Binnie (Chair), Bernard Hanotiau (appointed by the Claimant) and Brigitte Stern (appointed by the Respondent).
A parallel PCA arbitration had been initiated by Sanum Investments Limited under the UNCITRAL Rules and the China-Laos BIT.2 That case was ruled upon by an arbitral tribunal composed of Andrés Rigo Sureda (Chair), Bernard Hanotiau (appointed by the Claimant) and Professor Brigitte Stern (appointed by the Respondent). Although the tribunals reached similar decisions, the proceedings were subjected to joint hearings and the tribunals refer to the Claimants in the plural since the cases were factually intermingled, albeit not consolidated.3
The findings in the Lao Holdings v. Laos award will be discussed in the following paragraphs.
Factual Background of Lao Holdings v. Laos
The arbitration concerned an investment made in the gaming sector in Laos, namely the Savan Vegas Hotel, Casino Complex in Savannakhet Province, and three slot machine clubs. It was created by two U.S. nationals, John Baldwin and Shawn Scott, and channeled through two companies incorporated respectively in the Netherlands Antilles (Lao Holdings N.V.) and in Macau (Sanum Investments Limited).
Business activities were carried out in collaboration with a local entity named ST Holdings. Accusing local politicians of interfering with its relationship with the local partner, which had considerably deteriorated over time, in an attempt to drive Lao Holdings out of the country, the Claimant initiated ICSID arbitral proceedings against Laos under the Netherlands-Laos BIT.
Corruption Defense Raised by Laos and the Parties' Positions Regarding the Standard of Proof
One of Laos' main defenses consisted of the argument that the tribunal should "dismiss all claims because of the illegal activities in which the Claimants allegedly engaged, including bribery, embezzlement and...