In Government of the Lao People’s Democratic Republic v Lao Holdings NV [2024] SGHC(I) 9, the Singapore International Commercial Court considered and dismissed an application from Lao Holdings NV (Lao Holdings) to set aside an order to enforce an arbitral award

Lao Holdings and the Government of Laos have been embroiled in several longstanding disputes regarding the development and operation of casinos, hotels and clubs in the Lao People’s Democratic Republic

In one of the numerous judicial and arbitral proceedings between them, the parties went to arbitration before the International Centre for Settlement of Investment Disputes (ICSID) and under the ensuing award, Lao Holdings’ claims were dismissed. Under the award, Lao Holdings was also ordered to pay the Government of Laos over US$1.4 million in legal costs and expenses. After Lao Holdings unsuccessfully applied to set aside the award, the Government of Laos obtained an order granting it leave to enforce it. 

In this case, Lao Holdings then applied to set aside the enforcement order on the basis that the Government of Laos had, by failing to disclose a specific fee agreement with its lawyers, misled the arbitral tribunal into granting an excessive costs order.

The court dismissed Lao Holdings’ application on the grounds that: 

• The application was an abuse of process, as Lao Holdings had not raised this objection in its initial setting-aside application;
• In any event, the Government of Laos was under no obligation to disclose the fee agreement and it could not have been material to the costs order, given that it was calculated on a time basis; and 
• Even if disclosure had been required, non-disclosure of such a fee agreement would not be contrary to Singapore’s public policy.

An abuse of process

At the outset the court held that the application was an abuse of process because Lao Holdings had been aware of the fee agreement at issue when it particularised its arguments in its original setting-aside application. The objection in relation to this ground should have been brought in the original application, and having failed to do so, Lao Holdings was precluded from raising the argument in this application.

No obligation to disclose the fee agreement

As the court found, the fee agreement between the Government of Laos and its attorneys contained a condition that the Government would only have to pay its legal fees above a certain cap, if those fees could be recovered from Laos Holdings under the award made by the tribunal.

Lao Holdings argued that the terms of the fee agreement were material and should have been disclosed in order to not mislead the tribunal: Lao Holdings pleaded that without disclosure, the tribunal was not in a position to determine whether the amount additional to the fee cap was reasonable.

The court however disagreed, holding that the fee agreement in this case could not have been material to the award of costs and therefore, the Government of Laos was under no obligation to disclose the agreement. Justifying this finding of immateriality was the fact that the conditional additional amount (i.e. the amount above the fee cap) was calculated on a “time basis”, i.e. the actual time worked by the Government’s lawyers.

The court held that, where costs are calculated on a time basis, there is no obligation on a party to disclose the terms of a fee agreement, as this aligns with the underlying indemnity principle which applies to cost recovery.

The indemnity principle is that the costs being sought should not be more than the liability of the client to pay costs to its lawyers. That the costs ordered in the amount over the cap were calculated on a time basis meant that they were inherently limited to the actual value of the legal services rendered. A party therefore does not have to disclose its fee agreement with its lawyers if it is claiming an amount equal to or lower than the amount actually payable to its lawyers.

Public policy considerations

Finally, the court held that even if the Government of Laos had been under an obligation to disclose the fee agreement, non‑disclosure would not have met the high threshold to impugn an arbitral award on public policy grounds.

To meet that threshold, enforcement of the award would have to “shock the conscience” or be “clearly injurious to the public good or … wholly offensive to the ordinary reasonable and fully informed member of the public”, or violate “the forum’s most basic notion of morality and justice” (see for another recent example Sacofa Sdn Bhd v Super Sea Cable Networks Pte Ltd and SEAX Malaysia Sdn Bhd [2024] SGHC 54 – see Hogan Lovells alert Primacy of the seat – Singapore court refuses claimant’s set aside application in telecoms dispute). 

Takeaways

While there is no general obligation to disclose all outcome‑related fee arrangements, parties should be aware that certain fee structures should be disclosed in costs‑assessment phases, in order to ensure that any cost order aligns with the indemnity principle.

For example, contingency agreements – where a party agrees to pay a lawyer only in case sums are recovered from the other side, or to pay a percentage of those recovered sums – should be disclosed, so that the costs awarded would not exceed the amount actually payable under the contingency agreement, irrespective of the time spent on the case by the lawyer. Tribunals also usually take into account funding agreements in their assessment of costs. 

Many institutional rules – for example Article 44 of the 2024 HKIAC Administered Arbitration Rules and Article 24.l of SIAC’s 2017 Investment Arbitration Rules – either require the disclosure of the existence of any funding agreement and the identity of any third party funder in the Notice of Arbitration and Answer, or empower tribunals to order the disclosure of such funding agreements. The new draft SIAC Rules, which are due to be adopted soon, also propose to introduce a requirement to disclose any funding agreements in the Notice and Answer.

The decision also confirms that public policy arguments are an infertile ground for parties seeking to resist enforcement of arbitral awards. Finally, the decision reiterates the important rules that all potential grounds of objections to an award should be brought forward at the earliest opportunity: parties that raise new arguments belatedly – despite having been aware of them previously – will be precluded from raising those grounds.

Authored by Shi Jin Chia, Hugo Petit, and Paris Buti.