GGR Asia | 10 May 2016
Lao Holdings N.V. files three legal actions against Lao Gov’t
Locally established company seeks damages for holding company in impending Lao casino resort sale.
Lao Holdings N.V. has filed three separate legal actions ‘in response to specific illegal actions by the Government of Laos and its agents’ in regard to Lao Holdings’ investments in Laos – specifically related to the Savan Vegas Hotel and Casino, Ferry Terminal and Lao Bao Slot Clubs, according to a press release by the company.
Lao Holdings owned 80 per cent of the casino hotel complex through its 100 per cent stake in Sanum Investments Limited - a company established in Macau in 2005 and acquired by the holding company in 2012; with the remaining 20 per cent ownership of Savan under control of the Laos Government.
The first of the actions seeks to reopen a claim dating to 2012 for US$890 million, disputed under the arbitration rules of the International Centre for the Settlement of Investment Disputes (ICSID). Lao Holdings, according to the press release ‘brought that claim against Laos because the government had violated its investor agreements by assessing huge taxes on their investment, Savan Vegas, and was threatening to seize the hotel as payment.’
The ‘huge taxes’ mentioned included ‘the adoption of an overwhelmingly expropriatory 80 per cent tax on gaming revenues (90 per cent when coupled with Laos’s VAT rate), which would have applied exclusively to Claimant [Lao Holdings via Sanum] as all other similarly-situated gaming businesses were operated under flat tax agreements,’ states the notice of arbitration, ‘and would have put Savan Vegas casino out of business.’
The group agreed to suspend the arbitral claim against the government in exchange for ‘certain promises’ made between the ‘Government, Lao Holdings and Sanum, all of which the government breached,’ information provided by the company states. The ‘parties agreed that the Savan Vegas Casino and two slot clubs’ owned by Lao Holdings would be sold to a third party, ‘with Claimant [Lao Holdings] to receive its share of the proceeds,’ states the arbitration notice. This implied three key elements, according to information from the company: the three-province ‘gambling business monopoly’ extension by 50 years, a ‘fair and reasonable flat tax agreement’ for 50 years and the right for the new owner to develop the airport to attract international customers – all of which the company claims the government failed to guarantee, resulting in a potential sale ‘nowhere close to the maximum selling price guaranteed by the settlement’.
In addition to the above, the holding company claims that the government also stated that it would revive the tax claims it waived in the settlement in order to ensure that the investors received nothing for the sale of their property.
The second claim levelled by the holding company requested a new arbitral tribunal to investigate whether ‘Lao Government actions undertaken since the settlement was concluded in 2014 breach the Netherlands-Laos Treaty’, including the seizure of the casino by the government in April 2015, which the group states is a clear violation of international law and ‘breaches of the specific agreements that Laos made with these investors’ including the method of conduct on the sale, ‘failure to discontinue criminal and tax investigations’, ‘failure to forgive and waive all pre-settlement taxes and fees’ and ‘failure to negotiate in good faith’ a separate land concession and development, specified in the 2014 treaty.
The sale of the Savan Vegas Hotel and Casino and the two slot clubs is meant to be completed ‘in the coming month according to the reports and leads to the third of the three suits, filed in the United States District Court, against San Marco Capital Partners LLC ‘and its sole owner and employee Kelly Gass’ who according to information published by Lao Holdings, ‘since the Government seized Savan Vegas,’ has ‘operated it, and is currently conducting a bidding process to sell it, for the Government’s sole benefit,’ reads the report.
Gass received ‘nearly US$2 million of Sanum and Lao Holdings’ money’, having been hired by the ‘Lao Government in April 2015’ – the time of the alleged seizure of the casino (part of the second legal action leveled by Lao Holdings) ‘to operate and sell the gaming assets’, reads information provided by the holding company.
Under the original agreement, Sanum ‘shall have the right to continue to manage and operate the Gaming Assets in compliance with applicable laws through the completion of the Sale’ and that if a deadline of 10 months after the agreement – June 15, 2014 – was not reached or a memorandum of understanding was signed (providing an additional 90 days on the deadline) then ‘the Claimants and Laos shall have the right to appoint RMC Gaming Management [a gaming oversee – a full service casino management and consulting firm involved in other aspects of the 2014 dispute] or any other qualified gaming operator […] provided that such gaming operator shall have a fiduciary duty to each the Claimants and Laos,’ notes the deed of settlement.
According to the complaint filed by Sanum Investment Ltd. and Lao Holdings: ‘as demonstrated by the outrageously excessive compensation paid to Gass and San Marco – US$1.8 million per year and 6 per cent of the sale price of the Gaming Assets reasonably expected by Sanum to be in the hundreds of missions of dollars if the terms of the Settlement had been respected – it is now obvious that Gass was bought by the GOL [Government of Laos] to act solely in its interest. Worse, the GOL bought Gass with Plaintiffs’ [Sanum and Lao Holdings] money, seizing Sanum’s assets in Laos, and allowing Gass to pay herself from the income of the Casino, owned 80 per cent by Sanum,’ states the case. The case also claims that ‘under Gass’ management, the financial reporting regarding Savan Vegas is opaque at best’ with ‘millions of dollars of unexplained disbursements’ of which Sanum ‘receives nothing’.
The group claims ‘significant monetary harm’ which should be determined at trial but is ‘exceeding US$100 million’ as well as ’80 per cent of the net revenues of the Casino and 60 per cent of the net revenues of the Slot Clubs’ and ‘demand a jury trial’.
In regard to the three current court actions: ‘Sanum and Lao Holdings will continue to evaluate the situation and take actions as required to protect their interests,’ the group stated in a press release.