Laos law provides for security pursuant to law and security pursuant to contract. Security pursuant to law includes tax and wage obligations and takes priority over any security pursuant to contract. Security pursuant to contract can be of two kinds: 1) secured by movable assets; and 2) secured by immovable assets..
Movable Assets
Security can be obtained over a long list of movable assets including intellectual property, accounts receivable, and valuable papers. Security over movable assets must be pursuant to contract in which the collateral assets are clearly defined and identified. The contract must also include an agreement to repay a debt.
In general, security in movable assets is perfected by one of four methods: 1) registration of security, which takes place at the ministry of finance; 2) possession of collateral, which may be obtained voluntarily pursuant to contract; 3) control of collateral, also pursuant to contract; and 4) automatic perfection which occurs when the borrowed money is used to purchase the collateral or in case of disposition of the collateral by the debtor. Perfection continues in collateral notwithstanding “sale, lease, license, exchange, or other disposition,” except as may otherwise be agreed between the parties. Perfection continues until such time as the security contract is satisfied or, in the case of registration, five years renewable.
Enforcement of a security over a movable asset in case of default by the debtor may occur on a voluntary basis or through legal proceedings. If the creditor has possession or control of the collateral the creditor, after giving ten days notice to the debtor and any other creditors with an interest in the collateral, may dispose of the collateral as the creditor deems fit. If the creditor does not have possession or control of the collateral and if the debtor refuses to voluntarily relinquish possession or control the creditor may petition the court to enforce his rights against the debtor.
Immovable Assets
Security over immovable assets must be obtained by security contract. It is unclear whether a security contract must be signed by three witnesses and a notary or whether three witnesses are sufficient. Perfection of an interest in immovable property requires registration with the relevant land management authority. To register the creditor must have verified that the debtor owns title to the land and have obtained a notary verification of the security contract. After registration the creditor is responsible for notifying the land management authority when the security contract is terminated.
Enforcement of security interests in immovable property is first on a voluntary basis and then through legal proceedings. Although a default entitles the creditor to automatic entry and possession of the immovable property, if the debtor refuses to surrender the property the creditor may not use force to evict the debtor. If the creditor does obtain possession of the secured property he may dispose of the property after giving fifteen days notice to the debtor and other creditors who have an interest in the property. If the creditor is unable to secure possession of the property on a voluntary basis he may petition the court to enforce his rights against the debtor. There is no provision that addresses disposition of immovable property when the creditor is not a Laos national.
Last week Laos hosted the ASEP7 meeting of parliamentarians from Asia and Europe. It was a small meeting compared to what is anticipated come November when ASEM rolls into town, but it was a preview of some of the things we can expect in a month.
I live downtown. I like to live close to work. I live so close I can walk to and from work and everything I need to survive and enjoy life I can reach by way of my two feet. Usually this is a blessing and allows me freedom from insurance expenses, gas prices, and CO2 emissions. During ASEP7, however, it proved to be somewhat of a detriment.
For all intents and purposes, downtown Vientiane was under martial law for the last week.
Police were stationed every few hundred meters, curfews were in place and enforced, and the major hotels–which were hosting meetings or related meetings–erected metal detectors and were surrounded by military personnel. This last was particularly galling as my office is in one of those major hotels.
That said, I have some criticisms and some sympathies to express.
First, I have to wonder exactly what kind of picture the Government is trying to depict of Laos. Is Laos the kind of place where it requires martial law to make sure that visiting dignitaries are kept safe? In answer, no. Laos is not that kind of place. Most of the nationals don’t care and most of the expats don’t care either. And because of Laos’s strict control of immigration procedures, there is little to no danger of an international protest cropping up all of a sudden. I think the Government has taken the entirely wrong route, painting themselves as strongmen when they don’t have to. This is unfortunate.
While one couldn’t walk around downtown Vientiane without stumbling over a khaki clad officer with a gun, the police didn’t actually do much. Their primary purpose seemed to be to stop traffic so that the visiting dignitaries could be whisked through in the brand new Mercedes purchased for these meetings without having to wait for local traffic. This created traffic jams and increased travel times tremendously in the downtown area. Usually the reason for police escorted convoys traveling at high speeds is one of safety. Does the Government expect snipers to take pot shots at some poor bloke from Belgium? This is highly unlikely and the only remaining reason for the fuss and muss is so that Laos can impress the foreign dignitaries with their treatment.
They may have succeeded in accomplishing that, but they left the people on the ground underwhelmed and inconvenienced for a few status points that didn’t really matter all that much.
Now, it’s hard to complain too much when one compares the efforts taken by Laos to those taken by other developed countries. I was in Sydney, Australia in 2007 during the APEC meeting there. The Australian government at that time went so far as to fence off a good portion of the city and limit entry to only essential personnel. This did not impress the locals there either. Admittedly, there were actual protests in Sydney, and APEC has a history of attracting rather large gatherings of the indignant sort. But still, why the extremes?
In London they had Daleks guarding against unwanted interference, or at least that’s what the Facebook meme suggested.
I guess the Lao Government’s actions are not that out of proportion when one looks to the precautions taken by other countries. It’s just damned inconvenient when you’ve got to walk around sullen cops loitering on the street corner, chatting about nothing and doing even less.
Rice fields in Laos (Photo credit: Wikipedia)
In Laos, at least if the judge is observing protocol, a dispute that has been submitted to the court will, before it is litigated, be the subject of a court mediation. In most places such a mediation would be handled by personnel different from the judge who would try the case should mediation fail. Not in Laos.
In Laos, the judge who has been assigned to try the case is the same person who attempts first to mediate the case. Not only does this failure to separate the functions of the judiciary lead to concerns about confidentiality and predetermined bias when it comes time for trial, but it can also affect the outcome of the mediation itself.
In a landlord tenant dispute that arose some time ago, after the tenant checked out of the premises, the landlord sought a large sum of money from the tenant for damages the landlord claimed had been inflicted by the tenant on her furnishings and fixtures. From the outset it was questionable whether the damages had been there at the beginning of the tenancy or if they truly were the fault of the tenant.
Accusations flew. The landlord filed suit and the tenant counterclaimed. The judge set a date for mediation.
Come the mediation it quickly becomes a question of how much. After a few goes at negotiation the tenant reached the point where he was unwilling to go any higher, but at which point the landlord was not satisfied.
When it became apparent that the two parties were at a deadlock, the judge spoke up. He pointed out that the tenant had failed to note any damages prior to assuming the tenancy. He cited law and said that according to that law the tenant was liable for the damages. Finally, he said that if the case was not resolved that day the tenant would probably lose at trial.
After careful consideration of the judge’s words–the same judge who would try the case if it did go to trial–the tenant raised his offer and the case was settled.
This is just one example of how the lack of separation between the functions of mediator and judge can affect the outcome of a case in Laos.
(Photo credit: Wikipedia)
Under Laos contract law there are three situations in which one party can terminate a contract. I’ve already discussed the first two in my posts on anticipatory breach and nullity of a contract. The third method for cancellation of a contract is unilateral termination or modification in the case of a breach.
The language at issue is simple:
Article 37: If there is a breach of contract, the disadvantaged party may modify or terminate the contract unilaterally, unless the contracting parties have another agreement.
Article 33: A breach of contract means non-performance of contractual obligations, in whole or in part, or unreasonable performance of obligations by either contracting party, such as low quality performance of obligations, untimely performance, or performance not according to the location as specified by the contract.
Unfortunately, the definition of breach provided by the contract law is not as concrete as I would like it to be. It’s exemplary list allows for the inclusion of a host of other potential breaches and is open to free interpretation by a judge. This means that almost any breach imaginable (not just material breaches) could trigger the provisions of article 37.
Basically, if one party breaches the contract the non-breaching party is allowed to either modify the contract or terminate it without any requirement of proof. Not only can the contract be terminated for any minor breach, but the non-breaching party can, as a result, modify the contract without the approval of the breaching party. The extent and scope of such modification is undefined, leaving a non-breaching party the right to wade through the contract making changes willy-nilly without any recourse available to the breaching party.
This is a huge issue that every contract should address. If your contract does not address this issue, you need a new lawyer.
Luckily, there is a contractual remedy to this problem. The contract law provides this as a default and specifically allows the parties to come to some other arrangement. That said, come to some other arrangement. Do not let your contracts be subject to this default because the other party can and will take advantage of this, particularly if they’ve lawyered up.
We had some contracts prepared by a well known international accounting and legal firm with an office in Laos. Admittedly these contracts were prepared under the old 1990 contract law, but that is no excuse as this provision is not new to the 2008 update. In a recent dispute, the other party to the contract invented a number of minor breaches and then claimed that the contracts were terminated as a result of those breaches. We have filed litigation, but that’s a crapshoot in and of itself.
This only reiterates a point I’m fond of making. Yes you may have high powered international attorneys working for you, but when you’re dealing in Indochina, as in any other jurisdiction, you need to get local advice from someone who has been on the ground long enough to know the ins and outs of the law. Assuming that your international attorney will be able to draft a contract that is completely compliant with a foreign jurisdiction is ludicrous and a waste of your money. At the very least, have a local attorney vet your contracts before you sign them. That way you can protect yourself against some of the more egregious problems that can haunt a poorly drafted contract in jurisdictions known for treating contracts less as binding instruments and more as casual guidelines.
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I recently heard a lawyer say, “I’m not a believer in the less-is-more method of contract drafting.” He was referring to the tendency of national lawyers in this part of the world to draft simple contracts.
Now I’ve read this lawyer’s contracts and he certainly practices what he preaches. The problem is that he doesn’t modify his “American” drafting style at all for the Indochina context.
It’s a problem I’ve seen over and over in all three countries and it’s not limited to foreign attorneys. In an effort to perform at an “international” level, local and foreign attorneys both, will draft contracts filled with Western concepts.
The problem is, this is not the West and Western concepts do not always translate into Indochinese law.
Case in point. The lawyer who made the initial statement drafted a security contract in which he referred several times to the concept of liens. In fact, liens were a fairly central element of his contract. Only thing is, Laos doesn’t have liens. Laos law doesn’t even have a concept similar to liens.
While I agree that a contract should be as comprehensive as possible, it does need to be adapted to the jurisdiction. By referring so integrally to liens, this lawyer has created a document that is, one, unenforceable, and, two, bound to confuse any local judge or arbitrator who looks at it.
By including Western concepts in an Indochinese contract the lawyer, whether national or foreign, creates a situation where the parties to the contract will not be able to enforce their intentions.
How can a party enforce a lien in a country where liens don’t exist?
That’s why it’s so important for contracts to be reviewed by lawyers who are familiar with the local law. They can both adapt the concepts to fit the jurisdictions and, for those things the client can’t live without, explain the concept in the contract so that it has a slight chance of enforceability.
For instance, rather than relying on the Western term of art, explain that the lender has a right to all the fruits of a particular property, including the price of any sale that occurs, until such time as the loan is discharged. While still not a concept that properly exists under Laos law, it is much more likely to gain a sympathetic reading when the judge can at least understand what’s been written.
There are three situations in which a contract can be unilaterally terminated by one or the other party to the contract. The first situation was discussed last week in my post on anticipatory breach. That post discussed the situation where certain events are assumed to occur to one party thus allowing the other party to declare the first party in breach and thus terminate the contract.
The second situation in which a contract can be unilaterally terminated is by declaring the contract null.
A contract is considered null if there is an issue with formation, e.g., fraud, duress, incapacity, bad faith, and inequity. A contract is also considered null for public policy reasons if it:
- conflicts with state interests;
- conflicts with the articles of association of a party to the contract;
- is made in concealment;
- is made in an improper form.
A party can invoke nullity in any of the above situations. By successfully invoking nullity the contract is, in effect, cancelled. Any assets that have been applied to performance of the contract are to be returned to both parties. If the contract is declared null because it was entered into as a result of fraud or threats, the party having committed such acts shall have their assets confiscated by the state. If the contract is declared null for public policy reasons, such as a conflict with national interests, all of the assets of both parties will be confiscated by the state.
If a party other than the one invoking nullity objects it falls upon the party invoking nullity to file suit in the courts to declare the contract null. Of all three situations in which a party can, in essence, cancel a contract, this is the only one in which the onus falls upon the proactive party to pursue cancellation of the contract.This offers some protection to the non-proactive party, but still does not protect the party completely from abuse of the concept of nullity.
Nullity is difficult to guard against in the language of the contract. A contract is either null or it is not, though a contract can be null in part. This allows for the a basic severability clause to limit the damage of a partially null contract. In addition, the parties can prepare language in the representations to specifically declare that the contract was prepared in such a way that none of the triggers for nullity occurred. This is really the only way to build in any protection against a claim of nullity, and even this is subject to the fiat of the courts. It is all too easy, if arguing fraud or threat, to simply say that a representation was also subject to the impropriety. That means, unfortunately, that in practice there is little to do to prevent the possibility of the other party from claiming nullity, particularly as once the claim is made, to successfully defend against it requires the non-invoking party to prove a negative.
In law, agency is when one person or entity, the principal, authorizes another entity or person, the agent, to act on the principal’s behalf. In most countries, for the acts of an agent to bind the principal, there must have been an express authorization at some point. An individual cannot create an agency relationship simply by claiming to act on behalf of the principal.
There is a provision in Laos law that is in complete opposition to this idea. The provision only applies to companies, and imputes liability to the company by the nearly unilateral acts of a purported agent.
The idea works like this. An individual, who may or may not have any relation to the company, decides he wants to enter into contracts but he wants to do so as a company. He wants the prestige that incorporation brings without the cost of incorporation. So he mentions to the owner of the company that he wants to work for the company and that he wants to enter into some contracts for suppliers. The owner acknowledges the individual’s comments but doesn’t think anything of them. They’re drinking and it’s not polite to mix business with booze.
The next day, the individual enters into contracts using the company’s name. The company is now bound to observe the contracts.
This works because the law provides for an agency relationship to be formed by the negative actions of the company. Simply by knowing that the individual may be acting as an agent—there is no requirement that the knowledge be certain, only that there was some communication of the idea—the owner of the company obtains responsibility for the acts of the individual. He can only terminate the agency relationship by taking a positive action to intervene or to deny the agency relationship.
This is ass backwards thinking, but it’s the law.
Companies in Laos must therefore remain on their guard against brokers, middlemen, and other hangers on who would claim false authorization from the company.
For those who would say this situation couldn’t happen, this is a legitimate concern. I worked with a company in Cambodia who was using brokers to develop business opportunities. At one point they found out that one of the brokers was representing that he had the authorization of the company to enter into contracts and to negotiate deals. This was simply not the case. Luckily the company found out about it and put a stop to it before the broker had the chance to do anything binding. This problem of false agency is common in Indochina.
I have heard stories about similar things happening in both Laos and Vietnam. It is very possible that this situation could occur, and that a company could become responsible for commitments it knows nothing about. That’s why it is so important for the management of a company to guard the use of its name and to make noise if they find out that someone has misappropriated it.
Under Laos contract law there is a concept referred to as “Suspension of Contract Performance.” This concept is important to understand when entering into contracts with Laos parties because it is liable to abuse and subsequent litigation.
To explain.
A party to a contract may suspend performance of the contract if it has reason to believe that the other party to the contract is in one of the following situations:
- It is bankrupt or there has been a request filed with the court to pursue bankruptcy;
- There is a lack of reliability in performance such that the suspending party suspects the non-suspending party incapable of performance of the contract;
- Some other situation exists that causes the non-suspending party to be unable to perform the contract.
To properly suspend performance, the suspending party must send a written notice to the non-suspending party of their intention to suspend performance.
Once the non-suspending party has received this notice, they can either confirm or repudiate their circumstances. If they confirm their circumstances and indeed are incapable of performing the contract the suspending party may terminate the contract. If they repudiate the notice then the contract performance must resume.
Now, this becomes subject to abuse at a couple of different points. The first and most obvious point is that there are no time limits set for the notice, nor for repudiation. Due to recent experience I would suggest that this is almost a sure fire point of abuse. A party who wishes to terminate a contract and can’t come up with any other excuse to do so can claim anticipatory breach and require confirmation within a very short period of time. When the non-suspending party doesn’t respond in time, the suspending party can take this to mean confirmation rather than repudiation and thus terminate the contract. Unfortunately, such a ploy stands a good chance of being upheld by the courts.
The other area of abuse is one of brazenness. A party who claims anticipatory breach is technically responsible for damages caused to the non-suspending party if such wrongly suspended. A party could easily claim suspension and stop performance of the contract, assuming that the other party would not pursue litigation and even if they did, that the courts would either not grant an award in that party’s favor or not grant an award at all.
The best way to avoid either of these pitfalls is to define the specifics of anticipatory breach in the contract itself. Set out the specific instances in which one party may suspend the contract. Set out the time limits for confirmation or repudiation and the consequences for wrongful suspension. While this may not completely stymie abuse, it will increase your chances of obtaining a favorable award in court, and it might just chill the other side’s interest in pursuing suspension.
Remember, in Indochina you have to define what is not defined by law and, for the most part, that’s a lot.
Museum Kaysone Pomvihane, right next door to the new Convention Center, Vientiane, Laos (Photo credit: Wikipedia)
Laos is excited for the upcoming ASEP and ASEM meetings that will be hosted here in Vientiane. They have spent millions of dollars in building new villas, a new conference center, and in acquiring vehicles to ferry the representatives from one to the other. They are busy cleaning the streets and making sure everything is pristine, shiny, and safe for the arrival of the delegate.
We just found out that they have special plans for the population during ASEM in November, and possibly ASEP in October as well. To ensure the safety of all the delegates and to protect them from dangerous people, the Government is going to impose a curfew during the meeting.
At 10:30 every night all night clubs, bars, and any other form of noise is to be shut down. The city is to be quiet by 10:30 because it is Laos custom not to do anything, anywhere at night. Anyone who is out past the curfew, and possibly before the curfew (the translation wasn’t a very good one) without an ID card or passport will be detained for the remainder of the meeting. These measures are for the safety of the delegates.
While this raises serious questions about rights, both civil and human, the first thought that came to my mind when I heard this was that the delegates wouldn’t be able to go out on the town and experience Vientiane. What with them holed up in their meetings all day. If one of them wanted to go out for a drink, or maybe sing some karaoke, they’d be out of luck. No fun for you Mr. Delegate.
And though I could take this post in the direction of discussing certain rights issues—most of which I believe are evident—I happen to live in Laos and would like to continue living in Laos, thus I’m going to talk about another issue that this move on the part of the Laos authorities .
The dearth of high-end entertainment venues in Vientiane.
When a western high ranking official, a CEO, or other VIP comes to Vientiane there is virtually no place to take them after the meetings are over, at least not in public.
There are a couple of high end restaurants, sushi places that charge through the roof for their fish, and attract a haysoke (upper class) crowd. Fujiwara and Kiku, but that’s about it. Khong View—a restaurant a couple kilometers west of the city center and situated on the bank of the Mekong—is an upper-middle class kind of place. It’s where ministry employees, lawyers, and bankers go to show off their money. Otherwise, the high end restaurant scene is dominated by French places.
Once dinner is over there’s Spirit House, Wine 95, Jazzy Brick and a couple of small wine bars that cater to upper class westerners. The rest seem to attract a backpacker/sexpat kind of crowd. Forget clubbing. Like the rest of Indochina, Vientiane believes that a club is someplace where people go to stand around a table and drink expensive bottles of Johnnie Walker black label. A DJ plays some music, often talking over the set, and everyone stands around looking pretty. None of these clubs are designed for westerners, except perhaps Future Club which is packed with prostitutes, though still of the table service variety.
Perhaps that’s why most government officials host events at their own homes where they have petanque courts and luxurious couches and maids and servants. It’s much easier to fill an evening of conversation and drinking at home than trying to find a venue that will please an expat businessperson, at least a western one.
Now for the Asian businessperson there are more options. High end Chinese and Vietnamese restaurants offering delicious food and plenty of beverages all served by attractive young women in traditional—Chinese or Vietnamese—dress. Karaoke bars where a line of young women walk in and you can select which one you want to sit by your side as you drink whiskey and sing songs. But that’s another story for another day.
For now, suffice it to say that although Laos’ polices during the ASEM Summit are onerous and seemingly unfair, they won’t really cut off too much opportunity for the delegates as there’s not much for them to do anyway.
Before an executive agrees to become a director of a company it is important to understand the potential liabilities that will accrue to him by assuming such a position. In Laos, this liability may be unlimited, or it may be fairly limited.
According to the Law on Enterprises, the Contract of Incorporation (read charter) of the company must specify the liability of the directors. This liability may be unlimited but is not required to be so. While unlimited liability is at the discretion of each company, it is vital for the candidate director to read and understand the provisions of the company’s governing documents prior to assuming his responsibilities. Without doing so, he is potentially opening himself up to liabilities he may not have imagined. This is particularly true where the law has not been developed to identify specific liabilities and so a regulatory body such as a court may find many arbitrary reasons for imposing liability.
If the articles of incorporation of the company are silent on the issue of director’s liability, then the relevant guidance becomes the law itself. In Laos, the law limits liability of directors to four specific acts:
- The director acts outside the scope of the limited company’s business purpose specified in its bylaws or in the articles of association.
- The director breaches the bylaws of the limited company.
- The director exercises rights and performs duties beyond the assigned scope of power.
- The director fails to exercise assigned rights or perform assigned duties.
The commission of one of these acts does not immediately trigger civil liability. It is actually unclear exactly what the process is, but it seems to start within the company. If a director commits one of these acts, the company is responsible for applying measures against the director. The measures available seem to be the termination of the violating act and the imposition of a fine against the director. If the company fails to take any action, shareholders holding at least four percent of the shares of the company may file a notice with the company demanding action be taken. Only after the company has received the demand notice and failed to act may the shareholders turn to the courts to fine the director or to terminate the act of the director.
This seems to be the boundary of the director’s liability. He may, of course, be removed from his position, but the law does not impose any additional liability for financial repercussions of a director’s ultra vires acts. This limited liability, then, places the director in a position of relative immunity, allowing him to act with impunity, the only real check on his actions being removal by the shareholders. This failure to provide a mechanism for incremental shareholder control signals a weak corporate governance system that highly favors management, an issue for discussion at a later date.
A Giant Among Men 