LEBANON: An Introduction to Dispute Resolution

Introduction 

Over the past few years, Lebanon has faced several challenges, primarily stemming from the prolonged political deadlock and the severe financial crisis. Lebanon is still experiencing the lingering consequences of this economic crisis, from rapidly declining living standards, pervasive inflation, the steep depreciation of the national currency, and widespread corruption infiltrating every aspect of the society and the economy.

The presidential vacancy since October 2022, has raised concerns regarding the legitimacy of the Parliament’s legislative powers during the constitutional period for electing a new president. The resulting inaction by parliamentarians has resulted in a scarcity of new laws over the past year. Additionally, the economic crisis has deeply impacted the judicial system, with numerous judges opting to go on strike due to government inaction over essential healthcare needs and deteriorating working conditions. This strike has, in turn, paralysed the judicial system, resulting in a backlog of hundreds of unresolved cases.

Cases Against Lebanese Banks 

The cases against the Lebanese banks are still a hot topic in Lebanon given the lack of resolution to the financial crisis. In this regard, depositors continue to initiate legal actions against local banks, turning specifically to the judge of summary proceedings, seeking expedited relief and judgments ordering banks to pay in foreign currency or execute an international transfer. While the previous predominant position of the judges of summary proceedings was to rule against local banks, recent decisions, rendered by the court of appeals and the Court of Cassation, seem to adopt an opposing stance. In a recent decision, the Lebanese High Court considered that matters related to the transfer of funds abroad fall beyond the purview of the judges of summary proceedings. This conclusion is drawn from the fact that such disputes require thorough examination of the merits of the case.

Currency of Payment 

Amidst the escalating Lebanese financial crisis, the uncertainty surrounding the currency of payment in contracts involving foreign currencies persists. This issue takes centre stage in cross-border transactions, international agreements, and loans with banks. Lebanese courts find themselves in a state of disagreement on this crucial matter. The divergence extends to the mode of payment and the applicable exchange rate. Some courts advocate for settlement at the prevailing free market rate, currently standing at LBP 89,000. Alternatively, others argue for the adoption of the rate set by the SAYRAFA Platform, established by the Central Bank and fixed at LBP 85,500. Additionally, the recently introduced "official rate" set at LBP 15,000 is suggested as an alternative as well. Adding a layer of complexity to this already intricate situation, certain court decisions have taken a controversial stance, insisting on payment at the previously designated "official rate" of LBP 1,500 per USD. As of now, the Court of Cassation has not provided a definitive and clear answer to this contentious question.

Foreign Judgments Against Lebanese Banks 

Numerous lawsuits have been filed in foreign courts by customers against Lebanese banks contesting the imposed account restrictions, particularly on transfers outside Lebanon. The majority of these foreign judgments have favoured the depositors. It is yet to be determined whether the depositors will attempt to enforce these foreign judgments in Lebanon.

Anticipated Capital Controls Laws 

Numerous capital controls draft laws were circulated since 2022 to address the Lebanese financial crisis, primarily focusing on the implementation of temporary controls on banking operations. In March 2022, a draft law was approved by the Council of Ministers and was sent to Parliament. However, parliamentary discussions on this draft were postponed until the Government establishes a comprehensive economic reform plan. On January 16, 2023, joint parliamentary committees approved a revised version titled “Draft Framework Law for Restoring Financial Regularity in Lebanon”, closely resembling the original capital controls draft law. The final adoption of these draft laws and their accompanying regulations by Parliament is still pending. If a capital controls law is rendered, potential claims could be raised under bilateral investment treaties (BITs) for the violation of their provisions. Investors may consider challenging the “de facto” capital controls through recourse to investor-state arbitration, considering the impact such restrictions might have on businesses.

The Latest Reforms in Banking Secrecy Laws 

In October 2022, the Lebanese Parliament approved a new banking secrecy law (Law No. 306/2022 or New Law) as part of efforts to enhance anti-corruption measures. This New Law amended the previous Banking Secrecy Law dating back to 1956, which had inadvertently facilitated corruption by turning the Lebanese banking system into a safe haven for corrupt practices. The key amendments in the New Law include a prohibition on Lebanese banks from opening anonymous accounts, a reduction in the scope of banking secrecy, and the introduction of exceptions empowering judicial authorities and specific entities to request account information directly for investigations. These changes empower the judiciary to initiate proceedings, compelling banks to disclose relevant information for investigative purposes, making the New Law a crucial tool in the fight against corruption. Despite the applicability of Law No. 306/2022, its implementation remains uncertain, as no decisions have been made to apply its provisions. Practitioners in Lebanon are awaiting its enforcement by the courts and the issuance of implementing regulations.

Competition Law 

Lebanon recently introduced the new Competition Law (Law No. 281/2022), signaling a transformative shift in the regulatory landscape. This enactment has notably influenced certain provisions of the long-standing Commercial Representation Decree-Law No. 34 of 1967 (Decree-Law 34/67), particularly challenging the exclusivity feature safeguarded for over 50 years. While the Competition Law does not abolish Decree-Law 34/67, preserving the concept of exclusivity under Lebanese legislation, it introduces significant changes regarding the enforceability of these exclusivity rights concerning third parties. Under the new framework, a third party may not personally face adverse consequences resulting from the existence of an exclusivity clause or any breach thereof. For instance, purchasing products from a manufacturer/principal with an exclusive distributor in Lebanon may not lead to repercussions for the buyer. However, it is essential to note that the exclusivity clause remains valid and enforceable between the contracting parties. The introduction of Law No. 281/2022 gives rise to various intriguing questions about how the judiciary will navigate pending cases related to exclusive dealership agreements in this evolving legal landscape.

A Look at Investment Risks and Dispute Resolution in Lebanon’s Oil and Gas Sector

Since 2018, Lebanon has completed its first offshore licensing round and was awarded exploration and production agreements for offshore blocks four and nine. While a second round should be underway for offshore blocks one, two, five, eight and ten, potential investment disputes loom close. In the oil and gas sector, investment disputes pose a significant risk, leading foreign investors to consider investor-state arbitration for conflicts related to exploration, drilling, and production activities under Production-Sharing Agreements (PSAs). Determining whether foreign entities can access protections and dispute resolution mechanisms in international investment law becomes crucial, given that PSAs are governed by government-controlled laws. Successfully accessing these mechanisms hinges on factors such as investor nationality, the definition of investor and investment in the context of oil and gas, and the determination of whether assets and funds assigned to exploration and production activities qualify as treaty-protected investments. The outcome depends on whether the aforementioned conditions are satisfied, with the treaty language playing a pivotal role.

Legislative Developments 

In the midst of Lebanon’s ongoing political and financial crisis, the country faces a shortage of legislative activity. However, amidst this backdrop and despite these challenges, there have been active discussions surrounding the adoption or amendment of new acts or pieces of legislation. One notable development is the approval by the Administration and Justice Committee of a draft law on October 25, 2022. This draft aims to amend rules governing procedural defences in criminal proceedings. Striking a delicate balance, the initiative seeks to preserve crucial procedural defences, essential for upholding defence rights, while preventing their “abusive” misuse that could impede the justice process. Furthermore, the same Committee is currently in the final stages of closed-door discussions on a new draft media law. If approved by the general assembly, this law could significantly impact freedom of expression and freedom of press in Lebanon. This new media law is anticipated to replace the Publications Law of 1962 and the Audiovisual Law of 1994. The Committee is scheduled to discuss the remaining articles of the draft law in the coming weeks before a final vote takes place. Notably, the Committee will consider UNESCO’s suggested amendments and recommendations, notwithstanding the prior rejection of certain proposals. Among the proposed amendments are measures aimed at eliminating imprisonment penalties for charges of defamation and disparagement.

Surge in Insurance Disputes Over Unsettled Claims

A surge in insurance disputes has emerged in the aftermath of the Beirut Port explosion. The widespread destruction of homes and stores has given rise to conflicts between property owners and insurance companies, as the process of settling claims remains unresolved.