LEBANON: An Introduction to Dispute Resolution

Since late 2019, the legal landscape in Lebanon has been dominated by numerous issues arising from corruption, nationwide protests, economic and financial crisis, the COVID-19 pandemic, the Beirut port explosion in 2020, and political instability. Efforts are being made by the Lebanese Parliament to address these predicaments as well as to implement reforms critically needed to improve the political and economic situation, all of which could impact pending and future cases before courts, as will be further discussed below.

Cases against Lebanese Banks 

After the protests in 2019, banks started implementing severe restrictions on cash withdrawals, money transfers, and foreign currency transactions, known as de facto capital controls. Considering that these measures were adopted without an explicit legislative framework, Lebanese courts have witnessed a significant surge in disputes between depositors and local banks challenging the unlawful restrictions.

Depositors have resorted to numerous legal routes, whether locally or internationally, in an attempt to, inter alia, retrieve their money, affect international transfers, or safeguard their deposits. Such routes have included the following:

– Filing an action before the judge of summary proceedings (JSP) in an attempt to obtain urgent relief on an expedited basis. Whilst the majority of the JSPs ruled against local banks, most of these rulings were challenged and remain pending before courts of appeal or the Court of Cassation.

– Filing actions against Lebanese banks for cessation of payment, which can result in bankruptcy proceedings. In this context, the Lebanese Bar Association initiated a lawsuit against the First National Bank.

– Filing lawsuits before foreign courts challenging the restrictions imposed by these banks on their accounts. Most of the foreign judgments were issued in favour of the depositors. This was the case of Manoukian v Bank Audi S.A.L. and Société Générale de Banque Au Liban S.A.L and of Bitar v Bank of Beirut S.A.L., where the English High Court of Justice decided in favour of the depositors. However, it remains to be seen whether and how the depositors will seek to enforce these foreign judgments in Lebanon.

From experience, banks that face claims by their customers have been retaliating by attempting to close customers’ accounts and asking their customers to collect their funds via a banker’s cheque deposited with the notary public pursuant to a tender and deposit procedure set out under the Lebanese Code of Civil Procedures.

Many cases against banks remain pending before Lebanese courts. The fate of these cases may be affected by any new legislation that may be issued formally regulating controls on banking operations. During the past two years, several capital control draft laws have been prepared. If issued, a capital controls law might close all depositors’ judicial attempts to retrieve their deposits.

Other draft laws which might also impact cases between depositors and banks include draft laws on restructuring Lebanese banks.

Future Arbitration Disputes 

Considering the impact of de facto capital controls on business, the Lebanese State might find itself subject to investor-state arbitration under bilateral investment treaties (BITs), with foreign investors potentially claiming the violation of free transfer of funds, fair and equitable treatment and full protection and security provisions. It remains to be seen whether foreign investors would resort to this dispute resolution mechanism and whether they will succeed.

Foreign Currency Exchange and Enforcement of Judicial Judgments

Since 2019, and as a result of the deteriorating economic and financial situation, an array of exchange rates for foreign currencies have emerged (eg, the official rate, the “lollar”, the Central Bank’s rate on the Sayrafa platform, and the parallel market rate). On 1 February 2023, it was reported than a new official rate of LBP15,000/USD1 would be adopted, scrapping the rate of LBP1,507.5/USD1 at which the currency was pegged for decades before the collapse.

Consequently, cases before courts disputing, for instance, the currency and means of payment, the settlement of debts, or the relevant foreign exchange rate, have surged The fluctuation in exchange rates has also been reflected in court judgments and the enforcement thereof. Some judges remained in favour of adopting the official exchange rate in spite of the critical devaluation of the Lebanese pound, whilst others started applying other exchange rates (eg, those on the Sayrafa platform or in the parallel market) in a more favourable move to creditors. Such inconsistent practice is expected to remain, pending the issuance of a decision from the Court of Cassation, or issuance of laws addressing the contentious issues around the national currency.

Beirut Port Explosion 

On 4 August 2020, an explosion in Beirut port led to over 200 deaths, over 7,000 injuries, and massive property damage. The government referred the “Beirut Port Explosion” file to the Higher Judicial Council. Fears remain that political impunity and corruption will prevent a fair trial and justice being done, especially after numerous blockages of the national investigation. Currently, the investigation has been suspended, preventing the leading investigator from proceeding with his investigation or pressing charges.

The stalled investigation also leaves victims without compensation as many Lebanese insurance companies are refusing to compensate damages (resulting from injury claims, property claims, supply chain and disruption of business claims), pending the investigation’s result and a determination as to whether the explosion was accidental or not. Thus, the liability for the losses remains unclear. It is important to note that provisions under Lebanese law should be taken into account when filing insurance claims (eg, time bars and conditions precedent).

Suspension of Time limits 

In an effort to address the implications of the crisis and the COVID-19 outbreak for legal proceedings and contractual obligations, the Lebanese Parliament issued laws providing for consecutive suspension of legal, judicial and contractual time limits (from 18 October 2019 until 31 March 2021). Several practical questions have been raised and were points of contention when implementing the suspension and calculating the time limits, such as (i) the starting and ending dates and periods between renewals, and (ii) the scope of application of each consecutive law of renewal. Nonetheless, it is anticipated that the various suspensions will be felt for years to come.

Strengthening the Fight against Corruption 

In recent years, efforts have been made to strengthen anti-corruption safeguards. For instance, the Lebanese Parliament has enacted a law in the fight against corruption in the public sector: Law No 175 dated 8 May 2020. This law establishes a National Anti-Corruption Commission as an independent authority for combatting corruption within the public sector and overseeing the application of current and future anti-corruption laws. Amongst other things, the Commission is responsible for investigating cases and referring them to the public prosecution authorities, whereas these cases were previously initiated by an investigating judge. Given its recent establishment, it remains to be seen how the Commission will carry out its duties and how the litigation landscape will change in cases involving corruption.

Competition Law 

Lebanon has enacted its first, long-awaited Competition Law (Law No 281), which was published in the Official Gazette on 17 March 2022. If effectively enforced, this law could contribute to the resurgence of the Lebanese economy given several of the new features it introduces to competition regulation in Lebanon. For instance, this new Competition Law ends exclusive dealerships and exclusive commercial representation, which have long dominated the Lebanese market. In this regard, it remains to be seen how courts will deal with the many cases pending before them concerning actions filed by exclusive dealers seeking to protect their rights.

The Competition Law also establishes the National Competition Commission, which is an independent legal entity under the tutelage of the Ministry of Economy and Trade. This Commission is vested with overseeing the proper functioning of the markets, promoting free competition, and controlling and evaluating restrictive businesses. It is also empowered with the exclusive right to decide on competition matters.