Topic: Trends and Developments
I. INTRODUCTION
Lebanon continues to suffer from a prolonged political deadlock and deepening financial collapse, both of which have severely affected its judicial institutions. In this context, progress in the shape of reforms has been protracted.
Additionally, numerous judges and court clerks have gone on strike in recent years, protesting their deteriorating working conditions, which has effectively paralysed the judicial system. As a result, thousands of cases remain unresolved, further eroding public trust in a system that is supposed to ensure justice and uphold the rule of law.
The year 2024 brought another challenge to judicial institutions – the war affecting Lebanon and the region, which only ended with a ceasefire in late November.
As a result, Lebanon saw few changes year on year. As in 2023, parliament enacted few new laws or reforms, leaving the country’s legal and judicial landscape largely stagnant amid worsening economic and political challenges.
In this context, this is a brief overview of the major legal developments in the country, beginning with the ongoing banking disputes and continuing to the newly enacted laws and regulations, despite the challenging circumstances.
The October 2019 financial crisis continues to cast a long shadow over Lebanon, and the courts are actively addressing its repercussions. In essence, among the various legal matters being considered by Lebanese courts, cases brought against Lebanese banks remain a prominent topic, as further outlined below.
II. Cases Against Lebanese Banks and Possible Retaliatory Measures
Depositors continue to initiate legal actions, often turning to summary proceedings for expedited relief, seeking judgments for payments in foreign currency or international wire transfers.
Previously, judges in summary proceedings tended to rule in favour of depositors, but recent decisions from the Court of Cassation have shifted this stance on jurisdictional grounds. In essence, the Court of Cassation has determined that issues related to the transfer of funds abroad exceed the summary judges’ jurisdiction, as these disputes require a thorough examination of the merits.
This new position limits depositors’ options for asserting their rights to requesting a “prompt” transfer of funds overseas.
As a result, depositors have sought alternative actions, including:
- filing an action on the merits against the bank for similar relief;
- submitting an ex parte provisional seizure application against the bank to secure its assets in Lebanon (although provisional seizure must be followed by a merits action to maintain seizure); and
- initiating proceedings against Lebanese banks for cessation of payment, which could lead to insolvency and bankruptcy proceedings.
In response to depositors’ claims, banks often attempt to close accounts and request that depositors collect their funds via a banker’s cheque deposited with a notary public, following the tender and deposit procedure outlined in the Lebanese Code of Civil Procedures (LCCP). However, as Lebanese courts have recently ruled that banker’s cheques are no longer considered valid payment methods, depositors typically reject the bank’s offer to pay by cheque, prompting the bank to file a validation action to confirm the validity of its offer.
III. Insolvency claims brought against Lebanese Banks
Of particular interest are the actions filed by depositors seeking the insolvency of Lebanese banks.
Unable to retrieve their funds from banks, depositors are now turning to the insolvency courts. They allege that the banks’ failure to pay the requested deposits in cash or to accept international transfer of funds constitutes a “cessation of payments” situation, which should trigger insolvency proceedings.
However, the insolvency courts are reluctant to declare the cessation of payments of any Lebanese bank. From the decisions available, it appears that the primary concern is that such declarations could lead to a chain of insolvencies, further destabilising the national economy.
In essence, the insolvency court’s reasons are as follows:
- Economic stability – Declaring any bank insolvent could undermine public credit and harm the economy, as the law aims to safeguard the banking system’s pillars.
- The interconnectedness of banks – The liquidity position of banks is closely tied to the Central Bank and the Lebanese state, making the outcome of insolvency declarations unpredictable.
- The limitations of existing laws – Law No 2 of 1967, dated 16 January 1967, and its implementing decree No 7739 dated 3 July 1967 on bankruptcy (“Law No 2/67”), which was designed to protect the interests of depositors and the banking system, is not suited to address Lebanon’s current widespread financial crisis.
This stance aligns with the Lebanese Central Bank’s reluctance to pursue insolvency proceedings against banks (outlined on several occasions), despite the knowledge that they are preventing depositors from accessing their funds.
Nonetheless, the possibility of bank insolvency remains, particularly if depositors secure enforceable judgments. The insolvency court’s decisions are subject to appeal, and changes in the Central Bank’s policies could also influence future outcomes.
IV. Foreign judgments against Lebanese banks
In recent years, numerous lawsuits have been filed by Lebanese depositors against Lebanese banks in foreign courts, including those in the United States, England and France, challenging the illegal capital controls imposed by Lebanese banks on their accounts. A recent illustration in this regard is the class action initiated, in April 2024, in the United States against the Lebanese Central Bank, its former governor, and other banks and auditing firms, alleging the involvement of the aforementioned parties in a fraudulent scheme that misled depositors about the banks’ financial health.
It remains uncertain whether depositors will manage to enforce these foreign judgments in Lebanon, as such actions could further destabilise the national economy and constitute a violation of Lebanon’s monetary public policy.
V. Anticipated Capital Controls Laws
Several draft laws aimed at addressing Lebanon’s financial crisis have been introduced since 2022, including the Law for Rebalancing the Financial System and the Bank Resolution Law. Among these were capital control draft laws intended to impose temporary controls on banking operations, including transfers and cash withdrawals. Although a draft was approved by the Council of Ministers in March 2022 and referred to parliament, it has not yet been passed into law. In January 2023, a newer version titled the “Draft Framework Law for Restoring Financial Regularity” was approved by parliamentary committees but is still awaiting a final vote.
The lack of formal capital controls legislation is delaying Lebanon’s access to IMF assistance. If passed, the newer version of the law could impact ongoing legal actions by depositors against Lebanese banks. Depositors may have limited recourse if formal capital controls are imposed, possibly turning to investor-state arbitration under bilateral investment treaties (BITs) for issues like the free transfer of funds and fair treatment. In the context of Lebanon’s de facto capital controls, the Al Habtoor Group has recently served an investment arbitration notice against the Lebanese Republic, citing breaches of the BIT between the United Arab Emirates and Lebanon.
The above-mentioned events and banking instability have led to Lebanon’s being placed on the global anti-money laundering watchdog’s “grey list”.
VI. Amendment to the Lebanese Criminal Procedures Code
On 21 June 2021, a draft law was introduced to the Lebanese parliament to amend the provisions governing procedural objections in criminal proceedings, as outlined in Article 73 of the Lebanese Code of Criminal Procedure (LCPC). After thorough review, the Administration and Justice Committee approved the proposed amendments on 25 October 2022. The primary objective of these amendments was to prevent the misuse of procedural objections, which have often been employed in Lebanon as a tactic to delay trials rather than address substantive legal issues. By restricting the grounds on which procedural objections may be raised and limiting their resubmission unless new justifications arise, the amendments aim to streamline judicial processes and enhance the efficiency of criminal trials.
These reforms were formally enacted on 22 December 2023, under Law No 321.
The newly amended Article 73 of the LCPC has significantly narrowed the grounds upon which procedural objections could be filed. One of the most notable changes is the removal of the procedural objection that “an alleged act does not constitute a criminal offense punishable under the law”.
Other significant amendments are the newly introduced paragraphs in Article 73 of the LCPC, particularly those concerning the time restrictions imposed on judges regarding the issuance of decisions on procedural objections.
In this respect, parties to a criminal action have two weeks from the date of notification to submit their comments on these procedural objections. Following this period, the judge is required to decide on the objection within two weeks of receiving the case file from the public prosecutor. Failure to comply with this timeline will result in the judge being regarded as failing to fulfil their duty to uphold justice. Furthermore, the judge is explicitly prohibited from merging these procedural objections with the substantive issues of the case, which will be determined later in the proceedings.
The decision rendered by the judge on procedural objections can be appealed within 24 hours from the date of its issuance by the public prosecutor, or from the date of notification to the personal complainant or the accused. More importantly, the appellate decision regarding procedural objections cannot be further appealed in cassation unless there is a discrepancy between the first-instance and appellate courts concerning the acceptance or dismissal of those objections. The appellate or cassation court reviewing the objection must issue its decision within a maximum of ten days; otherwise, it will also be deemed to have failed in fulfilling its duty to ensure justice.
The new amendment to Article 73 of the LCPC also provides that in instances where the accused is found to have raised unjust procedural objections, they may face a fine ranging from half the official minimum wage to ten times that amount, regardless of whether they retract their objection before the final decision is rendered.
VII. New Draft Media Law
The Administration and Justice Committee in the Lebanese parliament is on the verge of concluding its closed-door discussions on a new draft media law. If approved by the general assembly, this law could significantly restrict freedom of expression and press freedom in Lebanon. The anticipated legislation is expected to replace the Publications Law of 1962 and the Audiovisual Law of 1994, following reconsideration prompted by comments from UNESCO in partnership with the Ministry of Information in 2023. The committee is expected to deliberate on the remaining articles of the draft law in the upcoming months, including amendments proposed by UNESCO, before taking a final vote.
VIII. Amendments to the Amounts Set Out in the LCCP
In the context of the financial, economic and monetary crisis that Lebanon has been witnessing for the past five years, it was deemed necessary to keep the legal and regulatory amounts relevant.
Therefore, the LCCP was recently amended by Decree-Law No 13909 dated 12 September 2024 (“DL No 13909”). DL No 13909 provides that all amounts set out in the LCCP, whatever their nature, will be adjusted to 50 times their original value.
This increase is a way to realign these amounts with the current value of the currency, ensuring they maintain their intended financial impact.
IX. New LAMC Arbitration Rules
The Lebanese Arbitration and Mediation Centre of the Beirut and Mount Lebanon Chamber of Commerce, Industry and Agriculture (LAMC), recently amended its arbitration rules (which dated back to 1995). These new rules entered into force on 1 July 2024 (the “Rules”).
The Rules aim to provide fast and effective procedures for settling disputes, applying technology and enhancing transparency in arbitration proceedings conducted under the auspices of the LAMC.
These Rules introduced new features, including but not limited to the following.
X. Scope of application
The Rules broaden the scope of application by addressing mistakes made by parties when drafting their arbitration agreements. Article 1 specifies that if parties agree to submit their disputes to arbitration under any designation or denomination associated with the LAMC or the “Chamber of Commerce, Industry and Agriculture of Beirut and Mount Lebanon”, as provided in the Article, they will be considered to have submitted their dispute to arbitration under the LAMC Rules of Arbitration. This provision ensures that variations in name do not hinder the enforcement of arbitration agreements.
XI. Multiple contracts
The Rules enable parties to make claims related to more than one contract in a single arbitration, which will aid parties in resolving their disputes in an efficient and cost-effective manner.
Expedited (fast-track) arbitration proceedings and emergency proceedings
The Rules introduced these new features along with their conditions and the procedure to be followed.
Consolidation
The Rules introduced the possibility of consolidating two or more arbitrations into a single proceeding.
The use of technology
The Rules aim to encourage and enhance the use of technology in arbitration proceedings, as shown through the following provisions:
- the possibility to hold remote hearings; and
- the possibility to use electronic communication with the arbitral tribunal.
Interim measures
The Rules introduced the possibility for arbitral tribunals to grant interim measures, and also clarified the criteria of such measures, as well as the tribunal’s authority to order the requesting party to provide appropriate security for the costs arising from the measures.
Evidence
The Rules provide more detailed provisions in relation to the tribunal’s power to determine the relevance, materiality and admissibility of evidence.
Default
The Rules provide a comprehensive framework for handling defaults during arbitration, namely with regard to the failure of a party to file a submission, to attend a hearing, or to produce a document.
Interpretation and correction of an award and additional award
The Rules introduced new provisions regulating interpretation and correction of arbitral awards.
This recent amendment and the introduction of modern features is an example of how Lebanon is establishing itself as an arbitration-friendly jurisdiction.
Author
Obeid & Partners (previously known as Obeid Law Firm) is a full-service law firm operating across the MENA region from its headquarters in Beirut and its representative offices in Paris and Dubai. It is widely acknowledged as one of the leading law firms both in Lebanon and throughout the Middle East. The firm’s expertise is grounded on a strong understanding of local laws and practices, and extends from Lebanon to the wider MENA region and beyond. The firm is regularly sought out for advice on legal reforms in various fields across the MENA region, and has been at the forefront of drafting model laws on behalf of the Arab League. The breadth of the firm’s capabilities is reflected in the diversity of its clients, which range from foreign governments and public entities to national and multinational companies, including oil companies, investment funds, financial institutions, telecommunications providers, construction and service companies, and SMEs.
Zeina Obeid is a partner at Obeid & Partners and has extensive experience in litigation and international arbitration matters. She represents clients in civil and commercial proceedings before the Lebanese courts in leasing, expropriation, commercial agency, insurance, real estate property disputes, notification and enforcement of foreign judgments and arbitral awards and actions for setting aside arbitral awards. She has also advised international clients and start-ups on corporate structures in Lebanon and provided general advisory work on issues related to environmental law, anti-corruption, data protection and privacy, pharmaceutical products, and franchising. Zeina is qualified to practise in Beirut and Paris.
Charbel Akiki is an associate at Obeid & Partners with industry-wide experience of disputes under ICC, DIFC-LCIA, SCC, ICSID and UNCITRAL arbitration rules. He graduated with high distinction in both Lebanese and French business law, and has a master’s in arbitration and international business law from Université Paris I – Sorbonne. He represents international clients in commercial and investment arbitrations in Paris, Dubai and Beirut, and is the president and co-founder of Levantine Arbitration, an association of junior practitioners promoting arbitration in the MENA region. Charbel also negotiates and drafts complex commercial contracts and implements cross-border corporate transactions. He is admitted to the Beirut Bar Association.
Aya Sabra is a lawyer at Obeid & Partners who works within the dispute resolution practice group, with a particular focus on arbitration. Aya achieved high distinction in both Lebanese and French business law, and has a master’s degree in international private law and international trade law from Université Paris 2 – Assas. She has experience in conducting legal research and assisting in drafting submissions and arbitral awards related to institutional commercial arbitrations before major arbitration institutions (including the ICC, DIFC-LCIA, DIAC, and BCCI). She has also participated in various enforcement and annulment of arbitral awards proceedings. She is admitted to the Beirut Bar Association.
