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Lebanon

11 April 2019

Introduction

Lebanon is an arbitration-friendly jurisdiction. Its arbitration legislation is modern and embraces well-established principles of international arbitration. The Lebanese courts are also familiar with and supportive of the laws and practices of international arbitration.

The main advantages of arbitration in Lebanon are similar to those prevalent in other arbitration-friendly jurisdictions. Investors and business actors in Lebanon increasingly include arbitration clauses in their agreements to benefit from the ability to choose their arbitrators, the speed and flexibility that is offered by arbitration and the confidential nature of arbitral proceedings.

In addition, the recent legislative developments in Lebanon, regulating public–private partnerships (PPPs) as well as oil and gas investments in Lebanon, further promote the use of arbitration as a primary mechanism for the resolution of disputes with the Lebanese state.

Arbitration law

The provisions of the Lebanese Arbitration Law are based on the old French arbitration law (Decrees No. 80-354 of 14 May 1980 and No. 81-500 of 12 May 1981).

The Lebanese Code of Civil Procedure (LCCP), enacted by Decree Law 90/83, with amendments resulting from Law No. 440 dated 29 July 2002, devotes its second chapter to arbitration. The LCCP makes a distinction between domestic arbitration[1] and international arbitration,[2] the latter being governed by more liberal rules. The main differences between domestic and international arbitration concern the criteria for the validity of arbitration clauses, which are subject to stricter formal requirements in domestic arbitration. Other differences include availability of recourses to challenging or setting aside an award, which is broader in domestic arbitration than in international arbitration.

Pursuant to article 809 of the LCCP, an arbitration is deemed international ‘when it involves the interests of international trade’. Such interests are defined as involving movements of goods or funds beyond borders. In other words, if the operation that is the subject matter of the dispute is linked to more than one country, the arbitration is international.[3] Factors that are not determinative when assessing whether an arbitration is international include:

  • the nationality of the parties or arbitrators;
  • the place of the arbitration;
  • the residence of the parties; or
  • the place where the contract was concluded.

Furthermore, the application of a foreign law or procedure will have no effect on the definition of an arbitration as international.[4]

Regarding international arbitrations seated in Lebanon, article 812 of the LCCP provides that where an international arbitration is governed by Lebanese law, unless agreed otherwise, provisions relating to domestic arbitration apply.[5]

Lebanon is a signatory to the New York Convention with a reservation that the government of Lebanon will apply the convention, on the basis of reciprocity, to the recognition and enforcement of awards made only in the territory of another contracting state. Lebanon also ratified, among others, the Washington Convention on 26 March 2003.

Arbitration institutions based in Lebanon

The relevant arbitral institution based in Lebanon is the Lebanese Arbitration Centre of the Chamber of Commerce and Industry and Agriculture of Beirut and Mount Lebanon,[6] founded in 1995, which has its own Rules of Conciliation and Arbitration. The centre is an independent arbitration institution that administers domestic and international arbitration and also offers the possibility of resolving disputes through optional conciliation.

The Chartered Institute of Arbitrators (CIArb) Lebanon Branch[7] principally serves as a forum for education and training in alternative dispute resolution (ADR) and may sometimes act as an appointing authority.

Overview of the arbitration legal framework in Lebanon

Arbitration agreements

Formal requirements for an enforceable agreement

Unlike in domestic arbitrations, where the written form of the arbitration agreement is required as a condition of validity (article 763 LCCP), there is no particular requirement for an international arbitration agreement to be valid other than the parties having consented to it. Article 814(2) of the LCCP, however, provides that an agreement in writing is required to obtain enforcement of the award rendered in international disputes.

Insofar as administrative contracts are concerned, one important formal requirement concerns contracts made with the Lebanese state or with other state entities. In domestic administrative contracts, a state or state entity can enter into an arbitration agreement subject to prior authorisation by the Council of Ministers upon a recommendation of either the relevant minister or the relevant regulatory authority. In international administrative contracts, while the law is silent on the necessity of obtaining a prior authorisation from the Council of Ministers, it is recommended to systematically obtain such authorisation in respect arbitration clauses inserted in such agreements.

Separability of the arbitration agreement

The principle of separability of the arbitration agreement from the main contract is a well-established principle in Lebanon and is recognised by Lebanese courts.[8]

Arbitrability of disputes

Under Lebanese law, the following types of disputes are not arbitrable and are subject to the exclusive jurisdiction of the Lebanese national courts.

  • Questions of personal status (nationality, age, adoption) and questions of social status (divorce and marriage). However, article 1037 of the Code of Obligations and Contracts (COC) allows for an exception regarding financial compensation resulting from personal status disputes. In this case, arbitration is confined to the compensation sought.
  • Non-negotiable personal rights such as the right to physical integrity, human dignity, privacy and the right to food. However, similar to the questions of personal status, any dispute relating to monetary compensation associated with those personal rights is arbitrable.
  • Rights of succession. Arbitration over acquired hereditary rights is possible where the value of such rights is determined.
  • Questions of public policy, including all matters considered by law as guaranteeing social, economic or political interests.
  • Questions of insolvency. As provided by article 490 of the Code of Commerce, state courts have exclusive jurisdiction in insolvency matters.
  • Questions of employment contracts and social security. These issues fall under the exclusive competence of the local Labour Arbitration Court.
  • Contracts for commercial representation. Article 5 of Decree Law No. 34, dated 5 August 1967, provides for the exclusive jurisdiction of Lebanese courts in respect of disputes arising out of commercial representation agreements. However, it should be noted that in recent years the Lebanese courts have adopted a more permissible stance towards the arbitrability of such disputes in specific circumstances.[9]

Arbitrators: appointment and challenges

Appointment of arbitrators

Lebanese law does not place any limitation on the choice of the arbitrator, but an arbitrator must be a natural person, have full capacity to exercise his or her civil rights and must not be insolvent.[10] There is similarly no limitation on the nationality of the persons who can act as arbitrators, where the seat of arbitration is in Lebanon or where hearings are held in Lebanon. In domestic arbitration, the arbitration clause should include the name or characteristics of the appointed arbitrators, or the appointment mechanism.[11]

Parties are free to agree on the number of arbitrators. The parties may designate arbitrators in their arbitration agreement or provide for a mechanism for their designation directly or by reference to arbitration rules. The law requires the arbitration tribunal to be made up of an odd number. In the absence of agreement between the parties, the most diligent party may petition the president of the competent court of first instance to make such appointment.[12]

Challenge of arbitrators

Arbitrators are required to act independently and impartially failing which they may be subject to challenge pursuant to article 770 of the LCCP.

Under article 770 of the LCCP, arbitrators may be challenged on the same grounds as judges for reasons that arise or become known after their appointment and that are exclusively listed in article 120 of the LCCP. Such grounds include:

  • if an arbitrator was a legal representative or an agent of one of the parties or one of the parties appointed him or her as an arbitrator in a previous case;[13]
  • if he or she previously provided a legal opinion with respect to the same case even if this occurred before being appointed as an arbitrator;[14] and
  • if there is sympathy or animosity between an arbitrator and one of the parties that could prevent the arbitrator from ruling impartially.[15]

Moreover, an arbitrator might be liable for his or her gross fault as it is the case for local judges pursuant to article 741 of the LCCP.

In domestic arbitration, unless provided otherwise by the arbitration rules in institutional arbitration, challenges against arbitrators should be brought before the court of first instance where the agreed place of arbitration is located. Failing this, the challenge can be brought before the Beirut Court of First Instance within 15 days from the date the challenging party became aware of the arbitrator’s appointment or within 15 days from the date that the reason for the challenge becomes apparent following the appointment of the arbitrator (article 770 LCCP). The court’s decision on the challenge is final. In international arbitration there are no express provisions regarding the challenge of arbitrators which in most instances will be subject to the arbitration rules of the arbitral institution agreed upon by the parties.

The parties’ representatives

In domestic arbitration, where the Lebanese rules of procedure apply, parties must be represented by counsel for claims exceeding 1 million Lebanese pounds or for which the amount is not determined, as well as in cases where the law requires representation by counsel (article 378 LCCP).

In international arbitration, there are no express provisions for mandatory legal representation. Consequently, unless provided otherwise, the parties are free to decide whether or not they wish to be represented by legal counsel with no condition of nationality.

Intervention of domestic courts

Domestic courts’ support to the arbitral procedure

The president of the court of first instance may act as the judge in support of arbitration if required. Such support includes the appointment of arbitrators where the parties have failed to designate an arbitrator or where designation of an arbitrator is not carried out by the relevant arbitral institution. The Lebanese legislation further provides for the assistance of courts in the absence of an agreed set of institutional rules containing a default mechanism for the constitution of an arbitral tribunal or a mechanism provided for in the arbitration clause itself.[16]

Intervention of domestic courts in cases of
forgery allegations

Domestic courts are competent to rule on allegations of forgery. Where a party alleges forgery of one or more documents in the course of a domestic arbitration, the arbitrator shall suspend the proceedings pending the competent court’s decision on the issue of forgery.[17] According to the law, such principle also applies in international arbitration, unless there is an agreement to the contrary.[18]

Domestic courts and provisional relief

Under articles 589 to 593 of the LCCP, the Lebanese courts can grant provisional relief in support of arbitration when the arbitral tribunal is not yet constituted. In this case, an application for interim measures should be filed before the competent judge of summary proceedings, which can be done on an ex parte basis.

After the constitution of the arbitral tribunal, subsequent requests for interim measures must generally be submitted directly to the arbitral tribunal, which has the power to order any interim and conservatory relief deemed appropriate in accordance with articles 789 and 859 of the LCCP. The arbitrators may also request the local judge to sanction witnesses who fail to appear at a hearing or those who refuse to testify.[19]

Finally, a party may seek an interim attachment order from the competent court to freeze the assets of the losing party pending the enforcement of an arbitral award.

Recognition and enforcement of domestic, international and foreign arbitral awards in Lebanon

Recognition and enforcement procedure

The recognition and enforcement of an award in Lebanon is made through ex parte proceedings and a legitimate interest is required for a court to accept jurisdiction over the recognition and enforcement of foreign awards (article 795 LCCP).

The court that is competent to grant exequatur depends on the nature of dispute. In civil and commercial matters, exequatur requests are filed before the president of the court of first instance, either at the place where the award was made, if a domestic award was rendered in Lebanon or in Beirut if the award was rendered outside Lebanon. In administrative matters, exequatur requests should be filed before the president of the Council of State (articles 770, 775,793, 795 and 810 LCCP).

The exequatur application must contain:

  • the arbitral award; and
  • the arbitration agreement or a certified copy of these documents, irrespective if the award is domestic or foreign.

For international or foreign awards, the judge will principally verify:

  • the existence of the award; and
  • that recognition of the award does not manifestly violate Lebanese international public policy (articles 814 and 815 LCCP).

Recourse against a decision on exequatur

A court decision granting recognition or enforcement of a domestic or international award rendered in Lebanon is not subject to any recourse (articles 805 and 819 LCCP).

However, a court decision denying recognition or enforcement of a domestic, foreign or international award rendered in Lebanon is subject to appeal (articles 806 and 816 LCCP).

Challenge of arbitral awards

In domestic arbitration, unless agreed otherwise by the parties, an arbitral award can be subject to appeal.[20] The arbitral award can also be subject to the setting-aside action.[21] It should be noted that when an arbitration is conducted ex aequo et bono, an arbitral award cannot be appealed before the Court of Cassation unless the Court of Appeal annulled the arbitral award. In this case, the grounds for appeal before the Court of Cassation are limited to the annulment grounds as set out here below.

However, in international arbitration, the appeal is not an available recourse and the arbitral award can only be subject to the setting-aside action.[22] In both domestic and international arbitration, the setting-aside action is of public order and cannot be excluded by the parties’ agreement.

The grounds for annulling awards in domestic arbitration are set out under article 800 LCCP as follows:

  • the award has been rendered without an arbitration agreement or on the basis of an agreement which is null or void due to the expiry of the relevant time limit for rendering the award;
  • the award has been rendered by arbitrators not appointed in accordance with the law;
  • the arbitrators ruled without complying with the mission conferred upon them;
  • the award has been delivered without due respect of rights of defence;
  • the award does not contain the mandatory requirements related to the relief sought by the parties, along with the grounds and means substantiating such relief; the name of the arbitrators; the ratio decidendi of the award, the date of the award and the signature of the arbitrators; and
  • the award has violated a rule of public policy.

The grounds for annulling awards in international arbitration are set out under article 819 LCCP as follows:

  • the award has been rendered without an arbitration agreement or on the basis of an agreement which is null or void due to the expiry of the relevant time limit for rendering the award;
  • the award has been rendered by arbitrators not appointed in accordance with the law;
  • the arbitrators ruled without complying with the mission conferred upon them;
  • the award has been delivered without due respect of rights of defence; and
  • the award has violated a rule of international public policy.

In focus: the international and national legal framework for investments in Lebanon

International investment agreements and other treaties with investment provisions

Private parties investing in Lebanon benefit from the protection of a number of international investment agreements (IIAs) and from other treaties with investment provisions, which provide for recourse to arbitration in case of dispute. These include:

  • 52 bilateral investment treaties (BITs) signed by Lebanon, 43 of which are in force;
  • the free trade agreement between the European Free Trade Association and Lebanon;
  • the Organization of Islamic Cooperation Agreement of 1981; and
  • the Arab Investment Agreement of 1980.

In addition, Lebanon is a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States Convention.[23]

The Lebanese Investment Law[24]

Lebanon has also enacted a national investment law aiming at promoting and encouraging investments in the country.

The Lebanese Investment Law, enacted in 2001, covers investments in the agriculture, agro-food, tourism, information technology, telecommunication, technology and media sectors.[25] It applies to investors willing to benefit from its provisions.[26]

The Lebanese Investment Law further establishes a public authority named the Investment Development Authority of Lebanon (IDAL), a legal entity enjoying administrative and financial autonomy, administered by a board of directors and reporting to the Lebanese Prime Minister.

In case of a dispute between IDAL and a foreign or national investor,[27] the parties shall first attempt to resolve their dispute amicably and in the absence of amicable resolution of the dispute, the parties to such dispute shall recourse to arbitration.[28] Under the Investment Law, a number of features pertaining to arbitration must be agreed upon in advance.

Recent developments in international arbitration in Lebanon

Arbitration under the new Public Private Partnerships Law

On 9 September 2017, Lebanon enacted Law No. 48 Regulating Public Private Partnerships (the PPP Law). One of the most significant innovations of this law is that it expressly allows recourse to arbitration in disputes involving state entities.

This law was enacted ahead of the CEDRE Conference[29] held in Paris on 6 April 2018, which resulted in over US$11 billion of financial assistance pledged towards recovery efforts in Lebanon.[30]

The new PPP Law provides that partnership contracts with private parties shall specify the chosen dispute resolution mechanism, which can include mediation and domestic or international arbitration.[31]

Article 762 of the LCCP, as mentioned above, provides that the relevant Lebanese administrative body’s prior authorisation should be sought to ensure the enforceability of the arbitration clause contained in administrative contracts.[32]

Although the PPP Law provides that arbitration is an acceptable method of dispute resolution, to the extent that public–private partnerships qualify as administrative contracts, it is recommended that private parties ensure that the specific clause contained in their partnership agreement is pre-approved by the relevant authorities. This pre-approval acts as a confirmation of certainty until this issue is definitively resolved and in order to avoid any procedural hurdles in the future.

Arbitration in Lebanese oil and gas legislation

Following prospects of availability of abundant gas reserves in the Eastern Mediterranean basin, Lebanon has enacted a number of laws regulating the oil and gas sector.

Lebanon’s first offshore licensing round recently resulted in the Lebanese government awarding a consortium comprising three international companies the first rights to offshore exploration and production in Lebanon. This consortium has been awarded both blocks it placed bids on: block 4 and block 9. The exploration and production agreements (EPAs) signed between the Lebanese government and the successful bidders for both blocks dedicate an entire article to arbitration, article 38. The content of this article is identical in both cases.

The article provides that parties shall submit any dispute, controversy or claim arising out of or relating to the EPA to binding arbitration, subject to the other provisions of the EPA, and if the dispute, controversy, or claim cannot be resolved during a negotiation period specified in previous articles.

The salient features of the arbitration provisions are as follows:

a) The dispute shall be settled by arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce, hereinafter referred to as the ICC Rules of Arbitration;

b) The place of any arbitration pursuant to these provisions shall be Paris, France;

c) The law applicable to the merits of the dispute shall be Lebanese law;

d) The language of the arbitration shall be English, and the English version of this EPA and the decree no 10389/2013 (PAR) may be used in such arbitration to the extent there is no conflict with the Arabic version;

e) The arbitral proceedings shall be confidential;

f) The arbitral panel shall be composed of three (3) arbitrators to be appointed in accordance with the ICC Rules of Arbitration, provided that, upon mutual agreement of both Parties, the arbitration may be conducted by a sole arbitrator appointed pursuant to the ICC Rules of Arbitration.

Article 38 continues by noting that awards resulting from such arbitrations are binding on the parties, and that parties waive any defences based on sovereign immunity:

a) In respect of proceedings to enforce any such award or decision including, without limitation, immunity from service of process and form the jurisdiction of any court; and

b) In respect of immunity from the execution of any such award or decision against any property held for a commercial purpose.

The EPAs also contain a specific procedure for the resolution of disputes referred to a sole expert, outlined in article 39. This mechanism is particularly relevant in the context of technical disputes, where advanced expertise and understanding is required.

Article 39 defines a sole expert as ‘an independent and impartial physical or legal person of international standing with relevant qualifications and experience’. The expert may not share nationality with any of the parties and must be appointed in mutual agreement. The article, however, makes it clear that the expert shall not act as an arbitrator or mediator, but as one who endeavours ‘to express an opinion on the resolution of the disagreement or to resolve the dispute’.

Conclusion

The legislative landscape in Lebanon is evolving positively towards encouraging recourse to arbitration and other ADR mechanisms in cases where disputes arise. In addition to the laws described above, a new law just introduced judicial mediation to Lebanon for the first time.[-1]4 There is also an ongoing project to amend the current Lebanese arbitration law and adopt a more modern one.

By ensuring better protection of investors and business actors in Lebanon and encouraging recourse to ADR, the Lebanese authorities are creating an increasingly friendly environment for large projects and investments in the country.


Notes

[1] LCCP articles 762 to 808.

[2] LCCP articles 809 to 821.

[3] Beirut Court of Appeal, Third Chamber, 10 December 2001; Beirut Court of Cassation, Decision No. 14/2014, 25 January 2014.

[4] Arbitration in Lebanon , in Abdul Hamid El Ahdab and Jalal El- Ahdab, Arbitration with Arab Countries, Kluwer Law International 2011, pp 337–449.

[5] Article 812 of the LCCP: the provisions of articles 762 to 792 (relating to domestic arbitration) shall only apply in default of specific agreements and subject to the provisions of articles 810 and 811 (relating to international arbitration) (OLF translation).

[6] Official Website: https://www.ccib.org.lb/en/.

[7] Official Website: http://ciarb-lebanon.org/.

[8] Eg, Beirut Court of Appeal, decision No. 767/2008 dated 20 May 2008; Lebanese Court of Cassation No. 14/2014 dated 25 January 2014.

[9] Zeina Obeid and Ziad Obeid, ‘Arbitration in commercial representation disputes: walking the line between tradition and modernism’, International Law Office, 19 July 2018.

[10] Article 768 LCCP.

[11] Article 763 LCCP.

[12] Article 810 LCCP.

[13] Article 120(4) LCCP.

[14] Article 120(6) LCCP.

[15] Article 770 LCCP.

[16] Article 810 LCCP.

[17] Article 783 LCCP.

[18] Article 812 LCCP.

[19] Article 779 LCCP.

[20] Article 799 LCCP.

[21] Article 800 LCCP.

[22] Article 819 LCCP.

[23] The ICSID Convention was signed by Lebanon on 26 March 2003 and entered into force in Lebanon on 25 April 2003.

[24] Law No. 360 of 16 August 2001.

[25] Article 2 of the Lebanese Investment Law. The law can also apply to other sectors, as specified by a decree issued by the Council of Ministers based on a proposal of the President of The Council of Ministers.

[26] Ibid.

[27] ‘Investor’ is defined as follows under the Law: ‘The natural person or legal entity, whether Lebanese, Arab or foreign investing in Lebanon in accordance with the provisions of this law’.

[28] Article 18 of the Investment Law.

[29] CEDRE is the French acronym for Economic Conference for Development through Reforms with the Private Sector.

[30] Rania Ghanem, ‘11.8 billion promised at the Paris CEDRE Conference’ (Businessnews.com.lb,6April2018) available at: www.businessnews.com. lb/cms/Story/StoryDetails.aspx?ItemID=6475.

[31] Article 10 (15) of Law 48 dated 7/9/2017 Regulating Public Private Partnerships ‘The dispute resolution mechanism, which can include mediation and domestic and international arbitration’.

[32] Article 762 of the LCCP: ‘Arbitration clauses and arbitration submission agreements relating to administrative contracts shall been enforceable only if authorised by a decree issued by the Council of Ministers following a proposal by the relevant Minister, for the State, or the relevant regulatory authority, for public law entities’. See also, Nayla Comair-Obeid, ‘The impact and consequences of changes in Lebanese Arbitration law’, ICC Bulletin, Vol.14 No.1, Spring 2003, p 47.

[33] Law No. 82 published in the Official Gazette on 18 October 2018. Zeina Obeid and Valeria Spagnolo, ‘An alternative solution: judicial mediation’, International Law Office, 10 January 2019.

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