LEBANON Trends and Developments Contributed by: Mohamed Alem and Mazen Ghosn, Alem & Associates
Alem & Associates 126 Foch Street, Beirut Central District Beirut 2012 6609, Lebanon Tel: +961 1 999717 Fax: +961 1 999607 Email: info@alemlaw.com Web: www.alemlaw.com
Disputes Arising From the Economic and Financial Crises During recent years, Lebanon has experienced one of the most severe economic and financial crises the world has seen in over 150 years, according to the World Bank. In October 2019, amidst a notable increase in the black-market exchange rate (of Lebanese pounds to the US dollar) and an unprecedented two-week clo - sure of Lebanese commercial banks following mass demonstrations, a liquidity crisis directly affected the Lebanese commercial banks and their depositors. There followed restrictions on depositors’ access to their funds that were imposed by Lebanese banks in the absence of an official capital control. In the absence of official capital control legislation, Lebanese banks have since imposed unilateral restric - tions on depositors’ access to their funds. As a result, cheques have lost their practical utility, often being traded on the market at steep discounts. Creditors paid via cheque frequently recover only a fraction of the original debt. This banking environment has led to a surge in dis - putes concerning: • the right of depositors to withdraw or transfer their funds abroad; • the legality of settling debts using bankers’ cheques; and
• the validity of debt repayment in Lebanese pounds for obligations originally denominated in foreign currency, and the applicable exchange rate. Owing to the fact that these disputes often involve banks and/or financial institutions and that these enti - ties have historically included arbitration clauses in their standard agreements, which they request their clients to sign, a large portion of the disputes arising from the economic and financial crises is currently settled by arbitration. The resulting arbitral decisions are generally covered by confidentiality and are not made public. At the same time, several decisions rendered by Leba - nese, French and UK courts, applying Lebanese law, have addressed issues related to the economic and financial crises. Many of these disputes are being resolved through arbitration, particularly because arbitration clauses are standard in agreements between banks and their clients. These proceedings are generally confidential, with limited public access to arbitral decisions. Notably, courts in Lebanon, France and the UK have addressed issues related to the crisis. A significant development was the March 2022 UK High Court decision in Vatche Manoukian v Société Générale De Banque Au Liban and Bank Audi . The court held that under Lebanese banking customs, banks are obliged to execute international transfer requests and that the concept of a “legitimate reason” cannot be used to deny such obligations. Additionally, it rejected the
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