LEBANON Trends and Developments Contributed by: Mohamed Alem and Mazen Ghosn, Alem & Associates
notion that making a deposit under Article 822 of the Lebanese Code of Civil Procedure substitutes a bank’s duty to effect such transfers. The Paris Tribunal Judiciaire reached a similar conclusion in a November 2021 decision. Disputes Arising From Lebanon’s Sovereign Default In March 2020, Lebanon defaulted on its sovereign debt for the first time, failing to repay a USD1.2 bil - lion Eurobond. Issued under a USD22 billion Global Medium-Term Note Programme, these bonds includ - ed Collective Action Clauses allowing modification of bond terms with the approval of 75% of bondholders. Following the default, two scenarios are envisaged: • a successful restructuring agreement with 75% of bondholders, binding on all; or • legal proceedings initiated by holdout creditors. Lebanon’s Eurobonds are governed by New York law, with disputes subject to the jurisdiction of New York courts. However, enforcement of judgments is limited by Lebanese law, particularly Article 860 (1) of the Lebanese Code of Civil Procedure, which pro - hibits enforcement against State assets. The March 2020 Eurobond prospectus also cautions investors that waivers of sovereign immunity are unlikely to be effective in Lebanon. Given the challenges of enforcing judgments through national courts, bondholders may explore investment arbitration, a route increasingly used following Argen - tina’s 1998–2002 debt crisis. For investment arbitration to be viable, the purchase of sovereign bonds must qualify as a “foreign invest - ment”. While there is no unanimous stance in inter - national jurisprudence, several tribunals have affirmed this qualification.
Mass claims have been upheld in investment arbitra - tion, such as: • a 2020 decision involving 956 Greek investors against Cyprus over confiscated bonds; and • a landmark case where an ICSID tribunal accepted jurisdiction over claims by over 60,000 Italian bondholders against Argentina. The preferred forum for such arbitrations is the Inter - national Centre for Settlement of Investment Disputes (ICSID), a World Bank institution. Lebanon is a signa - tory to the ICSID Convention and has entered into bilateral investment treaties (BITs) with around 50 countries, including France, Switzerland, Italy, the UK and Germany. These BITs provide foreign investors with substantive protections and access to arbitration in case of disputes. BITs offer advantages over litigation in national courts, particularly due to the global enforceability of ICSID awards. Member States are obligated to recognise and enforce ICSID awards, and non-compliance car - ries diplomatic, reputational and financial risks. In the case of Argentina, failure to comply with ICSID awards resulted in diplomatic pressure, suspension of trade privileges, and loan restrictions, eventually compelling settlements with investors. Conclusion Given Lebanon’s limited foreign assets and its legal framework restricting enforcement of judgments against the State, foreign bondholders are likely to resort to ICSID arbitration in the coming years. Invest - ment arbitration may thus become a crucial mech - anism to pressure Lebanon into complying with its international financial obligations and with arbitral awards.
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