LEBANON Law and Practice Contributed by: Nayla Comair-Obeid, Ziad Obeid and Zeina Obeid, Obeid & Partners
around commercial agency contracts and bank- ing disputes. Commercial Agency Contracts Historically, these contracts were governed by Decree-Law No 34 of 1967 (DL No 34/67), which granted Lebanese agents exclusivity and pro- tection in relation to foreign principals or other agents in Lebanon. However, the introduction of the long-awaited Competition Law on 17 March 2022 (the “Competition Law”), brought signifi- cant changes. This law affected key provisions of DL No 34/67, particularly the long-standing concept of exclusivity that had been safeguard- ed for over 50 years. Under current Lebanese legislation, exclusivity still exists if the criteria outlined in Article 1(2) of DL No 34/67 are met. However, the Competition Law introduces notable changes regarding the enforceability of such exclusivity rights vis-à-vis third parties. Specifically, a third party cannot be negatively impacted by the presence of an exclusivity clause or its breach, such as when purchasing products from a manufacturer/prin- cipal with an exclusive distributor in Lebanon. Nonetheless, the exclusivity clause remains valid and enforceable between the contracting par- ties. Banking Disputes The Lebanese financial crisis has given rise to another prominent area of dispute: the currency of payment, especially in agreements denomi- nated in foreign currency. These issues are par- ticularly prevalent in loan agreements between banks and their clients. Lebanese courts have supported both perspectives in local contracts – either requiring repayment in the agreed foreign currency or permitting payment in the national
currency, even when a foreign currency clause exists. Similar currency-related disputes may also arise between banks and foreign investors or foreign funds, where the Lebanese courts typically uphold the contractual obligation to settle pay- ments in the designated foreign currency if the agreement is deemed an international contract. In addition to currency-related disputes, another significant area of litigation has emerged con- cerning the insolvency of banks. With deposi- tors facing restrictions on accessing their for- eign currency accounts, some have turned to legal action by initiating insolvency proceedings against banks. Depositors argue that by failing to meet their obligations to pay demand deposits in cash or process international transfers, the banks are in a state of cessation of payment, jus- tifying the application of insolvency laws, specifi- cally 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). Despite these claims, recent court decisions have consistently rejected insolvency decla- rations against Lebanese banks stating that declaring a Lebanese bank insolvent during the financial crisis could trigger a series of insol- vencies across the banking sector, undermin- ing public credit and further destabilising the national economy. The courts reasoned that the provisions of Law No 2/67 were not intended to apply in the context of a system-wide financial collapse, but were designed for isolated cases of insolvency. Nonetheless, the possibility of bank insolvency cannot be ruled out, and many claims are being brought forth in this regard.
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