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29 March 2012
Arbitral bodies and other entities
Interaction with court system
Drafting arbitration agreements
Enforceability of arbitration agreements
Consolidation and separability
Starting the process
Lebanon acceded to the New York Convention on November 9 1998. It has made a reciprocity reservation under the convention, declaring that it will apply the convention on a reciprocal basis to the recognition and enforcement of awards made only in the territory of another contracting state. However, Lebanese law - and specifically Article 814 of the Code of Civil Procedure - is more favourable to the recognition and enforcement of foreign awards than the convention.
Lebanon has also ratified the Washington Convention and the Arab Convention on Commercial Arbitration.
The Code of Civil Procedure, which was enacted by Legislative Decree 90/83 and amended by Law 440/2002, devotes Chapter 2 to arbitration. It distinguishes between domestic arbitration (covered by Articles 762 to 808) and international arbitration (covered by Articles 809 to 821).
Pursuant to Article 809, an arbitration is deemed international when it "involves the interests of international trade". The criterion for determining whether an arbitration meets this definition is economic - namely, whether it involves the movement of goods or funds across national borders.
In the case of an international arbitration subject to Lebanese law, Article 812 provides that:
"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)."
The provisions of Lebanese arbitration law are based on the old French arbitration law (Decree 80-354 of May 14 1980 and Decree 81-500 of May 12 1981), rather than the UN Commission on International Trade Law Model Law on International Commercial Arbitration.
The Lebanese Arbitration Centre of the Chamber of Commerce and Industry and Agriculture of Beirut and Mount Lebanon, which was founded in 1995, settles national and international disputes through arbitration or optional conciliation. The centre has its own Rules of Conciliation and Arbitration. In some cases the International Chamber of Commerce (ICC) Secretariat reverts to the Lebanese National Committee to designate arbitrators. The Chartered Institute of Arbitrators operates in Lebanon through its local branch. These bodies can act as appointing authorities if so designated by the parties or at the request of foreign arbitration institutions.
Foreign arbitral providers can operate freely in Lebanon without legal restrictions, subject to undertaking the relevant registration formalities before the Lebanese authorities.
Lebanon is considered an arbitration-friendly jurisdiction. Its relevant legislation is modern and recognises all well-established principles of international arbitration. The judiciary is familiar with, and supportive of, the law and practice of international arbitration.
Lebanon has no specialist arbitration court, but the judiciary of the court of first instance is considered the 'juge d'appui' (ie, the judge acting in support of arbitration). For example, the court may hear requests for the appointment of arbitrators, as well as requests to summon recalcitrant witnesses within its jurisdiction and to execute foreign awards.
The first chamber of the competent court of appeal - that is, the second level of jurisdiction - hears actions brought by parties against an arbitral award (eg, an appeal or recourse for annulment). The Fifth Chamber of the Court of Cassation, which is the third and highest level of jurisdiction, ultimately hears subsequent actions against an arbitral award when such recourse is available to the parties.
For the purposes of international arbitrations with a seat outside Lebanon, Article 810 provides that, where necessary, the Beirut courts will take the place of the court that is the seat of the foreign arbitration. Requests for the execution of international awards by a tribunal with a seat outside Lebanon are made to the president of the Beirut Court of First Instance under Articles 815 and 793.
Article 785 of the Code of Civil Procedure expressly recognises the principle of kompetenz-kompetenz. Therefore, if a party challenges the jurisdiction of the arbitral tribunal before a local court, the latter will declare itself to be without standing to determine the issue. As the Court of Cassation has made clear, a request submitted to the courts to determine an issue relating to an arbitral tribunal's jurisdiction and competence will be dismissed on this basis.(1)
Under Lebanese legislation, the following types of dispute are subject to the exclusive jurisdiction of the state courts:
Although it is not mandatory, it is preferable to determine the number of arbitrators and their method of designation, the seat and the language of the arbitration.
In contracts with the Lebanese state or other public entities, it is advisable to obtain a prior authorisation regarding an arbitration clause inserted into such agreements. For contracts with the state, such authorisation should be obtained from the Council of Ministers on the recommendation of the relevant minister. For contracts with public entities, such authorisation should be obtained from the relevant regulatory authority.
When drafting a multi-party arbitration agreement, the parties should avoid the situation in which each party nominates an arbitrator if this would result in an even-numbered panel. The parties should also ensure that the principle of equality of the parties is maintained in the appointment of arbitrators. The Mount Lebanon Court of Appeal has held(3) that three respondent parties may not be forced to choose one arbitrator, provided that such parties have independent moral and financial personalities and interests. The decision affirms that the principle of equality of the parties in the appointment of arbitrators is a fundamental principle of arbitration which concerns public policy and can be waived only after the dispute has arisen.
In contrast with domestic arbitrations, 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 Code of Civil Procedure provides that an agreement in writing is required only to obtain enforcement of an award. Unlike domestic arbitration agreements, an international arbitration agreement that is not in writing is not null and void as a consequence.
Article 810, which deals with international arbitration, is not formulated in mandatory terms. It provides that an arbitration agreement can designate, directly or by reference, a set of arbitration rules and the arbitrators (or the means by which they are to be chosen).
Lebanese legislation does not recognise the ability of an arbitral tribunal with its seat in Lebanon to consolidate separate arbitral proceedings under one or more contracts unless the arbitration rules on which the parties have agreed allow for such consolidation. For example, Article 8 of Appendix II to the Rules of the Beirut Chamber of Commerce and Industry allows for consolidation of claims.
The principle of separability of an arbitration agreement from a main contract is well established in Lebanon.
A third party can be bound by an arbitration agreement on the basis of:
A third party can also be bound by an arbitration agreement on the basis of its relationship to one of the signatories. This may occur in a chain of contracts which have the same objectives and which form a single economic operation. Group companies may also be bound in some cases. The 'group of companies' doctrine and the concept of piercing the corporate veil are not explicitly recognised under Lebanese law; nor is there direct jurisprudence dealing with the doctrine. However, on a number of occasions the courts, when dealing with a chain of contracts, have extended an arbitration clause in a main contract to other contracts in the chain on the basis that they are linked by the single economic operation in question. Some experts consider that there is nothing to prevent the courts from extending this analysis to group companies.
Article 786 of the Code of Civil Procedure provides that third parties cannot be joined to an arbitration proceeding without the approval of the main parties.
Request for arbitration
Subject to the specific provisions of the arbitration clause to which the parties have agreed (including the choice of arbitration rules, if any), in international arbitration the claimant will typically start the arbitration process by filing a request or notice of arbitration. As a matter of law, the arbitral process effectively starts on the constitution of the arbitral tribunal (under Article 773 of the Code of Civil Procedure) and the agreement of the last arbitrator to undertake the role.
There is no specific limitation period for the filing of a request for arbitration. At all times, the parties should adhere to the terms of their arbitration clause, which may require them to follow certain mandatory steps before referring their dispute to arbitration (eg, amicable settlement negotiations, adjudication or notarial notice).
Choice of law
The arbitrator will determine the substantive law of the dispute in accordance with the provisions of Article 813 of the Code of Civil Procedure, which provides that:
"the arbitrator settles the dispute according to the rules of law chosen by the parties, and in the absence of such a choice according to those which he deems appropriate. In all these cases, he will take into account the custom and usage of commerce."
Appointing the tribunal
Lebanese law does not limit the choice of arbitrator. However, Article 768 of the Code of Civil Procedure provides that an arbitrator must be a natural person, be solvent and have full capacity to exercise his or her civil rights.
There is no limitation on the nationality of arbitrators where the seat of arbitration is in Lebanon or where hearings are held in Lebanon. Some foreign nationals may be subject to visa requirements to enter Lebanese territory.
Pursuant to Article 810 of the Code of Civil Procedure, the parties may designate the arbitrators in their arbitration agreement or provide for the mechanism for their designation, either directly or by reference to arbitration rules. In the absence of an agreed set of institutional rules containing a default mechanism for the constitution of an arbitral tribunal (or an express default mechanism in the arbitration clause itself), a diligent party, when faced with a difficulty in constituting the arbitral tribunal, may ask the president of the competent court of first instance to appoint an arbitrator in accordance with the provisions of Article 810.
As a matter of law, arbitrators are not afforded immunity from suit. In practice, no such suit is known to have been filed against an arbitrator in Lebanon.
There are no fundholding services in Lebanon to secure the payment of arbitrators' fees. However, in the event of non-payment of fees in an ad hoc arbitration, an arbitrator can make a payment request before the enforcement department of the competent court.
Challenges to arbitrators
Article 770 of the Code of Civil Procedure provides that arbitrators may be challenged on the same grounds as judges for reasons which arise or become known after their appointment. The challenge must be brought before the court of first instance of the agreed place of arbitration; failing that, it can be brought before the Beirut Court of First Instance within 15 days of the date on which the challenging party becomes aware of the arbitrator's appointment or within 15 days of reason for the challenge becoming apparent (following the arbitrator's appointment). The court's decision on the challenge is final.
Article 789 of the Code of Civil Procedure grants arbitral tribunals the power to order any interim or conservatory measures that they consider necessary in light of the nature of the dispute and in accordance with Article 589 (eg, setting seals, making inventories of goods, impounding property, selling perishables and describing their condition).
Anti-suit injunctions are unavailable in Lebanon.
There is no provision for a court or tribunal to order a party to provide security for costs. No claim for such provisional relief is known to have been raised before a Lebanese court.
As a matter of law, arbitration proceedings must be conducted in light of the guiding principles of civil cases, such as the right of defence, due process and equal treatment of the parties. Arbitrators must also comply with the terms of their mission and international public policy rules. A failure to comply with these requirements may cause the award to be annulled pursuant to Article 819 of the Code of Civil Procedure.
Where a respondent, having been duly notified, fails to participate in arbitration proceedings, the arbitral tribunal will proceed with the case in the absence of the defaulting party and will render its award on the basis of the claimant's allegations and the arbitral tribunal's assessment thereof.
As a matter of procedural law, all types of evidence are admitted, including official deeds, private deeds, correspondence, admissions, witness testimony and expert evidence. Article 779 of the Code of Civil Procedure makes clear that arbitrators can hear witnesses without requiring them to give evidence under oath. Article 780 gives the arbitral tribunal the power to order a party to disclose evidence in its possession. The IBA Rules on the Taking of Evidence in International Commercial Arbitration are generally taken into account if agreed upon by the parties (either directly or by reference to the applicable arbitration rules).
Article 779(3) of the Code of Civil Procedure allows arbitrators to ask the competent court to impose penalties on witnesses who refuse to appear before the tribunal or otherwise cooperate.
If Lebanon is selected as the seat of arbitration, hearings and procedural meetings can be conducted elsewhere.
It is common practice to hold a final hearing on the merits, unless the parties agree otherwise.
An arbitral tribunal can decide by a majority under Articles 788 and 791(2) of the Code of Civil Procedure.
Dissenting opinions are uncommon but permitted. Article 791(2) provides that if an arbitrator refuses to sign an award, the remaining arbitrators are required to state this fact in the award, although the award has the same legal effect as if it had been signed by all of the arbitrators.
Article 790 the Code of Civil Procedure states that an arbitral award should include:
Article 773 of the Code of Civil Procedure, which applies to arbitrations that are subject to Lebanese procedural law, requires arbitrators to complete their mission within six months of the last arbitrator's acceptance of the role (unless a time limit for the rendering of an award is specified by the parties).
Articles 792(2) and (3) of the Code of Civil Procedure provide that the arbitrator has competence to interpret and correct any material errors or omissions affecting the award and to complete the award if he or she neglected to determine a head of claim. An interpretation, correction or completion of the award should be made within the time limit agreed for the settlement of the dispute. Once this deadline has passed, the court which would have been competent in the absence of an agreement to arbitrate will be empowered to deal with such requests for interpretation and correction.
Costs and interest
The parties can recover fees paid and reasonable costs incurred. It is usually left to the arbitral tribunal to decide whether it will apply the 'loser pays' rule. Interest can be applied to the principal claim and costs. The legal interest rate is 9% in civil and commercial matters, irrespective of the prevailing general interest rate, unless otherwise agreed by the parties.
Article 819 of the Code of Civil Procedure provides that recourse to annulment against a decision which grants recognition or enforcement of an international award is available only in instances set out under Article 817 - namely where:
In the context of an international arbitration, the recourse for annulment of the arbitral award is a matter of public order and cannot be excluded by the parties' agreement.
An award rendered outside Lebanon, which is set aside at the seat of arbitration, may still be recognised and enforced in Lebanon. The courts apply the rules of the New York Convention with respect to the enforcement of international arbitration awards. A court will grant a motion for execution of an international arbitration award if such award does not manifestly violate international public policy (under Article 814 of the Code of Civil Procedure). In practice, a judge will also assess, before granting the exequatur, whether any of the grounds for annulment under Article 817 apply and whether the award covers matters that are not arbitrable as a matter of Lebanese law.
The concept of sovereign immunity from execution is recognised under Lebanese law and can be raised as a defence at the enforcement stage. Article 860(1) of the Code of Civil Procedure stipulates that the assets of state and public legal bodies cannot be seized. Article 860(2) stipulates that the assets of foreign states cannot be seized, except those which are subject to private law.
For further information on this topic please contact Ziad Obeid or Nayla Comair-Obeid at Obeid Law Firm by telephone (+961 1 395 163), fax (+961 1 393 906) or email (email@example.com or firstname.lastname@example.org).
An earlier version of this overview first appeared in Global Arbitration Review.
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