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06 November 2014
A series of recent decisions of the Beirut Court of First Instance affirms the liberal approach of the Lebanese judiciary to arbitration, both domestic and international. The decisions are indicative of the arbitration-friendly approach of Lebanon's judiciary, and the fact that arbitration is widely appreciated as a viable means of alternative dispute resolution and not as an 'exceptional' mechanism, as is the case in many other Middle Eastern countries.(1)
This update considers the emerging trend in the interpretation of arbitration agreements, referring particularly to recent decisions of the Beirut Court of First Instance in cases where it intervened in arbitration proceedings when the validity of the arbitration agreement had been called into question.(2) Each ruling is representative of the positive role being played by the judiciary in support of arbitration in Lebanon.
In one case, the Beirut Court of First Instance was confronted with a potentially nullifying term in an arbitration agreement, which referred to the 'Court of First Instance' as the competent appointing authority without specific reference to the president of this court (who alone is competent to appoint arbitrators, according to a mandatory provision in the Lebanese Code of Civil Procedure).(3)
The court was praised for its refined reasoning which preserved the overarching validity of the arbitration agreement in this case. In its ruling, it referred to the concept of 'surgical nullity' whereby, in the event that an arbitration agreement contains invalid and therefore potentially nullifying terms, any annulment:
"will only affect the term which is contrary to the mandatory provision of the law without affecting the arbitration agreement as a whole as long as the term is not essential in the drafting of the arbitration agreement and was not the triggering element which led the parties to its conclusion".(4)
The effect was essentially to cauterise the arbitration agreement by annulling the invalid term while preserving the overall validity of the agreement.
In a similarly progressive decision to safeguard the validity of the arbitration agreement in the face of potentially nullifying circumstances, the Beirut Court of First Instance intervened in arbitration proceedings where one party had become involved in formal insolvency proceedings before arbitration commenced.
In this instance, the court ruled that the arbitration agreement contained in the main agreement (which the debtor had concluded before being declared bankrupt) "remains valid as long as the main agreement is valid". Therefore, "the liquidator has to execute the arbitration agreement in the same way it would any other act of disposition or agreement concluded by debtor before being declared bankrupt".(5) Having ruled in favour of the validity of the arbitration agreement despite the formal insolvency proceedings, the president of the Beirut Court of First Instance proceeded with the appointment of arbitrators to hear the dispute.
A further series of Beirut Court of First Instance decisions underline its role in supporting the preservation of the validity of arbitration agreements.
Number of arbitrators
In two recent decisions the court confirmed that, even if the parties have not explicitly agreed on the number of arbitrators making up the panel, the agreement to arbitrate will remain valid and binding as long as it refers to the parties' intention to submit the dispute to an "arbitrator or arbitrators". The court confirmed that the number of arbitrators should be odd – in accordance with Article 771 of the Code of Civil Procedure – and reiterated that the role of the judge is to assist the parties in ensuring that a valid and operative arbitration agreement is preserved where possible.(6)
Authority of directors
In another matter, the court confirmed the well-established liberal jurisprudential trend in Lebanon which is to view the agreement to arbitrate as an "administrative act, falling within the ambit of the 'day-to-day' management of a company" and therefore to recognise the authority of the director of a company to validly sign an arbitration agreement without prior authorisation from the company's board (so long as the authority to sign an arbitration agreement is not explicitly reserved for the board in the company's articles of association).(7)
Finally, and when confronted with the issue of the extension of an arbitration agreement to non-signatories, the Beirut Court of First Instance confirmed that if a party has participated in the negotiations or execution of the main agreement in a manner which confirms the parties' intention to be bound by the agreement, then even if that party is not signatory to the agreement, it is bound by the agreement.(8)
Each of these recent decisions reflects the positive role being played by the judiciary in support of arbitration in Lebanon by assisting parties to work around potentially problematic terms, in order to preserve the integrity and validity of the overall arbitration agreement.
For further information on this topic please contact Zeina Obeid at Obeid Law Firm by telephone (+961 1 39 39 06), fax (+961 1 39 39 06 Ext 5) or email (email@example.com). The Obeid Law Firm can be accessed at www.obeidlawfirm.com.
(1) See, for example, Abu Dhabi Court of Cassation, Decision 170/2010 (April 28 2010); Kuwait Court of Cassation, Decision 146/1985 (March 5 1986); Qatar Court of Cassation, Decision 72-73/2012 (June 12 2012).
(2) Beirut Court of First Instance, Decision 24/63 (June 5 2013) – unpublished; Beirut Court of First Instance, Decision 2/44 (January 14 2013) – unpublished; Beirut Court of First Instance, Decision 9/51 (February 13 2013) – unpublished.
(7) Beirut Court of First Instance, Decision 2/44 (January 14 2013) – unpublished; Beirut Court of Appeal (October 28 2009), Journal of Arab Arbitration, Vol 5 P 374 with the commentary of M Maamari, Journal of Arab Arbitration, Vol 6 P 437.
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