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01 June 2020
As COVID-19 continues to spread in Lebanon, with new active cases being reported on an almost daily basis, the authorities have implemented several measures at the parliamentary, executive, judicial, ministerial and administrative levels to curb the pandemic and address its consequences for businesses. The current status quo in Lebanon is governed by state measures imposing quarantines, sanitary cordons and social distancing restrictions in an attempt to stop, or at least control, the effects of the COVID-19 outbreak.
The virus and the ensuing response have disrupted supply chains and caused declines in demand. UN economists recently announced a $50 billion fall in manufacturing worldwide in February 2020 alone.(1) This slowdown in manufacturing has had a ripple effect on economic activity across the globe due to interconnected value chains.(2) Businesses have had to navigate issues such as:
Lebanon has not been spared from this worldwide economic disruption. Rather, the COVID-19 outbreak has aggravated the ongoing severe financial, economic and social crisis which started on 17 October 2019. This has had a knock-on effect on the Lebanese economy due to the devaluation of the Lebanese pound coupled with existing de facto capital controls being exercised by local banks despite the liberal economic model enshrined in the Lebanese constitution.
In this respect, companies have been actively assessing their risk exposure, liabilities and potential defences that may arise from contractual breaches. This risk assessment focuses on, among other things, the existence and evaluation of force majeure and related provisions.
The COVID-19 pandemic has highlighted the importance of using force majeure to repudiate the performance of burdensome contractual obligations that were undertaken before the pandemic.
This article discusses Lebanon's approach with regard to the COVID-19 outbreak and its potential characterisation as a force majeure event by discussing recent developments and the general framework for force majeure under Lebanese law.
Parliament only recently addressed the implications that the COVID-19 outbreak may have on contractual obligations by enacting Law 160 on 8 May 2020 (Law 160/20, published in the Official Gazette on 14 May 2020).
Law 160/20 provides for the suspension of legal, judicial and contractual time limits from 18 October 2019 to 30 July 2020.(3) The starting date of 18 October 2019 is questionable as it is unrelated to the COVID-19 pandemic. The law's preparatory works state that since 17 October 2019, Lebanon has faced exceptional circumstances characterised as a force majeure event which prevents the state and its citizens from adequately exercising their legal, judicial and contractual rights. On 17 October 2019 Lebanon experienced civil upheaval followed by an unjustified two-week closure of the banking sector, which had a direct effect on the country's economy due to the surge in deposit withdrawals. However, the public and private sector were continuing to function as best they could despite the disturbances caused by the protests. The characterisation of events relating to protests and the closure of the banking sector as events of force majeure is unprecedented.
Further, the preparatory works to Law 160/20 name 20 February 2020 as the date of the first declared case of COVID-19 in Lebanon. However, this date is also questionable since the governmental decree on general mobilisation in relation to the COVID-19 pandemic was not issued until 15 March 2020.(4) There is no explanation for this one-month discrepancy, despite the fact that the public and private sector were functioning normally before 15 March 2020.
The preparatory works are generally not binding but could serve as guidance to the courts when assessing whether and to what extent specific events or circumstances arising from the protests or COVID-19 outbreak could be deemed force majeure events.
The scope of the suspension, as provided under Law 160/20, concerns the public and private sectors' exercise of their procedural and substantive rights in civil, commercial and administrative matters.
Law 160/20 also addresses the effect of the suspension of time limits in criminal matters(5) and lists the cases in which the law does not apply.(6) Of particular importance is the discretion provided to judges when deciding whether judicial time limits should be suspended in light of the circumstances of each case.
On 15 April 2020, before the issuance of Law 160/20, the investigating judge in Tripoli rendered a decision whereby he expressly found that the COVID-19 outbreak will be deemed an event of force majeure. Although this decision was rendered in a criminal case, it could indicate how judges will approach the COVID-19 outbreak and its characterisation as an event of force majeure.
The general Lebanese legal framework does not provide a definition of 'force majeure'; rather, this was developed through jurisprudence and doctrine. Force majeure clauses are subject to contractual liberty under Lebanese law and parties can agree the types of event that qualify as force majeure events in their agreement.(7) Lebanese doctrine and jurisprudence confirm that force majeure extinguishes contractual liability when the applicable conditions are met and when it is relied on as a basis for the non-performance of obligations.(8)
Article 342 of the Code of Obligations and Contracts 1932 refers to force majeure as an event which renders the performance of contractual obligations impossible and which "the debtor must prove the existence [of]."(9) In such cases, the obligations that were not performed due to said event are extinguished and no longer enforceable.(10)
For an event to qualify as force majeure, three conditions must be met:
If these conditions are met, the debtor will be exempt from its contractual liability where performance is impossible as a result of the force majeure event.
However, parties may still contractually agree to abide by the terms of their contract even in cases of force majeure. This right is specifically enshrined in Law 160/20, which provides that parties to a contract can waive their right to benefit from the suspension of time limits, provided that such waiver is express and in writing.(13)
For further information on this topic please contact Zeina Obeid or Hassan Khalife at Obeid Law Firm by telephone (+961 1 36 37 90) or email (firstname.lastname@example.org or email@example.com). The Obeid Law Firm can be accessed at www.obeidlawfirm.com.
(2) UN Conference on Trade and Development, 2020, "Trade and Development Report Update: Global Trade Impact Of The Coronavirus (COVID-19) Epidemic".
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