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14 July 2020
The COVID-19 outbreak in Lebanon has forced Lebanese authorities to adopt exceptional measures in an attempt to mitigate its spread. On 15 March 2020 the government declared a state of general mobilisation,(1) whereby the majority of public and private sector institutions were put under almost complete lockdown, excluding institutions providing essential services. The lockdown measures have been gradually lifted since the end of April 2020.(2) This easing of restrictions was undertaken in compliance with transitional health and safety measures and under close government supervision.
Despite the lockdown and its impact on court activities, decisions have been handed down by judges in summary proceedings in an attempt to restore the rule of law in response to the de facto capital controls imposed by local banks. This article provides an overview of the judicial measures adopted in response to the COVID-19 pandemic and an overview of court decisions rendered against local banks.
The Ministry of Justice (MoJ), the High Judicial Council (HJC) and the attorney general have all acknowledged the gravity of the situation and issued a series of regulations during the general mobilisation period. Court hearings were suspended, except for urgent criminal matters relating to the release of prisoners and the interrogation of detainees as well as urgent civil and commercial matters pending before judges of summary proceedings, including conservatory seizures.(3) The judicial authorities have been encouraging courts to work remotely and make use of online platforms, particularly with respect to interrogations.(4)
The COVID-19 outbreak further aggravated Lebanon's ongoing economic crisis. Disputes surrounding the issue of local banks exercising de facto capital controls have been increasingly on the rise.
In effect, Lebanese courts have recently witnessed a marked surge in disputes between depositors and local banks, predominantly relating to unlawful restrictions being placed on cash withdrawals, money transfers and foreign currency transactions. This articles focuses on selected decisions that were initially rendered in favour of depositors and provides a brief description of the salient considerations underpinning each matter.
Decision of Nabatieh judge in summary proceedings against a Lebanese bank on 25 November 2019 concerning release of funds
This case is the first in a series of decisions in which the courts have ruled against local banks since the recent implementation of de facto capital controls. The judge in this matter sought to uphold the interests of the plaintiff and ordered the bank to comply with the plaintiff's request to withdraw all of its funds in cash. The judge additionally imposed a coercive fine of LBP20 million for each day of delay. In his decision, the judge rejected the bank's arguments which, among other things, relied on the extraordinary circumstances prevailing in the country and found that such events could not be deemed as acts of force majeure which would exempt the bank from its contractual obligations towards it clients. The local bank has appealed this decision and the matter is currently pending before the courts.
Decision of Beirut judge in summary proceedings against a Lebanese bank on 3 January 2020 concerning international bank transfers
The matter before the court concerned the international transfer of tuition fees and expenses into the account of two students pursuing their education abroad. The judge in the summary proceedings ordered the bank to transfer the funds, subject to a coercive fine for each day of delay. In doing so, the judge observed that Lebanon's liberal economic model was enshrined in the Lebanese constitution. As such, the judge held that any restriction on an individual's right to their private property would be in violation of the constitution, and any restriction to the free movement of capital would therefore constitute a violation of the law. However, the court decision was appealed, and the parties subsequently reached a settlement prior to the issuance of a court decision.(5)
Decision of Zahle judge in summary proceedings against a Lebanese Bank on 13 January 2020 concerning wire transfers in commercial dealings
In this case, the plaintiff filed an application before the judge of summary proceedings demanding the transfer of funds to an overseas account to:
Following consideration of the issues at stake, the judge found in favour of the plaintiff on the basis that the restrictions imposed by the bank constituted a violation of its statutory and contractual obligations towards its depositors. The judge further found that the directives issued by the Association of Banks in Lebanon (ABL),(6) in response to the exceptional economic situation in the country should serve as guidelines only, with no binding effect on depositors.(7) The judge noted that the exercise of capital controls by the ABL required specific legislation in order to be prima facie enforceable. The judge's decision highlighted that Lebanese jurisprudence was consistent in its protection of fundamental rights including the right to the free disposal of private property and the free transfer of funds.(8) The bank appealed the decision and requested a stay of execution. The Court of Appeal refused to grant the stay which was subsequently overturned by the Court of Cassation.(9)
Decision of Tyr judge in summary proceedings against a Lebanese bank on 5 May 2020 concerning international bank transfers
In a similar context to the preceding cases, the plaintiff in this matter filed an application to the judge, seeking to transfer a payment to the accounts of designated foreign companies with whom the plaintiff had regular commercial dealings. The judge ruled that the bank had no legitimate grounds for refusing the transfers and ultimately ordered the bank to execute the requisite payments and settle an additional sum for outstanding fees, subject to a coercive fine for each day of delay. The judge also imposed a travel ban on the bank's chair and its board of directors, pending the resolution of the dispute. The defendant filed its objection and sought a stay of execution, which was dismissed by the court. Subsequently, the decision was appealed before the Court of Appeal.(10)
Decision of Metn judge in summary proceedings against a Lebanese bank on 11 May 2020 concerning international money transfers for tuition fees
Following the trend of previous decisions, the judge of summary proceedings in this matter ordered a Lebanese bank to complete an international transfer of funds to settle university tuition fees. The judge found that any restrictions imposed by the bank on the free disposal of capital were illegitimate, particularly in light of the absence of legislation underpinning the measures. The judge reiterated that such restrictions would constitute a constitutional violation and a breach of both domestic law and international conventions.(11)
The above decisions are welcome as they upheld the rule of law and sanctioned arbitrary capital controls imposed by local banks in the absence of a law on capital controls.(12)
For further information on this topic please contact Ziad Obeid, Nayla Comair-Obeid and Dima Chehade at Obeid Law Firm by telephone (+961 1 36 37 90) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Obeid Law Firm can be accessed at www.obeidlawfirm.com.
(1) Decree-Law 6198 of 15 March 2020 announced a state of general mobilisation initially from 15 March 2020 to 29 March 2020. However, the general mobilisation has been repeatedly extended, most recently until 5 July 2020, while allowing business activities to gradually reopen according to the timelines set by Article 2 of Decree 6296/2020. It has been reported that the state of general mobilisation is to be extended until 2 August 2020 based on the recommendation of the Higher Council of Defence to the Council of Ministers.
(3) HJC Decision of 3 March 2020 effective as of 4 March 2020; MoJ Decision of 20 March 2020; HJC Decision of 27 March 2020. The suspension of court hearings has been repeatedly extended, most recently by a decision issued on 9 May 2020 valid until 24 May 2020.
(6) ABL issued Directive 429 of 17 November 2019 which comprises a series of exceptional measures that banks could take to mitigate the impact of the prevailing economic situation; in other words, permitting the exercise of de facto capital controls.
(10) The court of appeal ordered stay of execution on the settlement of the fees and the travel ban imposed. However, the court of appeal upheld the decision ordering the transfer of funds. That being said, the defendant challenged the decision before the court of cassation and is pending a final ruling.
(12) A draft-law on capital controls was proposed by the Lebanese minister of finance. After a series of deliberations within the Council of Ministers in March 2020, the draft was subject to opposition from various groups and was set aside. Nonetheless, a new proposal is reportedly being under preparation to control the transfer of money.
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