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Practice
Areas
We offer our clients innovative and personalized solutions across a wide spectrum of services and industries including: Real Estate, Franchising, Intellectual property, Insurance, Payment gateways and solutions, F.M.C.G , Pharmaceuticals, Biotech, Printing and publishing, Healthcare, Industrial, Hospitality, Fintech, Private equity, Power and Energy, Infrastructure, Start-ups, technology and TMT including digital media.
Employment
We cover the full spectrum of employment matters and cases and are proud of our successes in settling amicably most of the employment disputes.We accompany the employers and the employees as of early stages of negotiation and offer advisory as well as litigation and ADR services, all in connection with labor and social security laws. We provide a full range of legal services in relation with employment agreements and documents, including negotiating, drafting and reviewing. Our services tackle, inter alia: Termination Restructuring Mobility End of service Internal regulations, policies and codes of conduct Social security Authorizations, licenses and work permits
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Real estate, Construction and Project development
We provide high-quality, practical and innovative solutions in dealing with real estate assets. We have strong real estate and construction credentials, and our clients comprise property owners, institutional investors, developers, contractors and project managers. We act on behalf of our clients on real estate purchases as well as on agreement negotiations, drafting and reviewing. Our services include: Sales and purchases Construction and construction management Development, financing and operations Property investments and disputes Joint ventures Partnerships
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Tax
We deal with domestic and international tax planning for companies and high-net-worth individuals and families by advising on most tax effective solutions, updating our clients continuously on tax regulations amendments and deadlines, as well as handling authorities’ declarations and tax procedures on behalf of our clients.
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Corporate and Commercial
We act as business partners to our clients and are involved in decisions related to the legal, commercial aspects of the business life. We offer comprehensive advisory services for local and foreign companies including corporate finance, business advisory and management consultancy. We handle companies' full spectrum day-to-day operations and commercial activities. Our services include, at a glance: Shares allocation management Commercial documents and agreements (Memoranda of Understanding, Shareholders’ agreement, Non-disclosure and confidentiality) Franchising Bankruptcy and liquidation Corporate governance, corporate asset planning and structuring Foreign investments, anti-dumping and subsidies, Incoterms Mergers and acquisitions, stock and asset backed purchases, leveraged buyouts, recapitalizations and takeovers Data privacy and data protection
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Criminal
We offer specialist advice across the spectrum of corporate and business crime including: Criminal litigation services Criminal investigation and prosecution Cybercrime
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Dispute Resolution
We handle a wide range of litigation and alternative dispute resolution services in complex domestic and international disputes covering various sectors such as civil, commercial, real estate, banking, insolvency, inheritance, crime and employment. Our litigation and ADR services include: Legal research Field actions (courts, registries, notifications) Memorandum drafts Foreign correspondents and partners’ liaison in cross-border cases Complex negotiations Ad hoc and institutional commercial arbitrations, notably under ICC rules and QICCA (Qatar International Center for Conciliation and Arbitration) Mediation cases
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Banking and Finance
We deal with both lenders and borrowers and advise on general corporate banking, lending transactions, takeovers and leveraged finance, including but not limited to day-to-day banking needs, loan agreements and investment plans. Our comprehensive experience in banking and finance and our debt and equity capital markets services enable us to cover a wide scope of transactions such as: Initial public offerings (IPOs), secondary, and follow-on stock offerings Corporate debt and bridge financings Convertible debt offerings and equity-linked securities Private Equity and mezzanine financing Private placements Liability management transactions, (tender offers and exchange offers)
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Private Client
We work closely with high-net-worth individuals and families to support them in planning, managing and protecting their wealth, local and international, for future generations. Our services include: Trusts, foundations and companies Asset planning solutions ranging from distribution of assets and wills to complex global holding structures Asset management and protection Advisory and cross-border implementation of solutions
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The Firm
Tohme Law Firm is a top-tier boutique law firm in Beirut, Lebanon, providing a broad range of legal services tailored to both businesses and individuals, with a focus on corporate and commercial law, estate planning and alternative dispute resolution.
The firm was founded by Youssef Georges Tohme in 1979 and the Firm’s clients are leading companies operating in various sectors in Lebanon and abroad as well as high-net-worth individuals.
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COVID-19 and Force Majeure under Lebanese Law
Since the coronavirus has been spreading around the world, the majority of the affected States have taken strict measures in order to decrease the virus spread, including full lockdowns, businesses shutdowns and closures. These measures have been reported to affect the performance of contractual relationships, to disrupt business, notably trading, supply chains and business services both at the international and domestic levels. The repercussions on employment have also been significant and have affected the contractual obligations of employers and employees. On 15 March 2020, the Lebanese government has declared a state of “general mobilisation” applicable until 29 March 2020, extended afterwards until 12 April 2020. The decision included shutting down Beirut airport, seaports and land borders. It also stated, beside the closure of all restaurants, shops, entertainment facilities, schools and universities, the suspension of work in the private sector (with some exceptions related to basic consumables and transport). How are the various parties affected by this general mobilisation likely to react? All speculations currently turn around the concept of Force Majeure. Therefore, we reflect below on the concept of Force Majeure under Lebanese Law and the extent of its application in the current circumstances to the affected parties, with a focus on employment agreements. Analysis What is Force Majeure from the perspective of Lebanese Laws? The concept of Force Majeure in contractual obligations is referred to by article 341 of the Lebanese Code of obligations and contracts as the “impossibility of performance of an obligation” because of an external event to the acts or faults of the debtor. In the absence of a clear definition of the Force Majeure in the Lebanese legislation, both doctrine and case law converge on the following definition: “Force majeure is an unforeseen unavoidable external event beyond parties' control that prevents one or both parties to a contract from fulfilling their obligations”. This said, the qualification of an event as a Force Majeure requires the fulfilment of three conditions cumulatively, developed by judges and courts. The event must be unforeseeable, unavoidable and external. Unforeseeable means that the event that led to the impossibility of execution of the obligation was unexpected and could not be reasonably predictable by the parties at the time of signature of the contract. Therefore, a recurring epidemic would most probably not be deemed as unforeseeable. Unavoidable means that the party with the obligation of execution was not able to resist or prevent the occurrence of such event. Since COVID-19 is declared by the majority of States and by the WHO as an epidemic, it is most likeable to be considered as unavoidable. External means that the event was driven by external factors unrelated to the will of any of the parties and beyond the control of the party invoking Force Majeure. The Lebanese Government's decision of public mobilization would most likely be deemed “beyond the control of the party invoking Force Majeure”. Needless to point out that an event will not be qualified as Force majeure unless it prevents the debtor of an obligation from performing it. This idea is in the core concept of “Force Majeure” as enshrined in the above-mentioned article 341 of the Lebanese Code of obligations and contracts and constitutes one of the required criteria of Force majeure under article 1218 of the French Civil Code. This said, the fact that an obligation has become more onerous or more difficult to perform is not sufficient to qualify the event of Force Majeure. Therefore, if the impact of current epidemic is merely to make the performance of an obligation more difficult or onerous, it would most probably not be considered as an event preventing the performance of contractual obligations. How do parties to affected contracts benefit from invoking Force Majeure? If the party invoking Force Majeure succeeds in demonstrating that its conditions indeed apply, two consequences are possible: In principle and as stated in article 341 of the Lebanese Code of obligations and contracts, if Force Majeure leads to permanent non-performance of an obligation, it has the effect of terminating the contract and exempting parties from performing their obligations. However, article 343 of the Lebanese Code of obligations and contracts states that, the exemption of performance is always related to the extent of impossibility resulting from the Force Majeure. Therefore, if the demonstrated Force majeure partially prevents the performance of an obligation, parties will be merely partially discharged from their obligations. Another scenario could occur when Force Majeure leads to a temporary prevention of performing obligations. In such a case, Lebanese legal theory and jurisprudence state that the contract/agreement will be suspended for the duration of the Force Majeure, only if the end of the Force Majeure's impact is predictable within a reasonable period of time. This is explicitly stated in article 1218 of the French Civil Code. Will coronavirus be qualified by Lebanese courts as an event of Force Majeure? There is no such a thing that a certain event would constitute a Force Majeure in absolute terms. Lebanese courts proceed on a case-by-case basis in order to qualify an event of Force Majeure and examine the circumstances of each case in concreto. This explains why the same event can be considered as Force Majeure in some cases but not in others, and why we cannot, at this stage, qualify COVID-19 as a Force Majeure. Generally, Lebanese courts tend to adopt a strict approach in applying the Force Majeure criteria. There are no judgements or decisions related in particular to epidemic cases in the Lebanese case law. The cases mainly revolve around war situations and even war was not considered as a Force Majeure in some circumstances. Coronavirus seems to verify the conditions detailed above of a Force Majeure event, but its qualification as such depends on the circumstances of the case where it will be invoked and their appreciation by the court. It remains to be seen how Lebanese courts will deal with COVID-19, depending on the impact it will develop on contractual obligations in the upcoming weeks, months. Does the same reasoning apply to employment agreements? The concept of Force Majeure does not change in employment agreements. However, its application is different. It is strictly limited by article 50 (F) of the Lebanese Labour Law. Article 50 (F) of the Lebanese Labour law grants the employer the right to terminate all or some of his/her establishment's employment contracts in the event of Force Majeure or of compelling economic or technical circumstances, such as the reduction of size of the establishment, or replacement of a manufacturing process by another, or final stop of work; all this under two mandatory cumulative conditions: (1) The employer is required to notify the Ministry of Labour of his/her intent to terminate those contracts one month prior the execution. (2) The employer is required to consult the Ministry regarding the method of termination of employment contracts taking into consideration the employees' seniority, specialisation, age, social and family status, and means deemed to be necessary for their re-employment. That being said, the only option foreseen by the labour law in case of Force Majeure, is the termination of contracts under the abovementioned conditions. The Ministry of Labor intervenes to verify if the termination is justified. The Ministry can also go further as to request that these measures be necessary for the survival of the company and be justified only and directly by the event of Force Majeure, in this case, by coronavirus. If such procedure is not followed, termination shall be deemed unlawful. It is obvious that the spirit of the Lebanese Labour law and case law is protective towards employees. No other provisions than article 50 (F) of the Lebanese Labour law would be applicable on termination of employment agreements for Force Majeure and Lebanese courts tend to be strict regarding the application of the conditions of article 50 (F) of the Lebanese Labour law and consider these conditions as part of the Ordre Public. At this stage of the coronavirus situation does not justify by itself the termination of employment contracts. Where the prevention of performance caused by a demonstrated event of Force Majeure is only temporary, the consequence is in principle the suspension of contracts, as mentioned under the second question above tackling how contracts in general are affected by Force Majeure. What would be the fate of the employees' salaries if the employment agreements are suspended? In its decision of general mobilization on 15 March 2020, the Lebanese Government ordered the suspension of “work” in all private companies (subject to few exceptions) until 29 March 2020, extended until 12 April 2020. However, the mentioned decision remained silent regarding the fate of employment agreements and salaries meanwhile. Since the Labour law is also silent regarding such a particular scenario, some suggest the applicability of article 624 of the Lebanese Code of obligations and contracts that enshrines the principle of “No work without remuneration”, in order to infer that employees who are unable to perform their employment obligations immediately lose their right to remuneration. We do not favour such an opinion at least not with a radical and immediate effect, considering that the Labour Law - protective of employees' rights- prevails on the application of the general provisions of article 624 of the Lebanese Code of obligations and contracts. In addition, article 7 of the Arab Convention No. 15 concerning the determination and protection of wages of 1983, ratified by Lebanon in 2000 and applicable in this case, states that employee has the right to his complete remuneration even if he was prevented from performing his work when such prevention is caused by external factors unrelated to his will. Within the same logic, Lebanon Legislative-Decree No. 17/1977 on organising the consequences of work suspension caused by Lebanese war, distinguished at the time between the temporary failure of performance of obligations, for which the employment agreements were suspended, on one hand; and the definitive failure of performance of obligations, for which the employment agreements had to be terminated, on the other hand. It also had foreseen the payment of salaries (although lower than the initially agreed on salaries) even in the period of suspension, which aimed at having the employers and the employees share the burden of the ongoing circumstances. How could employers behave in the absence of definitive solutions? Currently and in the absence of any legislation determining the fate of employment agreements and salaries during general mobilization period, employers are invited to proceed, in our opinion, with progressive and fair alternatives for their employees, instead of immediately and completely suspending contracts and cutting salaries at this stage. We are of course limiting our reasoning here to acts arising directly and solely out of the coronavirus situation. Lebanese employers have already been struggling for months, sometimes years, because of the economic and financial situation in the country; the repercussions of which are different and will not be tackled below. In situations where the nature of work allows it, the employers shall be taking all necessary measures to ensure the work-from-home for their employees. In such cases, employees shall be considered on ordinary working hours and their salaries shall be normally paid. In other cases where working from home is not possible for employees, and the nature of work does not allow its suspension, the employers may negotiate with the employees a progressive and temporary plan applicable along the period of general mobilization. The plan may determine a replacement schedule among employees, or a decrease in salaries according to decreasing working hours; these plans being only temporary. In all cases, we suggest having the employees participate in discussions and consent on any measure taken, even if temporary. It is also recommended that the employers notify at least the Ministry of Labor all the plans they may be applying during the relevant period as soon as they can. In cases where working remotely is not accessible to employees and these latter are obliged to remain home, and since they will be in quarantine, employers can start by considering that employees are on sick leaves according to article 40 of Labour Law. Another possibility could be to consider employees on annual paid leave, since article 39 of the Labour Law stipulates that every employer has the right to fix the annual leave days of the employees according to work requirements. All the above is provided under current legislation in force, we are hoping for new legislation which would put an end to the improbabilities caused by COVID-19 and fairly determine the fate of affected employment agreements. Away from statutory provisions of Force Majeure, what else could parties in a contract consider? Force Majeure/hardship clauses: parties may have inserted a Force Majeure or a hardship clause in their contract, intending to cover cases in which unforeseen events occur that fundamentally alter the equilibrium of a contract resulting in an excessive burden being placed on one of them. These clauses, like any other contractual clause, will be interpreted and applied by the judge, according to the will of both parties. Parties shall also bear in mind that the effectiveness of these clauses might be foiled by judges if their existence threatens the rights of the weaker party (employment contract, consumer contract...) by making him/her bear liability even in events of Force Majeure. Negotiations and revision of contract: although the revision of contract could not be enforced by judges under Lebanese Law so far, even in cases of a major alter in the equilibrium of the contract, parties can however negotiate and decide on that by common agreement at any stage of the performance of contract. Acting in Good Faith: parties may tend to neglect the importance of “good faith” principle in contractual obligations. Under the Lebanese legislation, this principle has a particular importance as the parties are obligated to act in good faith at each and every stage of the contract, from its negotiation to its termination. That said, in these difficult times, acting in good faith is as relevant, if not more. Parties shall take all necessary measures to mitigate each other's loss, to notify each other with steps that need to be taken, to communicate and negotiate when possible/necessary, and most importantly, to avoid the sanctioned behaviours of abuse and fraud.
Lebanon E-Transactions Law
Although face to face meetings are now less of an option, and the exchange of hard copy documentation is becoming more difficult, contracts must continue to be concluded in order to ensure the continuity of businesses. For this reason, the reference to electronic documents and contracts is currently increasing as a viable option for business, and the electronic signature is encouraged as an alternative to “wet ink” signature where it is practicable and available with little or no legal risk. This being said, the question is: are electronic contracts enforceable and digital signatures valid in Lebanon? This commentary answers the question and sets out the legal requirements for the validity of e-documents and e-signatures under Lebanon Law No. 81/2018 Related to Electronic Transactions and Personal Data. Lebanon Law No. 81/2018: Lebanon's first step into the e-transactions' world On 10 October 2018, Lebanon joined the modern business network where electronic communications are good practice, by issuing an e-transactions and data protection law under Lebanon Law No. 81/2018. Up until this date, e-documents and signatures could merely serve - upon judges' discretion - as a preliminary evidence and data protection was absent from the Lebanese legislative environment. Lebanon Law No. 81/2018 has the merit of acknowledging the existence and enforceability of e-documents and e-signatures, but also of drawing a legal framework for e-commerce and setting a protective ground for personal data. In this article, we will only address the e-documents and e-signatures' validity chapter of the Lebanon Law No. 81/2018. This chapter deserves as special focus taking into consideration the importance and increasing need of businesses for e-signatures. E-documents and e-signatures' validity and recognition Lebanon Law No. 81/2018 has brought a first-time definition to both writings and signatures. The writing is defined regardless of the format used and the medium through which the information is transferred, which can equally be paper or electronic, while the signature is defined by its common function, as a requirement to the completion of a legal process in order to identify the party thereto and confirm their consent to the signed legal process. Moreover, the main achievement of Lebanon Law No. 81/2018 is in equating e-signatures and e-documents with paper-based signatures and documents. As provided in Article 4 of Lebanon Law No. 81/2018, “electronic writings and signatures shall have the same legal effect as the writings and signatures made on paper or any other medium”, under the following two cumulative conditions: the person producing the documents is identifiable; and the documents are organized and stored in a way that preserves their safety, which we will be detailing thereafter. One particular and relevant legal effect tackled by Article 7 of Lebanon Law No. 81/2018 is related to the evidentiary weight of e-documents and e-signatures that will be accepted as evidence and have the same validity and power of proof as the written paper-based document, under the same aforementioned conditions. Otherwise, in case the electronic writing does not meet the mentioned criteria, it will be considered as the introduction of written evidence. The multiple copy rule stipulated in Article 152 of Lebanon Decree No. 90/1983 on the Civil Procedure Law for paper-based documents is still required for e-documents under Article 10 of Lebanon Law No. 81/2018. It is deemed satisfied when the ordinary document is organized as per the reliability requirements set forth in Lebanon Law No. 81/2018, and when the mechanism used by each party allows to obtain or access a copy of the document. Challenges of implementation Although Lebanon Law No. 81/2018 offers many merits, it is however not devoid of “challenges” for the parties who wish to contract electronically or issue an electronic document under the Lebanese law. Official electronic documents A first challenge in the implementation of Lebanon Law No. 81/2018 is related to official electronic documents. These documents will not produce any legal effect until regulated by virtue of a decree of the Council of Ministers upon a proposal of the Minister of Justice. Said decree, yet to be issued, is expected to govern the special procedures and guarantees pertaining to the documents and their scope as provided for in Article 8 of Lebanon Law No. 81/2018. Some transactions that must be official in principle, such as the transactions relating to personal law (marriage, divorce and wills) and to immovable property , tend to be excluded from e-transactions laws in general. This, for instance, is particularly the case of Federal Law No. 1/2006 Concerning Electronic Transactions and Commerce of the UAE. However, Lebanon Law No. 81/2018 does not comprise any exclusion in this regard. We are still waiting to discover whether the mentioned transactions will be electronically possible upon the issuance of the decree of implementation relating to official documents, or whether they will be excluded. Safety of electronic writings and signatures (official and unofficial) Another pertinent challenge lies in the means to ensure the safety of electronic writings and signatures as a legal requirement for their validity. As mentioned earlier, one of the mandatory conditions that will allow electronic writings and signatures to produce the same effects as if they were paper based, is their organization and storage “in a way that preserves their safety”. Article 5 of Lebanon Law No. 81/2018 determines the meaning of “storage of electronic data” as “the recording of the data on a storage medium in a way to ensure that the data is safe and accessible at all times in a way that allows copying or extracting content”, but uncertainty remains as to how to ensure the safety of e-writings and signatures. Lebanon Law No. 81/2018 doesn't seem to be clear about it. So why would parties resort to protection means? And what are some of these means? In fact, safety is key in e-commerce which is why e-transactions must be regulated, with regards to all their particularities and technicalities; for safety brings integrity, and integrity brings reliability. This idea is reflected in Article 15 of Lebanon Law No. 81/2018 which stipulates that “the protection measures are used in electronic writings and signatures to make them more reliable”. The protection measures will help perform several functions such as: verifying the identity of the document organizer, assigning a correct date to the document, and/or ensuring its storage and the integrity of its content (in other words, in way that does not allow the modification of its content). Article 9 of Lebanon Law No. 81/2018 establishes a “presumption of reliability” for electronic signature, if it is produced and authenticated through a procedure by an authorized authentication service provider. Only in this case, it is presumed that the signatory is identified and that the signature corresponds to the legal process in question, unless proven otherwise. But what is an authorized authentication service provider? The reference to one or more authentication service provider (also referred to as Certification service provider or CSP) is one of the means to ensure protection of signatures and writings, stipulated as such by Lebanon Law No. 81/2018. These authentication service providers must, upon performance of said functions, deliver a certificate of authentication to the concerned person, as per Article 15 of Lebanon Law No. 81/2018. Chapter IV of the Lebanon Law No. 81/2018 stipulates that the Lebanese Accreditation Council (COLIBAC) will determine the conditions of accreditation of the CSPs and that an implementing decree is required to address the legal recognition of electronic authentication certificates. In the absence of such decree and considering that COLIBAC is non- operational in performing its functions, in particular determining the accreditation conditions, the full implementation of Lebanon Law No. 81/2018 is unfortunately delayed. In the meantime, and until CSPs are approved by the COLIBAC. the presumption of reliability set forth in Article 9 of Lebanon Law No. 81/2018 is disabled; and instead, the judges will have a discretionary power to assess the power of proof of the electronic signature or writing, unless the parties agree otherwise, as per Article 18 of Lebanon Law No. 81/2018. Lebanon Law No. 81/2018 also stipulates that the functions above (identity of the organizer, date of document, the safety of its content, etc.) may be performed through other techniques as well, left to the creativity of the interested parties since the law does not refer to any of them. General implementation of the law Lebanon Law No. 81/2018 has been in fact effective since January 2019 (three months from its publication in the Official Gazette). However, as stipulated in Article 134 of Lebanon Law No. 81/2018, details of enforcement of Lebanon Law No. 81 /2018 will be defined, where necessary, by decrees issued by the Council of Ministers upon the proposal of the Minister of Justice, the Minister of Economy and Trade, the Minister of Finance, the Minister of Industry and the Minister of Telecommunications, each within the limits of their power. However, Article 64 of Lebanon Law No. 81/2018 remains an exception to the Lebanese government's pace, since it entitles the Central Bank to issue implementing measures to the authentication of e-signatures relating to e-payments. Such autonomy given to the Central Bank in regulating the implementation of laws relating to the banking sector explains why this sector is ahead of the rest of the economy especially when it comes to e-commerce. Given the failure of issuing any implementation decree related to Lebanon Law No. 81/2018, the consecutive council of Ministers that have been in place since its issuance are delaying the implementation of the new Lebanese e-transactions and data protection law. Conclusion and recommendations In conclusion, and thanks to Lebanon Law No. 81/2018, electronic writings and signatures now produce the same legal effects and have the same evidentiary weight as paper-based documents when conditions of safety as detailed above are met. That said, decrees are still needed and authentication providers are still to be accredited in order to consider Lebanon Law No. 81 /2018 as fully applicable. Does that mean that it is still not possible at all in Lebanon to use e-documents and e-signatures? Since the statutory presumption of reliability is currently disabled, the validity of electronic signatures and writings is left to the discretion of judges until Lebanon is able to have “authorized authentication service providers”, according to Article 18 of Lebanon Law No. 81/2018. This, however, does not mean that Lebanon Law No. 81/2018 cannot be implemented but means that users must be taking all necessary measures to mitigate the risk of invalidity of their e-documents and signatures. How would they do it? Article 15 of Lebanon Law No. 81/2018 states that the several functions guaranteed by the protection measures, such as the identity of the document organizer, assigning correct date to the document, and/or ensuring its storage and the integrity of its content, are “provided by one or more authentication service provider who shall, upon performance of said functions, deliver a certificate of authentication to the concerned person”. Therefore, all parties wishing to electronically contract under Lebanese legislation will have to refer to one or more authentication service provider in order to fulfil the two conditions set forth in Article 4 of Lebanon Law No. 81/2018 (identification and safety). We can refer here to the authentication service providers who are currently performing at the international market such as GlobalSign, Adobe, Microsoft, etc. Since no authentication service providers are yet authorized in Lebanon and the power of proof of the electronic signature or writing is left to the discretion of judges, the users are advised to refer to well-known safe and secure CSPs. The more the CSP referred to is safe and secure, the less the risk is. For instance, GlobalSign and Adobe happen to be very well known as secure authentication service providers on the international market, more than Microsoft. If an e-document or signature is authenticated by GlobalSign or Adobe, the risk that the judge would not give it its full power of proof as if it was paper-based is very little, almost non-existent. The good thing is that Lebanese judges are currently being trained by the Internet Society Lebanon on the technical implementation of Lebanon Law No. 81/2018 and are getting more familiar with the names of international CSPs and their particularities, which will mitigate their discretion in assessing the power of proof of e-writings and signatures in case they are authenticated by these particular well-known CSPs. Article 15 of Lebanon Law No. 81/2018 also states that all the above-mentioned functions could be performed through other techniques than the reference to authentication service providers, without mentioning any of these “other techniques”. Could these be for example biometric recognition techniques such as face recognition? In all cases, where parties wish to refer to techniques other than authentication service providers, they are invited to be very prudent in their choice as it will directly affect the power of proof of their e-documents. In the absence of Lebanese case law in this field, we are not sure how the judges will receive and assess the different techniques of authentication. As a last recommendation, it would be useful for parties to e-contracts to incorporate a reference to e-signature in the document itself. They might also agree, in their contract, on the authentication body they are going to use e-signatures according to Article 18 of Lebanon Law No. 81/2018 “unless the parties agree otherwise”.
Lebanon Judicial Mediation Law
Mediation in Lebanon was first introduced in 2005, through the Centre Professionnel de Mediation at Saint Joseph University, one of the oldest and most reputable universities in the country. However, it was more than a decade later that mediation was introduced in the Lebanese legal system. In September 2018, the Lebanese Parliament enacted Lebanon Law No. 82/2018 on Judicial Mediation, which introduced judicial mediation into the civil system for the first time. This commentary aims to analyse the law, the scope of judicial mediation, its process and benefits. Raison d'être of judicial mediation Referring to judicial mediation within a court process complies with the recent international development of alternative dispute resolution practice (ADR). The Lebanese Parliament, by adopting Lebanon Law No. 82/2018, aimed at bringing the best of mediation's advantages in the resolution of a dispute that is brought before judicial courts. In the written motives of Lebanon Law No. 82/2018, the legislator first pointed out the constant developments and diversification of commercial transactions and operations in Lebanon; such developments have exhausted the resources of the national judicial system due to the high number of lawsuits and the length that it takes to solve each lawsuit. Secondly, the legislator has indicated that the cost of going to court is not an accessible option for many. Finally, it was mentioned that opting to find a solution in court is not always the best option. Indeed, in court, unlike in mediation, there is always a losing party. This leads to scepticism and criticism of the judge and gives the losing party a possibility for appeal. However, the mediation process aims at reaching an agreement between both parties and finding a solution for their dispute that fits their needs and satisfy their mutual interests. These are the reasons the Parliament found it necessary to implement alternative dispute resolution that would resolve conflicts in a swifter, just and a cost-effective way. The judicial mediation process comprises of full confidentiality, unlike most litigation cases, and ensures that both parties are cooperating and communicating in order to find a balanced compromise. Evidently, the promulgation of Lebanon Law No. 82/2018 aims at encouraging and developing the practice of mediation throughout the nation. The scope of judicial mediation Mediation is a form of alternative dispute resolution. It is best defined as a negotiation between two parties with the assistance of a third impartial party, the mediator. Mediation requires all parties to agree on a solution, and the process usually takes place without the involvement of the court. Judicial mediation however allows the parties to have recourse to mediation only after their disputes have been submitted to court and it can be referred to at any time during the lawsuit and court proceedings according to Article 1 of Lebanon Law No. 82/2018. According to Article 2 of Lebanon Law No. 82/2018, judicial mediation can be referred to in order to solve any type of dispute that do not contradict mandatory laws or public policies and that can be settled by a transactional agreement as provided for in the Lebanese laws. This excludes, for example, non-pecuniary personal rights, matters related to personal status, crimes, bankruptcy or inheritance. Referral to mediation As mentioned previously, judicial mediation can be referred to at any time during the court proceedings. The referral can take place in three instances: if it is proposed by a competent judge in court and approved by all parties involved; if it is requested by one of the parties; or if it was made in application of a mediation agreement clause. Article 4 of Lebanon Law No. 82/2018 specifies that referrals are not subject to appeal by neither ordinary nor extraordinary means. This highlights another reason why mediation can be a faster option to resolve disputes. Proceedings Lebanon Law No. 82/2018 regulates the process of judicial mediation in Lebanon. First, the parties must be present personally (if natural persons) or must be duly represented (if corporate/legal entity) as per Article 12 of Lebanon Law No. 82/2018. During the judicial mediation proceedings, the mediator is legally bound to take into account the needs of all parties involved and apply equal treatment. However, the mediator is allowed to meet with one of the parties separately, but they are prohibited from disclosing any information obtained from the private hearing to the other party as per Article 14 of Lebanon Law No. 82/2018, unless the disclosing party requires or approves it. It is important to note that the mediator is present to assist with the negotiations between the parties, and they, unlike in arbitration proceedings, do not have the power to implement nor to propose solutions to the dispute. According to Article 17 of Lebanon Law No. 82/2018, the parties involved are required to participate in good faith and act cooperatively and transparently; they are invited to agree on a solution that they would both reach for their dispute, preserving both parties' interests. This feature demonstrates that mediation aims to protect and maintain the business or personal relationships of the parties. This is less likely to happen in court. Overall, the duration of the mediation should last a maximum of 30 days from the date of referral according to Article 11 Lebanon Law No. 82/2018. However, the mediation centre may extend this period for an additional 30 days subject to a written request signed and approved by the mediator and the parties. This extension must be notified to the court within three working days. This feature reflects how time-effective the practice of mediation is compared to the traditional litigation process. The mediator Article 1(c) of Lebanon Law No. 82/2018 defines the mediator as a natural person belonging to one of the mediation centres approved by the Ministry of Justice. If the parties do not agree on the mediation centre referred to, the court will determine the mediation centre to resolve the dispute. Lebanon Law No. 82/2018 regulates the conduct of the mediator. The mediator is legally obliged to remain impartial and independent of all parties involved in the process. Under Article 8(2) of Lebanon Law No. 82/2018, the mediator must sign a statement of impartiality and independence. Annex 1 of Lebanon Law No. 82/2018 provides a non-exhaustive list of the impartial and independent conducts. For example, the mediator must give all parties a fair and equal chance to participate and share their view of the dispute, they must not accept any bribes from the parties and must notify the mediation centre of any facts or circumstances that might hinder their impartiality or independence. Annex 1 of Lebanon Law No. 82/2018 further specifies that the mediator must deal with the details of the disputes in full confidentiality and must handle the proceedings in a professional and serious manner. Outcomes of judicial mediation There are two possible outcomes at the end of the mediation. Either the dispute has not been settled, in which case the relevant court will resume its proceedings, or the dispute has been settled, in which case the competent court will grant this settlement an exequatur such as an enforcement order that will render it legally binding. Article 21 of Lebanon Law No. 82 /2018 specifies that the settlement is not subject to appeal by the parties once it has been submitted to court. This once again highlights the time-efficient attribution of the mediation route. Mediation is completed in one of the following situations as per Article 19 of Lebanon Law No. 82/2018: the settlement agreement is signed by both parties; one of the parties submits a written declaration that they no longer wish to continue with the mediation; the mediator submits a written declaration stating that mediation is fruitless, and no solution can be reached via this route; an agreement is signed between the parties and the mediator stating that mediation has ended; one of the parties was absent for two consecutive mediation sessions without a legitimate excuse; or the duration of the judicial mediation (and/or its extension) is expired. Recommendations Worldwide, mediation has proven to be a popular method to solve disputes. This is no surprise as it is an effective, cost-friendly and swift method to resolve disputes. Despite these benefits, the practice of mediation has not fully integrated the Lebanese landscape yet. According to Article 24 of Lebanon Law No. 82/2018, Lebanon Law No. 82/2018 will only enter into force six months after the date of its publication in the Official Gazette. During these six months, the Cabinet of Ministers is invited according Article 24 of Lebanon Law No. 82/2018 to enact implementation decrees, based on the proposition of the Minister of Justice. Although Lebanon Law No. 82/2018 was enacted more than two years ago, not a single referral to judicial mediation has been done by the Ministry of Justice. Due to the absence of implementation decisions taken, not a single mediation centre has been approved by the Government yet. Unfortunately, the benefits of Lebanon Law No. 82/2018 are yet to be enjoyed in Lebanon as the law remains in the theoretical realm. There is an urgent need to promote mediation for litigants to ensure the resolution of commercial and civil disputes. This is especially true now, as the judicial system in Lebanon is being overflowed with cases and disputes due to the economic collapse that the nation is enduring. Mediation will bring a valuable contribution to Lebanese businesses. Even though the Cabinet of Ministers still hasn't fully implemented Lebanon Law No. 82/2018, the Lebanese legal sector is ready to welcome mediation. Indeed, the two main mediation centres in Lebanon are the Centre Professionel de Mediation (CPM) at Saint Joseph University and the Lebanese Arbitration and Mediation Centre established at the Beirut Chamber of Commerce. Furthermore, Lebanon has seen a numerous amount of law firms adding mediation to their services. Integrating the practice of mediation within the system in Lebanon will be beneficial to all, including the parties, the courts and the economy. It is not enough to enact the legislation; we should make sure it is being implemented. The Ministry of Justice is invited to encourage judges to refer to judicial mediation more often as to make a norm out of it.
Lebanon Anti-Corruption Law
Lebanon Law No. 175/2020 Combating corruption in the public sector and establishing the National Anti-Corruption Commission was published in the National Official Gazette on 14 May 2020, entering immediately into effect. Subject to parliamentary discussions since 2018, the long-awaited Lebanon Law No. 175/2020 was finally issued and is hoped to be one of the most important steps towards effectively fighting corruption in the Lebanese public sector. Lebanon Law No. 175/2020 provides a definition of corruption for the first time in the Lebanese internal legislation and creates a first of its kind Committee, which would be receiving information about corruption from the public in order to channel it into the adequate prosecution path. Lebanon Law No. 175/2020 not only foresees the creation of the National Committee but also sets its missions and powers, in addition to the special procedure for investigating and ruling in corruption crimes. This commentary aims to analyse Lebanon Law No. 175/2020, providing guidance on its application, challenges and role in combatting corruption in the Lebanese public sector. Background According to the World Bank and the UNODC, developing countries among which includes Lebanon, lose between USD 20 to 40 billion each year through bribery, misappropriation of funds and other corrupt practices. These criminal acts drain economic development initiatives and contribute to the further impoverishment of these countries affecting all sectors such as health, education and basic needs of the population. Lebanon is going through a tragic economic and financial situation due largely to the corrupt practices that have been exhausting the country for decades. Lebanon was ranked 137 out of 180 countries in the 2019 Corruption Index and therefore urgently needs the proper legislative framework to fight corruption, in addition to implementation of effective measures. Lebanon Law No. 175/2020 is, among other laws and recommendations, part of the National Strategy on Combatting Corruption that was being prepared with its implementation plan since 2018 and was recently approved by the Council of Ministers on 12 May 2020. Lebanon Law No. 175/2020 was being discussed in parliamentary sessions since 2018. After having been approved by the Parliament in June 2019, Lebanon Law No. 175/2020 was rejected by the President of the Lebanese Republic and returned to the Parliament to be reviewed. As the impact of corruption on the economy was heavily felt by Lebanese people in the recent years, and as the revolution of 17 October has particularly targeted corruption, serious measures had to be taken in this regard. Amid this social environment, Lebanon Law No. 175/2020 – which was slightly modified compared to its initial project - was finally adopted. Implications and objectives Lebanon Law No. 175/2020 focuses on combatting corruption in the public sector only, due to the particular aggravated danger of corruption in the latter. Lebanon Law No. 175/2020 provides for creating the National Committee for combatting corruption in the public sector, defines its missions and powers and determines the procedures to be followed for investigating and ruling in corruption crimes. Lebanon Law No. 175/2020 aims at detecting corruption, promoting integrity and transparency in the public sector and spreading the culture of combatting corruption in the Lebanese society, notably in the educational sector. Merits and main provisions of Lebanon Law No. 175/2020 Defining corruption Lebanon Law No. 175/2020 defines corruption as the “utilization of the authority or the occupation in relation with the public funds in order to obtain undue profits and benefits for oneself or for others, whether in a direct or indirect way”. Lebanon Law No. 175/2020 also considers corruption acts as all the crimes against the public administration as provided for in the existing legislation such as the Criminal Code and Lebanon Law No. 154/1999 on Illicit Enrichment, in addition to the acts of corruption that are stipulated in international conventions related to corruption which Lebanon has joined. Regarding corruption crimes (crimes against the public administration), all the legislative provisions related to the determination of these crimes and their sanctions, existing before the issuance of Lebanon Law No. 175/2020, remain applicable. Lebanon Law No. 175/2020 determined three additional types of corruption crimes: attaining projects or permits illegally from a public agent for personal benefit; utilizing public funds, means or persons illegally and for personal benefit; and buying or selling movable or immovable properties, based on confidential information non accessible to public related to the increase or decrease of prices, in cases where this information is obtained by virtue of the person´s occupation, authority, partnership, relations, work or service and resulted in an effective profit. Creating the National Committee for Combatting Corruption The National Committee for Combating Corruption (referred to as the “National Committee” herein) created by virtue of Lebanon Law No. 175/2020 is an administrative independent committee and an independent legal person/entity which enjoys both financial and administrative autonomy. As stated in Article 5(b) of Lebanon Law No. 175/2020, the Committee members must execute and practice their mission in complete independence. However, the members of the National committee are designated by a decree from the Council of ministers for un-renewable six years. The National Committee is composed of six members, among which include two retreated judges, a lawyer or a jurist, an accountant expert, a banking or economic expert and an expert in management. The two judges are elected according to the same elections procedures of the Higher Council of Justice, while all the other members are chosen by the Council of Ministers following suggestions made by the correspondent syndicates or orders. With respect to the provisions of Lebanon Law No. 175/2020, the interested entities, syndicates or orders must complete their election or nomination for the first time within a three-month period from the publication of the law. By the end of this timelimit, the Council of Ministers must designate the members of the National Committee within a month. This said, if such provisions are respected, the National Committee will be constituted by September 2020. According to Article 6 of Lebanon Law No. 175/2020, the National Committee members must have high ethics and reputable transparency in addition to their academic skills and experience. They must also comply with the required conditions for nomination, such as age conditions and non-political affiliation. In addition, the members of the National Committee are prohibited from occupying any other professional positions whether in the public or private sector as stated in Article 7 of Lebanon Law No. 175/2020, such as any ministerial, parliamentary, public administration or private company position. Once designated, the National Committee members must take an oath, then prepare (within two weeks) their financial disclosure documentation as stipulated in Lebanon Law No. 154/1999, which will be published on the Committee's website. They must lift the bank secrecy off their personal accounts and those of their relatives. The members of the National Committee enjoy an immunity against all kind of criminal proceedings and cannot be prosecuted or arrested along their mandate unless permitted by the Committee. Moreover, a member of the National Committee may not be removed from office except by virtue of decision from the Council of Ministers after a decision taken by the National Committee with a two third majority and in certain specific cases only, detailed in Article 12(a) of Lebanon Law No. 175/2020. However, the council of ministers shall not suspend or stop the operation of the National Committee or dissolute it under any circumstances, including urgent situations and wars. The National Committee members must meet once per week at least, and whenever needed. The said committee must prepare its own internal regulations determining the detailed procedures applicable to its operation, organization and financial administration including the powers of its president, vice president and other positions. An administrative body is dedicated to cooperating with the National Committee, which can also request the assistance of external experts. The budget of the National Committee will be determined under the general budget and must be sufficient to cover all its expenses and activities. Defining the National Committee's mission The main mission of the National Committee is fighting, preventing and detecting corruption as well as implementing the international conventions related to corruption that Lebanon has joined. In addition to its principal mission, the National Committee is entrusted with special tasks according to the provisions of Lebanon Law No. 175/2020 as follows: receiving complaints relating to corruption, investigating corruption crimes, examining them and assigning them to the relevant entities; monitoring corruption, its causes and costs and the efforts of combatting and preventing it in light of the legislation and adopted policies and conventions, in addition to preparing periodic reports relating to corruption and publishing them; providing its opinion in the legislation, decrees, decisions and policies relating to combatting and preventing corruption; and participating in promoting the culture of integrity and transparency in the public administration and society in general. Moreover, the National Committee is entrusted with some special tasks by virtue of other laws such as: receiving and safeguarding financial disclosure documentation according to the provisions of Lebanon Law No. 154 /1999; protecting and rewarding whistleblowers according to the provisions of Lebanon Law No. 83/2018 on Protecting Whistleblowers; receiving the complaints relating to the non-application of Lebanon Law No. 28/2017 Access to Information Law, investigating such complaints and issuing the correspondent decisions; and receiving the complaints relating to the violation of Lebanon Law No. 28/2018 on Transparency in the Petroleum Sector, investigating such complaints and issuing the correspondent decisions, in addition to other missions stated in Article 19 of Lebanon Law No. 28/2018 such as the surveillance of the transparency of the provided information in the petroleum sector and the drafting of annual reports on the application of the mentioned law. Determining the powers of the National committee The National Committee is provided with special powers for each of its tasks as follows: Investigation and assignment: The National Committee has the power to investigate corruption crimes, whether systematically or based on the information or complaints it receives. With regards to its investigation powers, it can seek the help of the Law Police officers to collect information, and even ask the Special Investigation Committee of the seek the help of the Law Police officers to collect information, and even ask the Special Investigation Committee of the Lebanese central bank to lift the bank secrecy of certain bank accounts. It also enjoys has the right to ask the relevant entities to take all possible preventive measures such as temporary injunctions and freezing of accounts. Once the investigation process completed, the National Committee has the right to assess whether to drop the complaint/case or to assign it to the prosecution or to the adequate judicial body. Monitoring and evaluation: The National Committee has the power of monitoring, documenting and following up on corruption cases. It shall also evaluate the laws and decrees related to fighting and preventing corruption , as well as evaluating the risks of corruption in the public sector. Providing opinions: With regards to providing its opinion in the legislation relating to corruption, the National Committee will prepare annual reports relating to its activities and the adopted public policies, in addition to special reports relating to the state of corruption in Lebanon. It is also entitled to offer advisory in light of the reports that the Lebanese Government has to draft by virtue of international conventions. Advisory: Besides giving its opinion on the legislation relating to fighting corruption, the National Committee can suggest a code of conduct for the public officials and offer advisory for the drafting of the National strategy for combatting corruption. Spreading anti-corruption culture: In the event of spreading the anti-corruption culture, the National Committee will lead studies and research on the mentioned subject and publish the related outcomes and reports. It may also organize conferences and seminars in order to promote the anti-corruption culture. Determining the special procedures for investigating and ruling in corruption crimes Lebanon Law No. 175/2010 states expressly that when the investigation in a corruption crime is led based on the request of the National Committee, the investigation procedure can be implemented without any administrative permission. This procedural rule lifts the protection of the public agents but does not tackle however the immunity of the President, Ministers and deputies which is still guarded by the Constitution. Moreover, the National Committee may ask any Lebanese public administration or administrative entity to provide the necessary documents for its operation. They have the obligation to respond accordingly without any delay. Impact of Lebanon Law No. 175/2020 We are certainly not able to measure the success of Lebanon Law No. 175/2020 nor its impact on corruption in the public sector at this early stage. However, some consequences can already be pointed out. First, the publication of Lebanon Law No. 175/2020 regulated the creation of the National Committee which was long awaited. Certainly, other entities and committees existed before the issuance of Lebanon Law No. 175/2020, such as the Special Investigation Committee of the Central Bank – representing the Lebanese Financial Investigation Unit - created by virtue of Lebanon Law No. 44/2015 on Combatting Money Laundering and Terrorism. Practically, the said committee refuses to receive complaints submitted by the public, even when these complaints are related to money laundering. Besides this committee, the judicial system along with other administrative entities such as the Court of Accounts and the Central Inspection, were entrusted and were supposed to contribute in the fight against corruption but haven't been effective so far. This said, why would we create another entity for combatting corruption? The main advantage behind creating the National Committee for Combatting Corruption might lie in the centralization of all the complaints and issues related to corruption. The latter, dedicated fully to combatting corruption, will be able to receive all kind of corruption complaints, to protect the people who reveal corruption cases and filter them before proceeding accordingly. The National Committee has the discretion to decide to classify a complaint, to assign it to the criminal prosecutor or to submit a claim directly before courts. This may have the effect of avoiding the obstruction of Lebanese courts and other committees with unfounded claims and information as well as ensuring more efficient judicial processes. Moreover, the issuance of Lebanon Law No. 175/2020 enabled the effective implementation of other laws related to corruption such as Lebanon Law No. 83/2018 on Protecting Whistleblowers, as well as Lebanon Law No. 28/2017 Access to Information Law and Lebanon Law No. 28/2018 on Transparency in the Petroleum Sector, as detailed above. Conclusion As previously mentioned, Lebanon Law No. 175/2020 has created the National Committee for Combatting Corruption, which has become indispensable to enable the implementation of several laws related to fight against corruption in Lebanon. Therefore, it is a must. In addition, the Committee can contribute successfully in the long and difficult fight Lebanon must carry out against corruption, but only if it achieves its mission professionally, independently and efficiently, and does not become another financial burden on the Lebanese State without producing any outcome. A couple of months have passed since Lebanon Law No. 175/2020 was enacted and Lebanon has still not observed any serious initiative towards the effective creation of this Committee. It is hoped that this Committee will be created within legal timeframes and will start contributing effectively in the fight against corruption which the country desperately needs. All the above said, this Commission, or any other initiative or body, will not be able to operate and thrive without a clear political will to fight corruption in the country, and without an independent judiciary.
Lebanon Consumer Protection Law
In 2005 the Lebanese government finally enacted the first consumer protection legislation. This is a tardy reaction from the government compared to the international community. Indeed, in 1962, the US Congress acknowledged the necessity to protect the consumer. In 1973 France adopted the legislation entitled “loi orientation du commerce et de artisanal' which canters around consumer protection. In 1975, the European Economic Community adopted a preliminary programme for consumer protection. Meanwhile in Lebanon, the consumer was protected by scattered sources of regulations. For example, Lebanon Decree No. 8664/1968 gave the Ministry of Economy the power to ensure that legislations which are focused on consumer protection are properly applied. This includes Ministerial Decree No. 88/1975 that dictates the regulation of the sale of tin cans or Ministerial Decree No. 3/1979 which regulates rules concerning the display of prices of products. Following discussions and amendments by the joint parliamentary committees and the Parliament, the draft law on Consumer Protection was approved. Lebanon Law No. 659/2005 on Consumer Protection was published in the Official National Gazette on 4 February 2005, entering into force on 10 May 2005. Was Lebanon Law No. 659/2005 worth the wait? This commentary aims to analyse Lebanon Law No. 659/2005 providing guidance on its application and highlighting striking provisions. Merits and main provisions of Lebanon Law No. 659/2005 Recognition of the consumer Decades after most common and civil law jurisdictions, the Lebanese government finally recognised the consumer as a person of legal nature with exclusive rights. Article 1 of Lebanon Law No. 659/2005 defines the consumer as a ‘natural or legal person who buys, rents, utilizes or benefits from goods or services, for purposes other than its professional activity'. Article 3 of Lebanon Law No. 659/2005 sets out the rights of the consumer, which includes fundamental and universal rights such as: the right to information; the right to health and safety; the right to non-discrimination; the right to assert their rights and access to justice; and the right to representation. By recognising the consumer as a subject of legal nature, Lebanon Law No. 659/2005 does not only assert the latter's rights, but also sets out the obligations of the merchant towards the consumer. Article 3 of Lebanon Law No. 659/2005 defines the merchant as ‘a natural or legal person, from the private or the public sector, engaged in the distribution, sale, or rent of goods or in the provision of services, on its behalf, or in the interest of someone else'. The merchant's obligations towards the consumer Obligation of information The most important and relevant obligation placed on the merchant is the obligation to provide the consumer with ‘exact, sufficient and explicit' information about the products as per Article 4 of Lebanon Law No. 659/2005. This is a very important obligation that sets a fair dynamic between the consumer and the merchant Indeed, there is always an imbalance of powers between the merchant and the consumer since the merchant has the upper hand by possessing better access to information. The merchant has the duty to inform the consumer about all the necessary details whether its specific technicalities, potential risks, condition of use etc. This obligation is ensured in many different ways. For example, the price of the product has to be clearly displayed in Lebanese pounds, without the need to ask the merchant as per Article 5 of Lebanon Law No. 659/2005. In the country's situation today, this provision is hardly applied. Now that the Lebanese pound has lost 80% of its currency and is constantly fluctuating, most merchants avoid displaying the price of the products. Furthermore, some businesses only display their products in USD. As per Article 118 of Lebanon Law No. 659/2005, lack of information or misinformation is punishable by a fine varying from LBP 30 million to 50 million. Recent case law demonstrates that the judges apply these sanctions in case of misinformation or lack of information. Cases relating to misinformation have been rising due to the deteriorating economic situation. In 2019 for instance, a judge sanctioned a company under Article 118 of Lebanon Law No. 659/2005 for selling their products at a price higher than the official price originally specified by the competent administration. Obligation of guarantee The merchant is placed under an obligation of guarantee towards the consumer. This obligation translates into various ways. Article 28 of Lebanon Law No. 659/2005 states that the merchant must guarantee the quality of the goods and services. This is an obligation that the judiciary applies strictly. For instance, in a recent case in 2018, a merchant who was found guilty of selling products that contain toxic substances used as a defence that he bought these products from another merchant and thus should not be sanctioned as it was not the merchant's products initially. The judge dismissed this argument and stated that this is not a valid defence as the merchant still remains a professional in the field and should constantly verify the quality of the goods the latter sells. The merchant must also comply with the description of the product or services, whether the description was made by the seller himself or whether it was requested by the consumer in writing. Article 19 of Lebanon Law No. 659/2005 further states that the merchant has an obligation to guarantee invisible defects that damage the quality or render the goods or services unsuitable for destined use. However, it is up to the consumer to prove that the invisible defects existed at the time of the purchase according to Article 30 of Lebanon Law No. 659/2005. Article 32 of Lebanon Law No. 659/2005 states that if the merchant does according to Article 30 of Lebanon Law No. 659/2005. Article 32 of Lebanon Law No. 659/2005 states that if the merchant does not comply with the obligations stated above, the latter must repair or replace the goods or services for no charge within a reasonable time. If the merchant does not do so, the consumer has the right to cancel the contract and request for a full refund. Obligation of safety The merchant also has an obligation of protecting the health and safety of consumers. Article 36 of Lebanon Law No. 659/2005 states that the merchant must provide the consumer with sufficient information about the goods and services and the risk they might pose. Indeed, article 46 of Lebanon Law No. 659/2005 places the liability on the merchant if the consumer was harmed. The latter will be responsible for the damage caused to the public health and safety even if the merchant possessed all the necessary qualifications and certificates related to his profession. The contractual relationship between the consumer and the merchant Chapter 6 of Lebanon Law No. 659/2005 organises the contractual relationship between the consumer and the merchant. This is an important chapter for the consumer as it acknowledges the socio-economical imbalance between the merchant and consumer. By imposing certain conditions and adopting provisions related to the contractual relationship of both parties, Lebanon Law No. 659/2005 aims at restoring and ensuring the balance of powers between the two parties. For example, Article 18 of Lebanon Law No. 659/2005 states that the contract should always be interpreted to the benefit of the consumer. This demonstrates that Lebanon Law No. 659/2005 acknowledges the advantage the merchant generally has in these circumstances, therefore acknowledging the need to place an extra layer of protection for the consumer. Furthermore, Article 19 of Lebanon Law No. 659/2005 imposes different contractual conditions on a contract made between the consumer and the merchant. For example, Article 19 of Lebanon Law No. 659/2005 forbids said contract to refer to documents that were not supplied to the consumer before entering the contract. This ensures that the consumer will have been provided with all the necessary information before entering into the contract. Another important provision in this chapter that seeks to ensure the balance of powers between the consumer and the merchant's is Article 26 of Lebanon Law No. 659/2005. Article 26 of Lebanon Law No. 659/2005 states that all abusive clauses are void and cannot be enforced. The provision sets out a non-exhaustive list of abusive clauses. For instance, a clause that exempts the merchant from its obligations or a clause where the consumer waives rights granted by Lebanon Law No. 659/2005 is considered as an abusive clause. On the other hand, one striking provision in this chapter is Article 17 of Lebanon Law No. 659/2005, because of its lack of protection of the consumer. Article 17 of Lebanon Law No. 659/2005 specifies that Lebanon Law No. 659/2005 applies to all contracts concluded between a consumer and a merchant. However, Article 17 of Lebanon Law No. 659/2005 also specifies that if the provisions of Lebanon Law No. 659/2005 are contradictory to the laws on liberal professions, banks and insurance companies, it is the latter law that will take precedence over the provisions of Lebanon Law No. 659/2005. This means that the articles discussed above will not apply if they contradict banking laws, insurance companies' laws or liberal professions laws. This can be disadvantageous for the consumer because Article 17 of Lebanon Law No. 659/2005 demonstrates that the scope of protection of Lebanon Law No. 659/2005 is limited. It seems like important sectors are discharged from responsibility towards the consumer. The courts have yet to confirm which sectors are specifically included in Article 17 of Lebanon Law No. 659 /2005 and what is the scope of this provision, as no case law has been recorded to date. The role of the government Lebanon Law No. 659/2005 has created two government bodies that play a significant role in consumer protection. The National Consumer Protection Council The National Consumer Protection Council (hereby referred to as the Council) is created by Article 60 of Lebanon Law No. 659 /2005. According to Article 61 of Lebanon Law No. 659/2005, the Council has an advisory role and will provide suggestions and recommendations for the following objectives: to promote the role of the consumer in the national economy; to safeguard the consumer safety and health and protect the latter's rights; to ensure the safety of goods and services and improve their quality; to inform and educate the consumers and to encourage them to adopt permanent consumption methods and to use environment friendly products; and to suggest implementation procedures regarding the provisions of Lebanon Law No. 659/2005. The Consumer Protection Directorate The Consumer Protection Directorate (hereby referred to as the Directorate) is created by Article 63 of Lebanon Law No. 659 /2005. According to Article 64 of Lebanon Law No. 659/2005, the Directorate's mission is to ensure the implementation and the application of Lebanon Law No. 659/2005 by: ascertaining the quality and safety of goods and services; controlling prices and price movements; preparing documents and publications related to consumer education and awareness; and conducting research. The Directorate ensures this implementation through its own employees, judicial police officers and competent employees from the relevant Ministries as per Article 71 of Lebanon Law No. 659/2005. Dispute settlement Lebanon Law No. 659/2005 offers two ways (outside of the judiciary) to resolve disputes. The first one is through a mediation process and the second one is through the dispute settlement Committee. The mediation process If the dispute is worth less than LBP 3 million, then the dispute should be settled through mediation as per Article 83 of Lebanon Law No. 659/2005. The mediator is appointed by the Ministry of Economy and Trade and their decision is enforceable by law. It can be noted that the expertise level of the mediator is not known and that leaves a lot of discretion to the ministry. One can raise concerns about how neutral the mediator can actually be if the latter is appointed by a government body. The conditions of the mediation are detailed in Article 83-97 of Lebanon Law No. 659/2005. According to Article 93 of Lebanon Law No. 659/2005, the mediator suggests a solution for both parties, the parties have the option to accept the solution or reject it. If they do not reach an agreement on the suggestions, then the unsettled dispute must be addressed to the Dispute Settlement Committee created by Article 97 of Lebanon Law No. 659/2005. The conditions of mediation set out by Lebanon Law No. 659/2005 seem to go against the logic and purpose of the conventional mediation process. Traditionally, the mediator aims to facilitate the communication between both parties until they reach a common agreement. However, in Lebanon Law No. 659/2005 the current mediation process is closer to a “conciliation” than a mediation. The Dispute Settlement Committee Article 98 of the Consumer Protection Law No.659/2005 states that the Dispute Settlement Committee (hereby referred to as the Committee) is concerned with disputes arising between the consumer and the merchant, regardless the value of the dispute, with respect to the “mediation” process for disputes of less than LBP 3 million. It is important to note that the Committee possesses an important role in protecting the consumer because it has an exclusive jurisdiction over the disputes related to consumerism. This means that it is the only body in Lebanon that has the authority to pass a final judgement on relevant disputes. Amendments of Lebanon Law No. 659/2005 In 2014 a series of publicized scandals concerning food contamination and lack of proper hygiene generated a wide response from government to ensure that food safety is treated as a pressing issue on the Lebanese cabinet's agenda. This pushed the government to take a closer look at the 2005 provisions of Lebanon Law No. 659/2005. There was a wide consensus from the public and officials alike that the articles relating to fraud in Lebanon Law No. 659/2005 do not effectively deter fraud, especially in terms of penalties. This lack of protection against fraud heavily affected the food sector, posing serious risks to the health and safety of the Lebanese consumers. It is in this political climate that Lebanon Law No. 659/2005 was amended by Lebanon Law No. 265/2014 on 15 April 2014, entering immediately into effect. Lebanon Law No. 265/2014 replaced 19 provisions of Lebanon Law No. 659/2005 in view of ensuring strict compliance with the consumer protection law. Sanctions Almost half of the provisions of Lebanon Law No. 265/2014 concerns sanctions. As a response to the criticism and in order to deter fraud, Lebanon Law No. 265/2014 imposed stricter sanctions. For example, Article 8 of Lebanon Law No. 265/2014 amended article 108 of Lebanon Law No. 659/2005. Previously, the imprisonment sentence was three months to one year long and the fine varied from LBP 20 million to 75 million. After the amendment, the prison sentence is longer varying from six months to two years long and the fine is more expensive, varying from LBP 50 million to 150 million. The same kind of change occurred in Article 109 of Lebanon Law No. 659/2005 where the amendments imposed a stricter penalty by prolonging the prison sentence and making the fine more expensive. It is clear that Lebanon Law No. 265/2014 was produced to tackle particularly fraud in the food sector. Indeed, Article 13 of Lebanon Law No. 265/2014 replacing Article 117 of Lebanon Law No. 659/2005 sets out conditions where the penalties can be reduced. However, the same article specifies that this reduction do not apply in the event of committing the crimes related to food commodities stipulated and punishable in Lebanon Law No. 659 /2005. The Dispute Settlement Committee Articles concerning the Dispute Settlement Committee were also amended in 2014. Although the Committee is practical as it would make it easier for consumers to seek legal compensation from predatory merchants, it has been widely criticised for its lack of work. This pushed the government to amend Article 101 of Lebanon Law No. 659/2005 by adding that the Committee must issue a decision within six months from the claim being filed. The Consumer Protection Directorate Finally, Lebanon Law No. 265/2014 specifies more details about the responsibilities of the Consumer Protection Directorate to ensure that the provisions of Lebanon Law No. 659/2005 are applied in practice. For example, Article 3 of Lebanon Law No. 265 /2014 states that the Directorate should confiscate all papers that prove the violation of Lebanon Law No. 659/2005 or that lists the people who may be responsible and deliver the documentation to the competent officials. The Directorate must also confiscate goods that are found to be counterfeit, toxic, unfit for consumption, or not in conformity with the general standards, or that endanger the health and safety of the consumer. Furthermore, Article 4 of Lebanon Law No. 265/2014 states that the Directorate must also confiscate the materials, machinery or equipment that were used to manufacture, collect and package contaminated goods. Afterwards, it must close down the location and refer the file to the competent court. Conclusion It is clear that enacting the long-awaited Lebanon Law No. 659/2005 as amended by Lebanon Law No. 265/2014 is just the first step. It was a necessary step to take from an economic standpoint and from a basic right standpoint. Despite the 2014 amendments of the current legislation, the food sector in Lebanon is still plagued by fraud and contaminated food as of 2020. The legislator still needs to address certain shortcomings in Lebanon Law No. 659/2005 and make sure that the sanctions are applied in practice. For example, there needs to be a better protection for the consumer when the latter is faced against powerful bodies such as banks or insurance companies. It seems like the law is limited. Furthermore, new conditions should be set in place in order to ensure that the dispute settlement process is clearer and provides a neutral and objective solution as the Dispute Settlement Committee is still controlled by the Ministry of Economy. Lebanon Law No. 659/2005 should clarify whether arbitration is an option for dispute settlement. Finally, this initiative should be accompanied with an independent judiciary, without one, the fight for consumer rights would not prevail.
Lebanon Bank Secrecy Law
Under the initiative of Cabinet Minister Raymond Edde, Lebanon Law No. 1/1956 on Bank Secrecy was adopted in 1956 establishing bank secrecy in Lebanon. The latter was inspired by the Swiss banking system and believed that the country could reap benefits from a similar system. The policy makers were influenced by two main factors: A political factor: At that time Lebanon enjoyed political stability unlike its neighbouring countries such as Syria and Egypt which were affected by political instability and an outflow of investments. An economic factor: The desire to attract foreign deposits into the Lebanese banking sectors. This was an ideal context to adopt a bank secrecy law. Lebanon Law No. 1/1956 incited investors and elites of the region to transfer their assets into the Lebanese banking sector. Lebanon at the time was the only country in the Middle East to adopt a liberal system economically and politically, hence acquiring the label of “the Switzerland of the Middle East.” Lebanon Law No. 1/1956 benefited the country and contributed to the growth of the banking sector. However, almost 70 years later, the Lebanese banking sector, paralysed by the worst financial crisis in Lebanese history, bank insolvency and de facto capital controls faces major public distrust. From economic growth to economic collapse, Lebanon Law No. 1/1956 still applies today. This commentary aims to explain how Lebanon Law No. 1/1956 is implemented, identify its beneficiaries and determine its limits. Merits and main provisions of Lebanon Law No. 1/1956 The scope of banking secrecy In essence, banking secrecy is an agreement between banks and the clients by which the client's activities and details remain confidential and private. Article 2 of Lebanon Law No. 1/1956 prohibits banks in Lebanon to disclose information about their clients such as their name or their funds to anyone whether it is a private individual or a public authority. This duty is imposed on the managers, employers, directors of the bank and anyone who, by virtue of their position, has information concerning the bank's books transactions or correspondence. According to Article 1 of Lebanon Law No. 1/1956, this duty applies to all banks in operation in Lebanon, including branches of foreign banks. Lebanon Law No. 1/1956 did not intend to create secrecy as a privilege to be enjoyed by banks, but rather intended to impose banking secrecy as a duty that banks must observe, not only for the benefit of the economy and the banking profession, but also for the interest of the public. Sanctions for violations of Lebanon Law No. 1/1956 The violation of banking secrecy is considered a misdemeanour. Article 7 of Lebanon Law No. 1/1956 specifies that it is punishable by imprisonment for a period of three to twelve months under the Criminal Code. The same sanctions apply to any attempts of violations under Article 127 and 203 of the Code of Currency and Credit. Furthermore, a person who was indicted for this violation is prohibited from undertaking employment in the banking sector. This prohibition is permanent and applies to both intentional (sanctioned under criminal law) or unintentional (sanctioned under common law) violations. Exemptions from bank secrecy There are limited exceptions to banking secrecy in Lebanon. These exceptions are either derived from Lebanon Law No. 1/1956 itself, or from other sources in domestic legislation such as Lebanon Law No. 159/1999 on Illicit Enrichment. Exceptions found within Lebanon Law No. 1/1956 Article 2 of Lebanon Law No. 1/1956 specifies that information concerning the names of the clients, their funds or any related matter may be disclosed only if: the client or the concerned heirs gave their written consent, the client is declared bankrupt, or in the case where a lawsuit is taking place between the bank and the client over banking operations. Article 7 of Lebanon Law No. 1/1956 also specifies that banks are exempt from invoking professional secrecy if they are requested to do so by judicial authorities concerning illicit enrichment lawsuits. This exception was initially tied to the old Illicit Enrichment Laws of 1953 and 1954 but currently concerns the latest illicit Lebanon Law No. 159/1999, which we will discuss further in the next section. Exceptions in other domestic laws Lebanon Law No. 159/1999 on Illicit Enrichment Lebanon Law No. 159/1999, adopted in 1999 and recently amended in October 2020, criminalizes illicit enrichment and defines it as the significant increase in the assets of a public servant, judge or associates. Initially, Lebanon Law No. 159/1999 stipulates that banks are forbidden from invoking bank secrecy under Lebanon Law No. 1/1956 when investigations conducted by the relevant judiciary in cases of illicit enrichment are concerned. Additionally, Article 2 of Lebanon Law No. 159/1999 imposes a duty on public officials to submit a financial declaration of their assets and their families' assets. Article 3 of Lebanon Law No. 159/1999 further specifies that the public officials must submit this declaration upon assuming office and upon termination of their services. The recently amended Lebanon Law No. 159/1999 imposes that an additional declaration must be submitted every three years. Lebanon Law No. 159/1999 ensures that there are regular inspections. The new amended version of Lebanon Law No. 159/1999 pushes for more transparency, which in turn affects banking secrecy in multiple ways. For instance, the definition of public officials has been extended. Previously, a public official was defined as any person exercising a public function, the amendment now includes any person working on behalf of the government. This means that more people must declare their assets, therefore affecting the principle of banking secrecy on a greater scale. Foreign Account Tax Compliance Act (FATCA) The Foreign Tax Compliance Act is a legislation enacted in 2014 by the US. This legislation was applied worldwide, imposing a duty on banks and financial institutions to report to the Internal Revenue Service on accounts with FATCA indicia (US citizen, US citizen, power of attorney holder, etc.). Due to the strict sanctions involved, banks across Lebanon had no choice but to comply. Accordingly, secrecy on the concerned accounts is lifted. Lebanon Law No. 44/2015 on Fighting Money Laundering and Terrorist Financing In 2001, the Parliament adopted Lebanon Law No. 318/2001 on Anti-Money Laundering and the Fight Against Terrorism, which was subsequently amended by Lebanon Law No. 44/2015 on Fighting Money Laundering and Terrorist Financing. Lebanon Law No. 318/2001 aimed to conform with international anti-money laundering standards by imposing transparency without getting rid of banking secrecy. Lebanon Law No. 318/2001 created the “Special Investigation Commission” (SIC), an independent legal entity with judicial status. The SIC was granted the permission to lift banking secrecy as a temporary and preventive measure in order to investigate money laundering offences. The scope of the SIC's power widened in 2015 when Lebanon Law No. 44/2015 amended the original legislation. Lebanon Law No. 44/2015 extended anti-money laundering offences to corruption, tax evasion, embezzlement and illicit enrichment. This widening of possible offences gives permission to the SIC to lift bank secrecy in a larger amount of cases. Furthermore, Lebanon Law No. 44/2015 imposes a duty on bankers and professionals in the banking sector to apply due diligence, organise, store data of their clients and notify the SIC if they suspect that money laundering offences are being committed. Lebanon Law No. 55/2016 on the Exchange of Information for Tax Purposes New international laws and norms have gradually challenged the banking secrecy law in Lebanon over the decades. Many regulations from other jurisdictions have pushed bank secrecy in Lebanon to the edge. In 2016, the Lebanese Parliament enacted Lebanon Law No. 55/2016 on the Exchange of information for Tax Purposes as an implementation of the Conventions on the Mutual Administrative Assistance in Tax matters (MAC and MCAA) ratified by Lebanon. Lebanon Law No. 55/2016 enabled Lebanon to incorporate the Common Reporting Standards (CRS). Simply said, countries who are participants of the CRS must obtain and gather information from their financial institutions and exchange this information to other jurisdictions on an annual basis. This impacted the banking secrecy in Lebanon. It imposed a duty on banks and other financial institutions to identify the clients who are tax residents outside Lebanon. Banks and other financial institutions have a duty to compile and collect the information related to their clients' accounts and any related matters and send it to the relevant authorities in Lebanon, who in turn provide the information to foreign jurisdictions. Conclusion On 28 May 2020, the Lebanese Parliament intended to implement a new legislation that would override bank secrecy rules in order to fight the ongoing corruption that has plagued the country with an unprecedented economic crisis. This project has been scrapped, and so far there is no clear vision of whether such a legislation will be ratified at all. Banking secrecy was once an important tool for Lebanon's economy. However, it is clear today, amidst the economic collapse, that banking secrecy is no longer the beneficial tool it once was. Throughout the years, banking secrecy was transformed into a mean of corruption instead, for both public officials and citizens. In 2020, professionals across the country are trying to salvage the economy by organizing a way to recover stolen assets that were hidden and protected by Lebanon Law No. 1/1956. Asset recovery begins by collecting information about the assets concerned, and this cannot be possible if these assets are still protected by banking secrecy. This calls for a reform whereby at least political figures would be excluded from the privilege of banking secrecy. The banking sector is currently facing a complete public distrust and in order to regain this trust, transparency is a key.
Lebanon Public Procurement Law
As the USD/LBP market exchange rate skyrockets, and since the October 2019 uprising, the public debate has shifted to focus on the fight against corruption. The economic crisis in Lebanon has been an ongoing freefall and was bound to happen ever since the establishment of the post-civil war economic model coupled with massive corruption and years of neglect. One of the major reforms that could reshape Lebanon’s economy towards a more sustainable model is the reform of public procurement. This reform was a cornerstone in 2018 in the design of the CEDRE conference. Lebanon’s public procurement system is very fragmented, inefficient, and deeply corrupt, the quality of the procurement system is below average. It accounts for 20% of the central government expenditures and 6.5% of the Gross Domestic Product (around USD 3.4 billion) on a yearly average. According to Transparency International, Lebanon ranks 137 over 180 countries when it comes to the quality of public procurement. The legal framework governing public procurement was archaic, contradictory, and cleared the way for political patronage. The lack of laws and regulations has led to a decline in the quality of public procurement: Lebanon Decree No. 14969/1963 on Public Accounting and Lebanon Decree No. 2866/1959 on Public Tenders, as amended in 1963, have lost all validity. The corrupt political class takes advantage of the gaps in the texts and the political coverage to conclude amicable contracts which are, most of the time, inefficient and unsuccessful. The Lebanese government promised, ever since the CEDRE conference in 2018, major reforms to the public procurement sector. In 2018, the government announced the Capital Investment Program (CIP). In order to reorganise public procurement by introducing model specifications and clear procedures, Lebanon needs to provide itself with a well-equipped and modern law to fight the institutionalised corruption and looting. The promulgation of a new law is considered as a necessary and unavoidable condition for all the rescue plans proposed for Lebanon from CEDRE, the IMF, and the International Community in general. A draft law was proposed by the Basil Fuleihan Institute and by MP Yassin Jaber based on the Methodology for Assessing Procurement System in Lebanon (MAPS)’s report. In July 2020, a MAPS report was published about the state of public procurement in Lebanon and the results were neither surprising nor shocking: disastrous public procurement regulations and deep-rooted corruption. The draft law is aligned with international standards and could be an important step towards a better public procurement system, as it advances the procurement regime dating back to the 1960s. It was adopted on 30 June 2021 by the Lebanese parliament and published in the Official Gazette on 29 July 2021 as Lebanon Law No. 244/2021 on Public Procurement. Lebanon Law No. 244/2021 is a milestone, but it raises concern when it comes to its implementation that needs to be coupled with good governance and accountability in order to have a positive impact. Is Lebanon Law No. 244/2021 as promising as it is meant to be? Can we expect some real change in the upcoming years? Promises of reform The MAPS report and the state of public procurement The MAPS report stands for Methodology for Assessing Public Procurement Systems. It assesses the state of public procurement in Lebanon and is prepared by the Lebanese Institute of Finance. Its objective is to identify strengths, weaknesses and corruption risks. It helps public actors to move towards better and more transparent practices. The latest MAPS report was published in July 2020. The Agence Française de Développement (AFD) and the World Bank (WB) have pooled their expertise and resources to support the Lebanese Institute of Finance in preparing this document. In the current context, this report gives guidelines and is the first step for a reform that is a condition for obtaining financial assistance from the IMF and the international community. As for public procurement in Lebanon, according to the MAPS report, its state is below the regional average and is considered among the most corrupt in the world. Lebanon checked 11 out of the 210 criteria for evaluation adopted by the Organization for Economic Cooperation and Development (OECD) and the WB. For example, there were no standardised and clear documents, no effective complaint mechanisms, excessive use of Over the Counter (OTC contracts), limited access to information for the public, overlapping roles of control entities, and a number of exceptions to every rule. These factors inhibit competition, paving the way for corruption, collusion, and conflicts of interest, encourage inflation in market pricing and keep public investment at a relatively low level (5% of GDP). After uncovering the state of public procurement in Lebanon, the MAPS report offered recommendations, among which include: establish an independent review body in line with international standards to handle complaints, and set a clear timeline for handling the complaints; eliminate the conflicts of roles of the Court of Accounts and the State Council as appropriate for preventing both the reality and the appearance of a lack of impartiality and independence of the rulings made; give the State Council necessary authority to enforce its decisions and prevent administrative silence; and introduce the possibility to summarily suspend the procurement process when a complaint is made and introduce a standstill period to prevent a contract from being concluded and entered into force before a decision is taken based on a complaint against the award decision. Based on these recommendations, the draft law was proposed to the Parliament in February 2020. Lebanon Law No. 244/2021 on Public Procurement Lebanon Law No. 244/2021 is based on the universality of all transactions of the Lebanese State with all its institutions and services. A clear public procurement system, in line with international standards and based on legal and institutional foundations is thought to achieve savings of around USD 500 million every year, according to a study conducted by Basil Flueihan Institute of Finance. Lebanon Law No. 244/2021 is aligned with international standards such as the Model Law of the United Nations Commission on International Trade Law (2011), and the findings of a comparative study of regulatory frameworks adopted by our Arab neighbours, including Jordan (2019), Egypt (2018), Palestine (2014) and Tunisia (2014). Lebanon Law No. 244/2021 promotes the integration of public procurement within the Public Finance Management Cycle and advocates for multi-year budgeting, which ensures strategic visibility of financial flows. It is also in favour of local economic development, employment, national production, and resource optimisation. Lebanon Law No. 244/2021 has 8 guiding principles: integration, transparency, competitiveness, efficiency, accountability, integrity, professionalism, sustainability, and local development. Integration: The provisions of Lebanon Law No. 244/2021 apply to all administrations, institutions, bodies, and agencies that are responsible for public funds expenditure. Transparency: Ensured for all public procurement operations, and all stakeholders have access to all the data and information electronically. Many documents related to procurement procedures would be published according to Lebanon Law No. 244/2021 even if some are not available when related for example to “national security and general security”. Such exceptions are understandable but seem absolute, not leaving any space to assess the harm of access versus public interest, as outlined Articles 6 and 9 of Lebanon Law No. 244/2021. Competitiveness: Ensured by conducting public procurement using competitive procedures to fight corruption. Efficiency: Ensured by rationalising public spending and ensuring value for money while providing services that are of quality to citizens, and building efficient relationships and collaborations between the public and private sectors. Accountability: Ensured by overseeing control mechanisms throughout the whole cycle, and developing a system for appropriate complaint and effective processes for sanctions. Integrity: Notably ensured by using digital methods (e-procurement) to reduce corruption and conflict of interest. Professionalism: Ensuring that all procurement workforce involved in all stages of procurement meet high professional standards and have the capacity to continually deliver value for money efficiently and effectively. Sustainability and local development: Ensuring that public procurement is aligned with the Sustainable Development Goals (SDGs) in their economic, social, environmental dimensions and balanced against the primary procurement objectives. This reform aims at providing more clarity and flexibility and ensuring more efficiency, better assessment, monitoring, risk management and accountability, while enhancing service delivery to citizens. It also meets the main demands for transparency in public expenditure management and contributes to transitioning the country’s economy to a model that is more profitable and more competitive. Concerns related to the provisions of Lebanon Law No. 244/2021 and its implementation The public procurement reform is presented under the form of a new Code of Public Procurement. It mainly tackles procedures and consists of 110 articles. The draft of Lebanon Law No. 244/2021 was read and edited by major stakeholders from the private and public sectors as well as the legal community. The pre-contractual complaint mechanism One of the major issues that was very much debated in Parliamentary committees when discussing the draft of Lebanon Law No. 244/2021 was the “nature” of the pre-contractual complaint mechanism. This mechanism is aimed at rendering the public procurement process more effective. Finally, the pre-contractual independent review body was approved and is described in Articles 89-99 of Lebanon Law No. 244/2021. Prior to the reform, the procurement system had a weak and inefficient complaints review mechanism with no review body with a proper expertise to handle these complaints in the pre-contractual phase. Complaints used to be addressed to the Central Tender Board, the Court of Accounts, or even the State Council Judge of Urgent Matters. There was nothing systematic or unified about the institution that should receive these complaints due to legal fragmentation. When it comes to the State Council, the complaints were not aligned with the speed or quality of international standards and were therefore unsatisfactory. As mentioned previously, the MAPS report pointed out the lack of regulations when it comes to abiding by timelines and quality of review and resolution. The report also recommended that these complaints be handled by an independent authority. More than 10 consultation meetings took place to tackle this matter and finally led to a common understanding. The types of review bodies that were considered were either an independent review body or a body belonging to the judiciary. International experts alongside the MAPS report advocated for an independent review body. They confirmed that referring to an independent review body is more advantageous than directly referring to the judiciary as a first instance. First, it is more efficient. Second, the independent review body would have more expertise since the members of that body would be experts, well versed in procurement procedures and rules compared to judges. Third, in Lebanon, there are no first instance administrative courts, only the State Council. If a “first instance” body is not instituted, complaints will go directly to the State Council and that would be problematic. The State Council’s decisions are often issued too late to have any impact on the procurement procedure and its outcome. In this newly approved Lebanon Law No. 244/2021, the pre-contractual review body consists of four members appointed by the Council of Ministers in a decree (a president, three members). This raises the question of independence. The members can have no ties and no interest (direct or indirect) in any entity or administration part of the procurement. The conditions that the members must abide by in order to qualify as members of this body are found in Articles 91-94 of Lebanon Law No. 244 /2021. Until this review body is created, all complaints must be referred to the State Council, according to Article 103 of Lebanon Law No. 244/2021. The electronic procurement Electronic procurement is stipulated in Articles 66-71 of Lebanon Law No. 244/2021. E-procurement is a necessary step towards an e-government. The development of a central e-platform for public procurement allows information to be published. This platform should provide free access for decision makers and stakeholders to ensure the good implementation of Lebanon Law No. 244/2021 and to guarantee a transparent and fair procurement process. This step is crucial to improve the procurement system. However, Article 71 of Lebanon Law No. 244/2021 defers all details of electronic procurement to a decree by the Council of Ministers which is criticised as adding another layer of steps towards efficient and effective implementation of Lebanon Law No. 244/2021. The beneficial ownership Another weak point in Lebanon Law No. 244/2021 is the absence of provisions related to beneficial ownership data in procurement, which is already in place in several countries: 112 countries have committed to beneficial ownership transparency. The popularity of beneficial ownership provisions in public procurement rose due to numerous procurement scandals in the last few years, for example in the Czech Republic and the UK. In Lebanon, and under the pressure of the international community, laws were adopted to increase transparency. One of them was the amendment of Lebanon Law No. 106/2018 on Tax Procedures through the introduction of the concept of beneficial ownership and of sanctions for the non-declaration. Decision No. 1472/1 clarified the definition of beneficial owner further. According to the said decision, the beneficial owner is defined as “the natural person who holds directly or indirectly 20% or more of the share capital, or who holds the majority of the voting rights, or who holds the "main" decision-making rights, for example that of the dismissal of directors or supervisory bodies, or any person in a "senior management" position.” The concept of beneficial ownership helps us understand the company’s true ownership through open data platforms. According to the World Bank, 70% of all the grand corruption cases involve anonymously owned companies. Publicly available beneficial ownership data can only benefit procurement. First, this data detects actors trying to subvert existing legislation for personal gain and therefore prevents corruption and fraud: the information can help detect undisclosed /hidden conflict of interest and raise red flags on potential bidding rigging and collusion. Second, it enhances due diligence and improves competition: by reducing operational and financial risks, by diversifying suppliers and by detecting shared ownership. Third, it verifies the eligibility of suppliers for preferential public procurement also known as strategic procurement and which is any procurement that gives preference to certain suppliers, thereby deviating from the traditional principles of public procurement of equality, non-discrimination, and competition. Overall, beneficial ownership information helps combat money laundering and corruption while exposing conflict of interests. It provides a healthier environment for government procurement. Therefore, and although Lebanon has enacted laws related to beneficial ownership, it seems important to reinforce the legislation and to include this concept in the vital area of public procurement for more transparency and in the objective of a better fight against corruption. Conclusion: a step in Lebanon’s fight against corruption Most African countries went through public procurement reforms under the pressure of the World Bank and the International Community. The laws are, on paper, good laws but did not answer and adapt to the circumstances and problems of each country. Therefore, the public procurement in some African countries is still dysfunctional even with an updated legal framework that is aligned with international standards. Public procurement is a pillar indicator of the State’s development. However, the fact that Lebanon Law No. 244/2021 is an important and well-drafted law in general does not ensure its lawful and effective implementation in Lebanon, as corruption is still deeply rooted in the socio-economic-political system. That said, Lebanon Law No. 244/2021 is an essential step towards the fight against corruption and efforts to enact it should not go in vain. Consequently, it is crucial to allocate all necessary resources and focus on the issuance of all necessary decrees and on moving forward with the implementation plan for Lebanon Law No. 244/2021.
Beneficial Ownership
How can beneficial ownership transparency limit tax evasion? Principles and Standards One essential way of addressing dangers pertaining to a system’s financial integrity is the declaration of beneficial ownership information. Beneficial ownership is now a key element of international tax transparency and fight against tax evasion and other financial crimes. Indeed, beneficial ownership allows competent authorities, notably tax authorities, to conduct due diligence on an entity’s real owners in order to perform an a priori as well as an a posteriori control on all taxpayers and connected activities. Tax evasion can effectively be prevented by beneficial ownership declarations when the relevant authorities who have access to information pertaining to taxpayers can effectively impose the payment of the taxes due and can identify taxpayers who have not made their declarations or payments. Beneficial ownership declarations can also help identifying aggressive schemes and structures hidden under tax optimization. In order to adequately prevent and help fight tax evasion, beneficial ownership must be properly implemented. Below are some of the necessary principles and standards13, for the effective applicability of beneficial ownership, notably with regards to tax evasion: The scope and thresholds of application of the beneficial ownership should not be subject to multiple variations. Indeed, the definition of beneficial ownership must be clear and easy to understand in order to avoid any misunderstandings. The collection of information as well as its verification must be adequate and subject to consistent and effective control. Information pertaining to beneficial ownership should not only be accessible to authorities but also to all the public through the enactment and launch of a public registry. International Standards include timely access by authorities to updated and verified information. Open Ownership takes it a step further and asks for beneficial ownership information to be accessible to the public, therefore helping in public accountability. Moreover, putting in place digital registries helps in combating tax evasion and broadening the tax base by allowing the aggregation of taxpayers' data from a variety of sources. “Ideally, the register should be digitalized and maintained in a secure IT platform. Digital technologies are critical for managing high volumes of information, facilitating the reporting of information by obliged entities, lowering transactional costs, and ensuring the integrity of the information. Maintaining the register in an IT platform also facilitates the checking of consistency with other data sources and the timely access to information by law enforcement authorities”. Read more about Beneficial Ownership
Lebanon Petroleum Transparency Law
In 2010, the U.S. Geological Survey assessed the undiscovered oil and gas resources of the Levant Basin Province. Following such discoveries, it became compulsory for Lebanon to regulate all stages of the petroleum sector in order to ensure that a country rich in resources not only benefits from them but also avoids the resource curse. Indeed, in 1711, The Spectator wrote "It is generally observed, that in countries of the greatest plenty there is the poorest living". History has witnessed the collapse of resource rich countries throughout the years due to the mismanagement and the corruption governing the natural resource sector. The oil and gas sector is recognised as one of the fields where corruption thrives given that such sector generates immense revenues and is governed by people entrusted with high power. The fear of undergoing the resource curse was not the only factor that stimulated a legal framework for the petroleum sector in Lebanon. Indeed, the petroleum sector is primarily dependant on international know-how, workforce and most importantly, funding. Therefore, Lebanon had to present a credible image to international stakeholders in order to attract foreign investment and know how. All the above contributed to the establishment of a legal framework in the petroleum sector which started with the adoption of the first petroleum-related law, Lebanese Law No. 132/2010 Lebanese Offshore Petroleum Resources Law. Subsequently, other laws, decrees and international initiatives were adopted in Lebanon including Lebanese Law No. 84/2018 Enhancing Transparency in the Petroleum Sector. Lebanese Law No. 84/2018: A step forward in Lebanon’s fight against corruption According to Transparency International, there are five key ingredients that prevent corruption from taking place, one of which being promoting transparency and access to information. Lebanese Law No. 84/2018 was first presented to the parliament in 2016 under the denomination “combatting corruption in the oil and gas sector”. This tool had been introduced in the Lebanese agenda in 2016 but also and most importantly, when Lebanon announced in January 2017 that it intends to join the Extractive Industries Transparency Initiative (EITI). Therefore, implementing such standard through a domestic law was one of the necessary remaining steps to prevent corruption in the oil and gas sector. In addition, and at the international level, Lebanese Law No. 84/2018 is one of several strides taken by the Lebanese authority to reassure the international community of its seriousness in taking action to combat corruption in Lebanon and gain the international community’s trust again. If implemented properly, this law can be a means to enhance relations between the government, civil society, and the private sector. Read more about Lebanon Petroleum Transparency Law
Lebanon Conventional Mediation Law
With the aim of further developing the legal framework for mediation, the Lebanese Parliament enacted Lebanon Law No. 286 /2022 in April 2022 pertaining to Conventional Mediation. The purpose of this commentary is to analyse the law and to explicit the scope of conventional mediation compared to the judicial mediation previously discussed, its process and benefits. Raison d'être of conventional mediation Chronologically speaking, conventional mediation existed before the development of judicial mediation. Its origin dates back to valued and respected individuals who took the role of mediators or conciliators in a community, notably in rural or tribal communities, trying to solve raised issues amicably instead of, or at least before, resorting to punishment and/or force. Creating a set of legal framework for this practice will allow its modern and regulated application, bringing the best of mediation's advantages in the resolution of a dispute before it is settled by judicial courts. In the written motives of Lebanon Law No. 286/2022, the legislator brings out the difference between judicial and conventional mediation and the specific need for a law that covers the latter. Indeed, as judicial mediation tackles the conflicts referred to it by the courts (see: Legislative Insight on Lebanon Judicial Mediation Law), conventional mediation addresses disputes that the parties agree, preventively, to solve through mediation, hence its “conventionality” without resorting to courts. Lebanon Law No. 286/2022 allows the completion of the basic legal structure that frames the recourse to mediation as an alternative dispute resolution tool in Lebanon. The scope of conventional mediation As a reminder, mediation is best defined as a discussion between two parties with the assistance of a third impartial party, the mediator. Mediation’s ideal goal is for all parties to initiate and agree on a solution. Nevertheless, mediation’s first goal is to reestablish communication between the parties for them to reach a better understanding of the problem and their respective positions on the matter. Similar to judicial mediation, the fields in which the conventional mediation can intervene or be resorted to, are various, with the only limit being in respect of mandatory laws or public policies such as non-pecuniary personal rights, matters related to personal status, crimes, bankruptcy, or inheritance (article 2 of Lebanon Law No. 286/2022). Conventional mediation allows the parties recourse to it without depending on the decision of the courts. The choice comes from their own agreement to enter into mediation, either through a contractual clause in their main contract, or through a separate contract set up to govern mediation, according to article 3 of Lebanon Law No. 286/2022. Referral to mediation The important point to highlight regarding the referral to mediation is the liberty of the parties to resort to it. In this respect, the last paragraph of the abovementioned article 3 of Lebanon Law No. 286/2022, underlines that whether conventional mediation is preset by a clause or a contract, the only mandatory aspect pertains to the attendance to the first mediation session, after which the parties “regain” their liberty: they are free to choose if they wish to carry on the process or interrupt it. Proceedings Lebanon Law No. 286/2022, refers to the provisions of Lebanon Law No. 82/2018 related to the process of judicial mediation in Lebanon and its statutes of limitation. By way of a quick reminder, the essential legal points to retain are briefly as follows: 1. The parties must be present personally (article 12 of Lebanon Law No. 82/2018). 2. The mediator is legally bound to consider the needs of all parties involved and apply equal treatment. 3. The mediator is allowed to meet with one of the parties separately. Disclosing any information obtained from the private hearing to the other party is prohibited unless authorised otherwise (article 14 of Lebanon Law No. 82/2018). 4. The mediator is present only to assist with the discussion between the parties, and not to implement nor to propose solutions to the dispute. 5. The parties are required to participate in good faith and act cooperatively and transparently (article 17 of Lebanon Law No. 82/2018). 6. The duration of the mediation should last a maximum of 30 days from the date of referral (article 11 Lebanon Law No. 82/2018). This period may be extended to an additional 30 days following a written request signed and approved by the mediator and the parties. The mediator According to article 2 of Lebanon Law No. 286/2022, for conventional mediation to be considered as such, the parties should refer to a “specialised mediator” defined in article 1(g) of Lebanon Law No. 286/2022 as a mediator engaged in a mediatorship and whose name is listed in the list of mediators validated by the Ministry of Justice. The said list being also defined in article 1 (h/7) of Lebanon Law No. 286/2022 as the one established by the mediation centres in which the mediators are listed according to the provisions of Lebanon Law No. 82/2018 and its implementing decrees. In other terms, each and every mediator allowed to lead a conventional, or judicial, mediation should belong to mediation centres validated by the Ministry of Justice, to lead a conventional, or judicial, mediation should belong to mediation centres validated by the Ministry of Justice, according to implementing decrees that are yet to be enacted. The obligations and the role of the mediator are detailed in articles 4-5 of Lebanon Law No. 286/2022. According to these articles, the mediator must abide by the provisions of the signed mediation agreement between the parties. Given that there is no authority intervening in the process at an early stage, the mediator is legally bound to verify before the start of the procedure, that the parties are aware of the mediation, its principles, the role of the mediator and only then, proceed with the mediation. This verification covers notably the fees and expenses of the mediator that should be brought to the attention and approval of the parties prior to initiating the procedure. Furthermore, the mediator is legally obliged to remain impartial and independent of all parties involved in the process. Therefore, according to article 10 of Lebanon Law No. 286/2022, the mediator is expected to disclose to the parties any factor that may affect their impartiality and independence. Additionally, article 11 of Lebanon Law No. 286/2022 stresses on the full confidentiality of the exchanges that occur during and within the context of the mediation. Outcomes of conventional mediation As the freedom of the parties is one of the main pillars of mediation, the end of the procedure can take two forms: interrupting the mediation without reaching an agreement (as per the situations mentioned in article 9 of Lebanon Law No.286/2022) or signing a settlement agreement that reflects the conclusion reached by the parties. It is important to note that in the first situation the parties can go to court to sort out the problem and in the second situation, only the parties would sign the settlement agreement without the participation of the mediator. The settlement agreement would then be submitted to a notary to be officialised according to article 12 of Lebanon Law 286/2022. Besides this provision, Lebanon Law No. 286/2022 does not specify an exequatur procedure to allow the enforcement of the settlement agreement as compared to the judicial mediation whereby this procedure is foreseen. Recommendations Mediation has recently become a recommended alternative tool to dispute resolutions. Whether on a national or an international scale, mediation has gained new ground, the passing of the Lebanese laws is a perfect example of it. Notably, mediation presented itself in Lebanon as an alternative to the latest judicial crisis and strikes hindering people's access to their rights. Nevertheless, many members of the legal profession are still cautious on moving in this direction not to mention the ever-present incompleteness of the legal tools of mediation, namely the publication of the implementing decrees. The implementing decrees should clarify the certification process and criteria of the mediation centres approved by the Government. The centres are key actors in the listing of the mediators and consequently the validation of the mediations. The need for the implementing decrees is becoming a major obstacle to the full deployment of mediation in the Lebanese legal sector. Even so, several conventional mediations are happening and being executed regardless of the incomplete tools given that in most of the cases the parties benevolently execute the agreement they reached. Therefore, in line with the previous article’s appeal (Legislative Insight on Lebanon Judicial Mediation Law), we reiterate our invitation to the Ministry of Justice to expedite the process and proceed with the necessary publication of the implementing decree
Navigating the Complexities of Franchise Agreements
The global landscape of franchising is characterized by a diverse regulatory framework that varies significantly across different jurisdictions. In countries like the United States, Canada, Australia, Brazil, Mexico, China, Malaysia, Indonesia, Vietnam, South Africa, and the Kingdom of Saudi Arabia, specific franchise laws provide a standardized approach to franchising. These laws ensure legal clarity, offer protection for franchisees through pre-contractual transparency, and facilitate efficient dispute resolution by mandating the disclosure of detailed information about the franchise’s history, legal and financial status, and fees. In contrast, countries without dedicated franchise legislation, such as Germany and the UK, rely on general commercial and contract laws, offering flexibility but often lacking the targeted protections and standardized practices of specialized franchise laws. In the Middle East, the franchising framework exhibits a notable diversity, with no uniform legislation across the MENA region. However, countries like Saudi Arabia, with its Commercial Franchise Law (Saudi Cabinet decision 122/1441 and its Implementing Regulations, Ministerial Decision 591/1441), Egypt, through the efforts of the Egypt Franchise Development Association (EFDA), and the UAE, governed by the Commercial Agency Law (Federal Law No. 18 of 1981, as amended), have developed specific standards and entities to manage franchising. These legal frameworks range from comprehensive franchise-specific laws in Saudi Arabia, offering clear guidelines for franchise operations, to the UAE's reliance on commercial agency registration for franchise agreements, providing substantial protections to local franchisees. Lebanon's franchising sector, while not regulated by specific franchise laws, operates under the general auspices of the Code of Obligations and Contracts and the Commercial Code. Notably, franchising in Lebanon is now excluded from the regime of the decree-law 34/67 relating to commercial representation, resulting in less legal protection for the franchisor as a “commercial representative” and, consequently, necessitating greater rigor in the contractual clauses of franchise agreements. The Lebanese Franchise Association's Code of Ethics, though not legally binding, plays a crucial role in guiding the evaluation of franchise agreements. In this context, this article aims to explore the intricacies of franchise agreements, examining its key clauses such as mediation clauses as an effective dispute resolution tool. Critical Clauses in Franchise Agreements Franchise agreements whether executed in Lebanon or abroad, governed by general contract law due to the absence of specific franchising legislation, should in our opinion include particular clauses that define the franchisor-franchisee relationship, ensuring clarity, fairness, and the relationship’s overall integrity. Among these, the Grant of Rights and Territory, and Fees and Royalties clauses are fundamental. They define the franchisee's rights, including the use of proprietary knowledge, and set out financial obligations like initial fees and ongoing royalties. These clauses ensure franchisees are clear on their operational limits and financial commitments, crucial for a harmonious franchisor-franchisee relationship. Additionally, the agreement should cover the Obligations of the Parties; Term, Renewal, and Termination of the agreement; and Intellectual Property protection. The Obligations clause outlines the responsibilities of both franchisor and franchisee, from providing support to adhering to operational standards, and the second clause sets terms for the agreement's duration and termination, ensuring clarity on the relationship’s life cycle. As for the Intellectual Property clause, it protects the franchisor's brand, specifying rights and limits on the use of trademarks and information, vital for maintaining the franchise's integrity. Together, these elements form the foundation of a balanced and transparent franchise agreement. Beyond the core clauses of a franchise agreement just outlined, it is essential to identify certain provisions as important to minimize the risk of future disputes. At the forefront is the Disclosure Document, a comprehensive file provided by the franchisor to the franchisee. Said document should be as thorough as possible including ideally: the financial statements of the franchisor, the franchise operations manual, the consent to a background check, an overview of the assets of the franchisor, the training program materials, the trademark and intellectual property documentation, the confidentiality agreements and the site selection guidelines. The document aims to enable the franchisee to make an informed decision about entering the franchise relationship. It is advisable to include a clause confirming that the franchisee has reviewed this document and conducted due diligence, ensuring the latter is fully aware of the facts before signing the agreement. Another pivotal aspect is the transfer of Know-how, which transcends mere contractual mention to embody a significant element of the franchise agreement, as underscored by a key ruling from the Paris Court of Appeal on May 16, 2013 (No. 12-16960). This ruling clarifies that the know-how should be assessed as a whole. It constitutes a set of techniques, information, and services, which do not have to be original, but must provide a competitive advantage by saving the franchisee lengthy and expensive research. The agreement should detail the practical application of this know-how, including comprehensive initial training programs, operational procedures, product knowledge, detailed operations manual, guidelines for day-to-day operations, brand standards, marketing strategies, administrative procedures, ongoing support and training, technology transfer, and quality control and compliance monitoring. Within the franchise agreement, clear guidelines on the Price-Fixing process are essential. This involves detailing whether prices are set in advance by the franchisor, if there is a specific formula that the franchisee must adhere to, and the necessity of conducting field studies before establishing and updating local pricing. Such clarity ensures both parties understand their roles and responsibilities in the pricing strategy, preventing future disputes and ensuring consistency across different locations. Also, the success and longevity of a franchise relationship can be significantly influenced by a detailed description of the hiring process and HR requirements. Incorporating recruitment criteria directly into the franchise agreement, in addition to any mention in the franchisor’s operational manual, establishes clear expectations from the outset. This approach ensures that all franchise locations maintain a consistent level of service and operational efficiency by adhering to predefined staffing standards. Moreover, in an era where digital presence is integral to business operations, data protection becomes paramount. The franchise agreement must meticulously address legal compliance, ensuring both franchisor and franchisee adhere to data protection laws such as GDPR. The agreement should notably focus on brand protection by implementing uniform data security measures to maintain customer trust and safeguard the franchise's reputation. Effective risk management strategies must also be defined, assigning clear roles in data protection to minimize the risk of breaches. Consequently, and following the increasing value of data in the digital age, integrating robust cybersecurity measures into franchise agreements is critical. These clauses should mandate the inclusion of internal cybersecurity systems, which are essential for preventing data misuse and ensuring the secure use and monetization of data. The cost of these systems should be factored into the franchise expenses, underlining the importance of cybersecurity in the franchise’s overall operational framework. Considering the long-term nature of franchise agreements, it is vital to incorporate sustainable conflict resolution mechanisms. Based on voluntariness, neutrality, impartiality, and confidentiality, mandatory mediation clauses can offer a cost-effective, time-efficient, and flexible solution for managing disputes. Such measures facilitate a smoother resolution process, minimizing disruption to the franchise operations. For hospitality and food service franchises, where customer experience extends beyond mere decor and menu, the operations manual's depth is crucial. It should comprehensively cover the transfer of know-how, ensuring franchisees deliver a consistent and high-quality customer experience. A detailed manual supports the standardization of service and operational practices across all franchise locations. Furthermore, this sector is specifically subject to stringent regulations. Franchise agreements must clearly delineate responsibilities for complying with health and safety regulations, food handling and hygiene standards, liquor licensing (where applicable), and employment laws. This clarity ensures that all franchise locations operate within legal requirements, maintaining the safety and well-being of both employees and customers. In the food service industry, the consistency of product quality is essential for brand reputation and customer satisfaction. The franchise agreement should specify sourcing requirements, whether franchisees are required to purchase directly from the franchisor, exclusively from franchisor-approved suppliers, or from approved vendors. This ensures quality control and consistency across the franchise’s offerings, integral to the franchise's success. Conclusion Navigating the complexities of franchise agreements requires a nuanced understanding of both global practices and local legal requirements when specific franchising legislation in the targeted market is absent. While detailed clauses in franchise agreements are essential to ensure clarity, fairness, and operational efficiency in the franchisor-franchisee relationship, they alone are not sufficient. Practical application is of the essence, especially considering the local laws and the intricacies of exit strategies. A well-defined exit strategy within the franchise agreement can mitigate potential disputes and financial risks, outlining clear processes for transfer, sale, and termination that align with local regulations and safeguard the continuity of the franchise. Incorporating robust conflict resolution mechanisms and adhering to regulatory compliance within these agreements are proactive steps necessary for fostering sustainable business partnerships. Moreover, understanding the legal framework, including the nuances that might impact agreements and exit strategies, helps avoid potential reclassifications and ensures that local laws that might override agreement terms are considered.
AI in the Courtroom of the World: Understanding the EU AI Act's Reach
Artificial Intelligence (AI) has taken the world by storm during the last decade, developing at a rapid pace and invading many sectors such as healthcare, the judicial system, entertainment, etc. It refers to systems or machines that mimic human intelligence to perform tasks and can repeatedly improve themselves based on the information collected. AI spans from simple algorithms used in everyday applications to complex systems that can reason and learn from data. As AI advances, the imperative of regulating its usage becomes unavoidable for several reasons namely to alleviate the moral complications it raises and to ensure public safety, transparency, and accountability of those who overstep boundaries. In response, countries have adopted various regulating strategies. Japan is adopting a "soft law" approach to AI regulation, utilizing existing data protection laws and planning a new law for 2024 to regulate generative AI. The United States (US) is acting towards having AI governance managed by the executive branch of government rather than a broad national AI law. As of August 2023, China's law mandates a pre-state review of algorithms, specifically targeting generative AI, to ensure adherence to socialist values, protect national security, uphold ethics, prevent discrimination, and promote transparency and reliability. The European Union (EU) has been working towards implementing the EU AI Act COM (2021) 206 final, Brussels, 21.4.2021 (EU AI Act or AI Act) which is in its last stages before becoming law. In Lebanon, the National AI Strategy for the Lebanese Industrial Sector (2020-2050) published in August 2019 and spearheaded by the Lebanese Ministry of Industry, stands as a testament to the nation's forward-looking approach to integrating artificial intelligence (AI) into its industrial fabric. However, despite the strategic endeavors aimed at fostering a knowledge-driven economy and digitalizing the Ministry to become a "smart ministry," the Lebanese authorities have yet to establish a formal legal framework specifically designed to navigate the complexities of AI within the Lebanese market. Given that the EU AI Act stands as the most comprehensive and forward-thinking regulation on a global scale, adopting a proactive stance by foreseeing potential AI applications and setting preemptive measures for yet-to-be-encountered scenarios, this article will concentrate on exploring its fundamental aspects and the impact it has on the field. AI Act Essentials The purpose of the AI Act is to encourage resorting to AI by all economic operators all while establishing a transparent, ethical, and safe environment. If the AI Act’s main target was the security of AI products, the target evolved covering today, fundamental rights and high-risk AI systems. What is the implementation timeframe? Earlier in March, the EU Parliament voted on and approved the proposed AI Act. Before the said act becomes binding law on the Member States (MS), it will need to go through a corrigendum procedure, which is a formal process in which errors and mistakes are identified and corrected before the publishing of the document in the Official Journal (OJ). The next step would be its approval by the EU Council, which is expected to occur over the upcoming months. The EU AI Act will become officially effective twenty (20) days after it is published in the OJ. What is the compliance deadline? The deadline for compliance will depend on the degree of risk of the system and vary between 6 to 36 months. Provisions concerning prohibited AI practices will take effect six months after the AI Act comes into force. In comparison, those relating to general-purpose AI models will take effect six months later. Subsequent provisions will be implemented later, with most taking effect two to three years after the AI Act enters into force. Who is concerned by the AI Act? Any economic operator whose headquarters are located in the EU, or whose market targets the EU. It is worth noting that non-commercial activities are not affected by the AI Act’s provisions (such as research). What are the prohibited and high-risk AI systems? Articles 5 and 6 of the EU AI Act indicate the prohibited AI systems and the high-risk AI systems respectively. Some of the most relevant and prohibited AI systems included under Article 5 are the following: Implementing deceptive techniques to hinder decisionmaking, leading to significant harm, e.g. an AI system that subliminally manipulates online shoppers into overspending, Exploiting vulnerable individuals based on their age or disabilities, ultimately leading to significant harm, e.g. an AIdriven game that exploits children's cognitive vulnerabilities to push in-game purchases, Social Scoring, which is, categorizing individuals based on their social actions, leading to their mistreatment, e.g. a local government AI system that scores citizens based on social media activities, affecting their service eligibility, “RealTime” remote biometric identification (RBI) in publicly accessible spaces as part of law enforcement (with exceptions), e.g. law enforcement using live facial recognition in public areas to track individuals without specific legal authorization. Article 6 goes into detail on high-risk AI systems, and what requirements their providers are subject to. The following are some of the high-risk AI systems: Remote biometric identification systems (those that are not banned), e.g. Biometric systems at airports that match passengers with their passport photos at gates, AI systems that decide whether individuals get access to educational and vocational training, at any level, e.g. an AI tool that processes and evaluates university applications based on academic and extracurricular data, AI systems that are used as a part of recruitment activity, specifically to filter applications, e.g. an AI system that filters job applications by assessing resumes against required qualifications, AI systems that are used to evaluate peoples’ risk of being crime victims, as part of law enforcement, e.g. an AI system evaluates the probability of individuals becoming crime victims based on historical crime data and personal data, used to allocate police resources more effectively. Some of the obligations that high-risk AI systems must abide by are the following: Create a risk management system, e.g. developing processes to assess and mitigate AI system risks throughout its operational life, Constantly proving compliance by drawing up technical documentation, e.g. maintaining detailed records of AI system design and operation to demonstrate compliance, Record keeping, e.g. ensuring all AI decisionmaking processes are fully logged and traceable, Human oversight is never ignored, e.g. designing the AI system so that humans can understand and oversee its operations, ensuring decisions can be reviewed and intervened if necessary. What are the non-compliance penalties? Entities involved in marketing or deploying AI systems categorized under "unacceptable risk" could face administrative fines of up to €35 million or 7% of their total worldwide annual turnover. This category includes AI systems that could manipulate human behavior in subliminal ways, exploit vulnerabilities of specific groups of people, enable government-sponsored social scoring, or utilize real-time remote biometric identification systems in publicly accessible spaces, among other criteria. For violations not related to the deployment of prohibited AI systems but still under the AI Act's scope, entities may be subject to fines with lower ceilings. These include fines up to €15 million or 3% of the worldwide annual turnover for non-compliance with the AI Act's stipulations outside the "unacceptable risk" category, and fines up to €7.5 million or 1% of worldwide annual turnover for providing incorrect, misleading, or incomplete information to the relevant authorities or bodies. For each category of infringement, the applied threshold would be the lower of the two amounts for SMEs and the higher amount for other businesses. AI Act’s reach The European Union has been setting the standard in terms of regulation. On one hand, the General Data Protection Regulation (GDPR) deals specifically with data privacy and ensures the protection of the data of individuals (consent, data processing, and controlling, data subject rights, etc). On the other hand, the AI Act mainly touches on AI systems (risk levels), ethics, performance, and transparency, specifically when applied to sensitive sectors such as healthcare and transportation. While the GDPR is considered one of the strictest regulations in terms of data protection, it frequently serves as a reference in contracts, regardless of whether the relevant parties directly fall within its jurisdiction. Similarly, the AI Act, with its comprehensive coverage of AI details, is anticipated to be utilized as a reference point. Together, these regulations not only underscore the EU's commitment to maintaining a fine balance between advancing technological innovation and protecting individual rights and safety but also affirm its influential role in shaping global regulatory frameworks.
Corporate Governance in Lebanon and the Gulf: Trends of the modern business and recommendations for an enhanced governance
Summary This article written by Nour Abi Rashed and Liwaa Taraby talk about Corporate governance (CG) refers to the framework of rules, practices, and processes by which a company is directed and controlled. As businesses grow in size and complexity and interconnect in globalized markets, Corporate Governance harmonizes the priorities and interests of different stakeholders in companies including shareholders, management, suppliers and creditors, employees, the government, the community and the environment- all components of the life of an active business upon which company law does not necessarily touch base or is incapable to address efficiently. Analysis Effective Corporate Governance, if achieved, has the effect of ensuring accountability, transparency and fairness in a company’ s operations. With the increasing investments through companies and financial markets, the usual framework of commercial laws no longer suffices to prevent business risks and consequently, robust governance practices become crucial to ensure sustainable performance, to mitigate risks and to foster investor confidence. This article explores the role and importance of corporate governance in modern business, while touching on its current framework in Lebanon and neighboring countries of the Gulf as well as the evolving trends shaping its mechanism. The article further suggests possible steps for Lebanese companies to enhance their governance practices amidst the current legislative framework. - What is corporate governance? Corporate governance is the system by which companies are directed and controlled to achieve the abovementioned goals. According to the internationally applicable G20/OECD Principles, corporate governance provides, on a fundamental level, “the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined”. In an increasingly globalized market, big corporations can impact communities through their unilateral decision-making process. It is therefore crucial to ensure that, as contemporary corporate governance aims to, an appropriate governance structure is in place. By “appropriate” we mean a structure that considers building and maintaining long-term successful relationships with its wide range of stakeholders - all of them -, while generating profits for its shareholders. It is therefore the shareholders’ responsibility to firstly define their objectives and priorities and then ensure that the adequate governance structure is in place to achieve such objectives. The mentioned structure can be achieved through their policies, their risk management tools, the means and criteria of appointment of directors and auditors, the creation of committees, the enhancement of transparency and accountability of the directors towards the shareholders and the implementation of other CG principles as will be elaborated subsequently. - What types of companies are invited to consider CG and why? Listed companies In principle, corporate governance regulations are intended to apply to listed companies. When they exist, such regulations are usually mandatorily applicable to listed companies and left optional for all the other types of companies. It is the case because corporate governance has become vital, not only for the success of a company’s business but more generally, for a powerful and fair economic system. In fact, when it comes to investing in big/listed companies, introducing good corporate governance practices that are functional and effective is a crucial element in attracting external funding, as investors seriously consider how companies are managed. Furthermore, the enhanced transparency and accountability achieved by CG practices naturally lead to an increased investor confidence, and consequently, to an increase in shareholder returns and an improved stock performance. Such principles also ensure that investors have a say in the decision-making process of the company. Medium to Small companies The same beneficial influence of corporate governance has been reported on medium and small companies, notably in our region. In a report published in 2019 by the World Bank titled “Corporate Governance in MENA: Building a Framework for Competitiveness and Growth”, it has been demonstrated that corporate governance practices are positively associated with companies’ profitability in the Middle East and North Africa (MENA) region, as well as with higher levels of efficiency and an increased stringent oversight. Additionally, small to medium companies that are looking to grow and expand are invited to invest in a solid corporate governance framework that can help them identify challenges of expansion and ensure their readiness to face them. Family Businesses Corporate governance practices are key solutions to many of the challenges faced by family-owned businesses, which nearly constitute 90% of the businesses in developing countries. Their major crisis of managing succession can be responded to through succession planning as well as through the anticipation and mitigation of potential conflicts via robust mechanisms of corporate governance. All types of Companies In addition to the corporate governance’s response to particular matters with respect to different types of companies, its advantages can be benefitted from by all companies of any type. Indeed, all businesses, no matter their size, are invited to take risks and innovate in order to increase the profits they generate for their shareholders while ensuring a smooth balance between the interests of all the stakeholders involved in the company. In this area particularly, corporate governance plays a major role: it offers several mechanisms that will help companies assess risks more effectively, and get ready to respond to them more quickly, depending on the nature of their business. This could be achieved, inter alia, through an engaged board and an effective internal control mechanism. Additionally, all types of companies would benefit from better and more sustainable relationships with their stakeholders, as CG principles aim to achieve. The implementation of such principles can improve a company’s ability to attract and retain talent, making it a fair employer of choice. The same applies when it comes to company’s reputation and credibility vis-a-vis its creditors, as well as its wider community and environment. - Why Corporate Governance if there is Company Law? Companies exist as a corporate vehicle for carrying on a business and are created and governed by Company Law. Consequently, the main aim of company law is to ensure that such corporate vehicle is as attractive as reasonably possible for carrying on the business, by balancing the interests of the various parties involved in, or affected by, a company’s activities. For this reason, Company Law offers facilitative features for running a company, such as a separate legal personality of the Company, from which will result a limited liability of shareholders aiming at increasing their appetite for risk; an efficient decision-taking mechanism founded on the majority rule; a separation of ownership from the management, whereby shareholders have the opportunity to simply own and invest without being involved in running the company- leaving the management task for the directors, etc. However, each of such facilities is not implementable without any risk. Such features ensure the smooth running of the business, but do not guarantee the business won’t fail and to face nowadays increasing challenges. Indeed, Company Law recognizes the existence of many of those risks and addresses them through different mechanisms. For instance, it provides for adequate rules such as the ‘capital maintenance’ doctrine (i.e. that a company must obtain proper consideration for shares that it issues), publicity requirements as well as the whole insolvency regime to protect creditors of a company against excessive risks taken by its shareholders. It also provides the shareholders with several mechanisms to hold the directors accountable, such as the power of appointing and dismissing directors, addressing the risk of agency cost. Nevertheless, it is argued that the Company Law mechanisms of addressing corporate risks are not entirely effective. Businesses still fail and third parties dealing with them (creditors, employees, etc.) often suffer the consequences. Directors still make mistakes and shareholders of the largest companies often find it difficult in practice to use any of the available company law mechanisms to hold them accountable. This being said, Corporate Governance manifests as a means to supplement Company law’s attempts of addressing the risks created by its facilitative rules. CG principles aim at setting out a sustainable framework for running the business in a way that would protect creditors and third parties while allowing shareholders to take risks, increase their profits, and hold the management accountable if needed. - Corporate Governance in Lebanon and the Gulf CG in Lebanon The corporate environment in Lebanon and the Gulf is mostly dominated by family-owned businesses, which own the largest market share of the private sector. Corporate governance in the region concerns not only listed companies and banks, but also non-listed companies, which represent the majority of companies on the market. In Lebanon, a Code of Corporate Governance was for the first time introduced in 2006 (“CG Code 2006”) to be voluntarily applicable to companies and banks, aiming to inspire good practices to both listed and non-listed corporates. The Code introduces a number of recommendations which do not appear today as entirely aligned to best practices. It was followed by the Corporate Governance Guidelines for Listed Companies (“CG Guidelines 2010”) which serves as a mere reference for listed companies that are subjected to the Listing Regulations of the Capital Markets Authority (“Listing Rules”). The primary source of corporate governance legislation in Lebanon remains rooted in the Commercial Code of 1942 as amended recently by Law No. 126 of 29 March 2019 (“Commercial Code”). There is no particular corporate governance code governing banks. However, the Lebanese Central Bank (Banque du Liban) has issued numerous circulars on corporate governance that serve as a guide and aims to establish general principles, allowing banks to adapt the directive according to their needs. As per the Basic Decision No. 9382 dated July 26th, 2006 (“Basic Circular 106”), banks must prepare their own CG Guides. Based on a CG report published on Lebanon in 2021 by the European Bank for Reconstruction and Development, it was found that the institutional environment for promoting good corporate governance in Lebanon has room for improvement, with the main regulators being the Central Bank, the Banking Control Commission and the Capital Markets Authority that regulates the work of the Beirut Stock Exchange (with nearly 10 listed companies currently). In practice, the CG Code as well as the subsequent guidelines, which are both voluntary, do not seem to have been taken as a reference. Listed companies did not to pay much attention to requests by stakeholders, and international organization indicators show a framework where corruption is still perceived as a critical problem. Indeed, the CG Code is written in a clear and concise language that makes it easy to follow. However, it lacks substance in some key areas (such as the board’s role in developing the company’s strategy and overseeing risks). Additionally, there is no body or authority that monitors the companies’ compliance and implementation of the Code, and no evidence found of case law that refers specifically to such legislation to acknowledge rights of shareholders. According to the World Bank “Doing Business Report” of 2019, Lebanon is ranked 143 amongst 190 economies in the ease of doing business, which is a serious call for the revision of the CG guidelines that are now outdated and unmatching with the international standards. CG in the Gulf Contrary to Lebanon, the last few years have been very busy for some GCC (Gulf Cooperation Council) countries legislating in the area of corporate governance, in response to the rapidly evolving business landscape across the region. Although several GCC member nations have been active in this regard, it appears that the UAE and Kingdom of Saudi Arabia (KSA) regions are leading the way toward establishing a world-class corporate governance system. These two countries are witnessing in particular a strong wave of companies going public, which calls for a significant undertaking in terms of establishing a robust CG system. Additionally, the growing institutional investment in the business landscape of the region urges medium enterprises to achieve world-class status. In the UAE, rigorous new CG standards were adopted in 2020 for public joint-stock companies in alignment with international best practices, promoting accountability, fairness, gender diversity and transparency. For instance, amongst these standards is found the requirement for the majority of the board to be independent and non-executive, the requirement of a minimum 20% representation on the board and the elaboration of policies on gender diversity, and so on. In April 2022, the Dubai International Financial Center (DIFC), Abu Dhabi Global Market (ADGM), and Financial Action Task Force (FATF) all issued new regulations pertaining to decision-making frameworks and procedures across the region. Subsequently in March 2023, the Dubai Financial Services Authority (DFSA) published a new set of CG regulations for regulated entities in DIFC to ensure high standards of CG are maintained. These regulations provide updates on conflicts of interest management, board diversity, board composition and executive remuneration. In KSA, both the Ministry of Commerce and Investment and the Saudi Capital Market authority (CMA) have been collaborating to develop and modify CG standards for listed and non-listed companies. Inspired by the UK CG regulations, they have issued six separate CG resolutions in the past decades aiming at better matching the Saudi Arabian setting to international best practices. The most important measures tackled, inter alia, remuneration and compensation reforms, executive compensation disclosure, shareholder rights and assemblies, development of strategy and training programs for board members, conflicts of interests resolution and strict disclosures, audit, nominations and responsibilities of risk management committees. For companies seeking to list on Tadawul, the CMA in KSA released new rules that establish high standards for CG practices (including board roles and responsibilities, shareholder rights protection, reporting obligations, risk management and internal control framework) seeking to strengthen investors’ confidence and attract foreign investments. - Increasing CG trends The adoption of international CG standards is itself a significant trend in the region. Firms in the Middle East, no matter their size, are seeking an increase of their transparency and sustainability which will potentially allow them to access capital markets more easily and build trust with investors. Among the most common trends in terms of CG principles, we notice the following: An increased tendency towards independent boards of directors: whereby firms are now appointing independent directors (non-shareholders, and not related to shareholders) to strengthen CG practices. Efficient and independent decision-making is achieved when shareholders, who are entitled to hold the board members accountable for their mismanagement, put their accountability tools into practice. The two-tier board structure: This structure can manifest in the separation of the role of Chairman from the manager’s role, as a distinction of the management and operations from decision making and strategic thinking. It is further reflected when the board of directors include both executive and non-executive directors (supervisory board), manifesting in a two-tier structure to guarantee the compliance of the board’s operations with the company’s strategy. This practice ensures that such compliance is enforced from within the board itself. Yet, it is worth noting that although the two-tier board structure is being popularized by large organizations and giant multinational corporations, the one-tier structure remains the most common in the Middle East often comprising in average 6 to 11 board members, depending on the size of the firm and the nature of business, especially among family-owned businesses. Committee structures within the Board: it is increasingly desirable to create separate Board Committees for different preoccupation of the board, notably relating to corporate responsibility, risk management, audit and remuneration committees. This trend is recommended and was motivated by the remarkable achievements of board members who have a certain matter expertise as well as specialized experience and a specific industry knowledge. Additionally, it has been observed that extensive and targeted work happens in board committees who can cover regulatory matters and progressive agendas, such as community awareness, employees’ well-being and the importance of generating value for shareholders, in depth. An increased use of technology to enhance the CG practices: such as CG software, cloud computing, artificial intelligence and other technology tools that are put in place to strengthen the internal processes and ensure regulatory compliance. An enhanced all-level diversity: although gender-diversity has become a self-imposed requirement in many markets, if not through government regulators, somehow through social pressure, diversity on all levels lies at the core of corporate governance. It is therefore an increased trend of firms to look, further than gender diversity, at the diversity of skills, experience, leadership preferences and geographical diversity. Members are sought for their experience but also for their specific expertise in fulfilling their role and their trustworthiness that should remain a top priority. An increased attention to defining a Culture: the corporate practice manifested as a crucial element of the company, specially in times of crisis and pandemics where proactive leadership of board members played a significant role. As a result, and although board’s responsibilities are mostly supervisory in nature, the company’s culture is highly influenced by the board’s actions and decisions. The culture begins at the top, and therefore, board members are expected to be the first to adopt and practice the cultural traits that they consider would best benefit the organization, in compliance with the vision and strategy they draw for the company. This calls for the establishment of a long-term strategy and a corporate purpose for the organization, with which all the practices, activities and decisions must be aligned. In addition to all the above, firms that implement consistent levels of good governance were noticed to have emphasis on their Human capital management, compensation discussion and analysis, shareholder and stakeholder engagement as well as sustainability and risk management challenges. - Opportunities of enhancing CG in Lebanon As previously mentioned, the framework of corporate governance in Lebanon drawn within the limits of an old commercial law (1942) and some superficial recommendations (2006) and guidelines (2010) of CG principles that became obsolete. The guidelines provided are no longer aligned with the current international CG practice, in addition to the fact that no legal body or authority exists to ensure the compliance of companies with CG practice, due to their fluidity and non-mandatory aspect. Nevertheless, Lebanese corporations are still invited to assess their compliance with good governance practices, and to enhance it accordingly. In a small developing market such as Lebanon, where the rule of law is breached on a daily basis and compliance instruments are shy, businesses have an increased interest to procure their own transparency and compliance process, and enhance their governance frameworks to attract more investors in a sustainable way. New tools for achieving a better corporate governance were made available following the 2019 amendments of the commercial code, notably: The election of board members who are non-shareholders is now possible for the first time. This will open the door for more specialized boards that focus on management and operations, independently from the shareholders who own the company and invest in it. Such shareholders will consequently be able to exercise their role of overviewing the board effectively, and hopefully, to enable their powers of holding board members accountable for their management errors and breaches through the means available to them. This separation will create room for more specialized and expert members to sit on the board of directors, beyond family members and founders of the business. Additionally, the independence of board members from shareholders is strengthened by eliminating the requirement for each board member to hold guarantee shares. This mechanism is inefficient and could potentially lead to conflicts of interest. One third of the board members must be Lebanese nationals, shifting from a previous requirement where the majority of members had to hold Lebanese nationality, which improves diversity in boards composition. The same advantages are further enhanced through the new possibility of separation between the Chairman of the board, who will merely preside the BoD, and the general manager who will be responsible for the actual operations and management of the business. The transparency and disclosure pertaining to a company’s activities were enhanced through the current obligation of board members to submit their annual reports, financial statements and annual accounts every fiscal year to the general assembly of shareholders, who shall assess them and take the decision of their ratification (or not) depending on the case. The said decision of the ordinary general assembly should then be registered and published before the commercial registrar. This obligation is applicable to joint-stock companies. Disclosure and publishing obligations have the effect of allowing better access to shareholders into a business’ management and financial accounts, which in turn will allow shareholders to better exercise their role of supervision and accountability. Additionally, it will offer enhanced visibility and information to third parties, and therefore, a further layer of protection. The abolishing of the necessity for the Chairman of the Board to obtain a work permit if they are a non-Lebanese resident outside of Lebanon. This allows the participation of qualified chairmen in boards of Lebanese joint-stock companies, which is in alignment with the diversity objective, as set out above. The external auditor of the company, who must maintain independence, is not allowed to remain in its position for more than one year and its tenure is capped at five years. This helps prevent potential conflicts of interest, minimizes the auditors' influence over the company's governing bodies, and holds the former accountable, to some extent, to the latter. The broadening of the scope of regulated agreements to cover not only agreements made with Board members, general manager, etc., but also any shareholder who directly or indirectly holds voting rights amounting to five percent (5%) of the company's capital, who shall be subject to prior approval from the board of directors for any contract, agreement, or commitment intended to be made with the company. This encourages transparency and avoids conflicts of interest. Nevertheless, although the 2019 amendments brought to the Lebanese commercial code held some advancement in terms of better governance, the corporate governance framework of Lebanon remains missing extremely essential practices. Audit and risk committees were only recommended in the guidelines issued for banks, whereas committees in general, notably relating to audit, risk management, remuneration of directors (and control of such remuneration) and other important topics in the life of a company, are highly advised for better practices of growing businesses but missed out by the 2019 amendments. This was a lost opportunity for improvement in terms of CG. Additionally, as the international standards of corporate governance are now directed towards further diversity and inclusion, as well as attention to sustainability, environment, the outer community and other stakeholders of the company (such as its employees, creditors, etc.), Lebanon remains far from international trends of corporate governance. No current Lebanese law includes any provision relating to the abovementioned topics of diversity, environment or sustainability. Written by Nour Abi Rashed and Liwaa Taraby
Lebanon Succession Laws
L1: Lebanon International Succession Laws Edited by: Nicola Saccardo and Piers Master, Charles Russell Speechlys LLP Publisher: Bloomsbury Professional Publication Date: December 2024 Authors: Carine Tohme and Nour Abi Rashed This chapter was last updated in November 2024. Introduction and general principles Intestate succession and forced heirship Testamentary succession: Lebanese and foreign wills Overview of administration procedures Trusts, foundations, and other planning structures Taxation Introduction and general principles Introduction and background information L1.1 Lebanon has a unique intercommunal system that is deeply rooted in its history and reflected in its legal practice. The country is known for its diverse religious and ethnic communities that transformed the legal and judicial systems into hybrid systems, combining elements of both civil and religious law. The civil law system includes, inter alia, commercial, civil, criminal and public law, and is based on the French legal tradition; it is therefore governed by civil laws and subject to the jurisdiction of national courts. By contrast, personal status matters, such as marriage, divorce and inheritance, are, in principle, governed by religious laws and fall under the jurisdiction of religious courts, each catering to specific religious communities. The main religious courts include Christian courts (for different Christian denominations), Sunni courts, Shia courts and Druze courts. Inheritance matters and succession planning reflect the complex interplay between civil and religious legal systems in Lebanon. As an exception to the principle according to which the religious system governs inheritance matters, the inheritance of all nonMohamadi is governed by a civil inheritance law, that of 23/06/1959 (Official Gazette No 31/59, 24 June 1959) and falls under the jurisdiction of national civil courts. Based on the above, this publication will provide information on the basic rules of succession and recognition of trusts in Lebanon in accordance with the civil inheritance system applicable to non-Mohamadi, which falls under the scope of the law of 23/06/1959 excluding the religious system governed by Sharia. General principles of succession and rights of inheritance Place and time of opening of the inheritance L1.2 Under Lebanese law, succession is opened at the moment of death (or presumed moment of death) of a person. The assets constitute the inheritance and encompass all rights which are not extinguished with death, movable and immovable assets, debts and credits. Governing law L1.3 The law governing inheritance under Lebanese international law is determined by the nationality of the deceased rather than their place of residence. This principle is established in article 10 of Decree No 60/1936 and is further reinforced concerning real estate assets in article 231 of the Immovable Property Code (Decree No 3339/1930). Competent jurisdiction L1.4 The competent jurisdictions for non-Mohamadi’s inheritance procedures are the civil courts, which exercise territorial jurisdiction based on the situs of the deceased's last domicile. In principle, the unique judge of the civil court (specifically, the chamber ruling on personal status matters) is the competent court to request the issuance of an inheritance certificate (Hassr Erth) as will be further detailed below, provided such action remains gracious (ie non-disputed) and does not involve any dispute pertaining to the identification of heirs or the allocation of inheritance shares. The jurisdiction remains for the unique judge if a dispute occurred involving personal claims and claims related to movable or immovable property that do not exceed a value of LBP 100 million. For similar claims exceeding the said amount, the chamber of the first instance court will take over the jurisdiction. Inheritance incapacity L1.5 In general, any person can inherit from a Lebanese national. However, the Lebanese civil law on inheritance states some cases of inheritance incapacity as follows: First, in theory, foreigners can be called upon to inherit from a Lebanese national under the same conditions as another Lebanese national would inherit. However, this principle recognises an exception based on the idea of reciprocity: non-Lebanese nationals may only inherit if and to the extent that a Lebanese national could inherit from them. Additionally, religious differences are not, in principle, a cause of inheritance incapacity; nevertheless, this principle is also tempered by the principle of reciprocity: any person whose religion forbids the deceased from inheriting, is subject to a similar incapacity. Moreover, the Lebanese civil law on inheritance excludes from succession ‘adulterous’ and ‘incest’ children. The ‘adulterous’ child is one who was born out of the union of two non-married individuals, where one or both of them are married to a third party, while the ‘incest’ child is one who was born out of the union of two individuals who are related in blood. With regard to ‘natural’ (discriminatorily denominated 'illegitimate' in the law), and adoptive children, the civil law sets forth special provisions applicable to their inheritance, elaborated further in para L1.17 below. Inheritance estate L1.6 In principle, the inheritance estate comprises all movable and immovable assets owned by the deceased at the time of death. The estate includes: movable assets: cash, personal belongings, vehicles, etc; immovable assets: real estate properties, land, etc; debts and liabilities: any debts owed by the deceased, and which must be settled before distributing the estate to heirs. Matrimonial property rights on death L1.7 Lebanese law does not foresee any matrimonial regime that shall govern marital property. In the absence of such regime, the principle of separation of property applies to the assets of two married individuals, even if such assets were acquired by one of the spouses during their marriage. Consequently, in the case of demise of one of the spouses, each spouse maintains the full ownership of his/her own estate and participates as an heir in the inheritance of the deceased spouse, as will be detailed further below. L1.8 Intestate succession takes place when an individual passes away without having made a will or when the will is revoked. In both these situations, including the situation where a will exists without specifying how the deceased's assets should be distributed, the succession will be governed by the statutory rules of intestacy. Under Lebanese law, there is no differentiation between movable and immovable property in matters of intestate succession; both are processed in the same manner. Intestate succession L1.9 According to the civil inheritance law applicable to non-Mohamadi, upon the demise of the deceased the estate shall first be allocated to satisfy the following order of payments: (1) that which is necessary to conduct the funeral of the deceased; (2) the deceased's debts; and (3) what the deceased included in a will (if any, within the extent permissible by law). The remainder shall be allocated to the deceased's heirs as determined by the law according to a three-class division: The first class is made up of the descendants of the deceased: his children and grandchildren. The second class is made up of the deceased’s father and mother, and their descendants (sisters, brothers, nieces, nephews). The third class is made up of grandparents and their descendants (aunts, uncles, cousins). Each of these divisions prevails over the one that follows it. Heirs who belong to the second class cannot inherit when they are in competition with the heirs of the first class, and the heirs of the third class cannot inherit when they come into competition with the heirs of the second and first classes. There are exceptions to this rule of class, namely an exception for the benefit of parents surviving the death of a child and for the benefit of the surviving spouse. Both would inherit anyway. In addition, succession is subject to the principle of equality which excludes any gender discrimination. Similarly, the equality of the maternal branch with the paternal branch applies. Practically, the inheritance will be divided into two masses: one mass granted to the paternal branch and the other mass granted to the maternal branch while respecting the rule of the class. Statutory allocation L1.10 The application of the intestacy rules in accordance with the Lebanese civil inheritance law shall lead to a certain allocation of the estate's assets, which depends on the class of the surviving heirs, as well as the cohabitation of the classes of heirs. The first class of heirs, that is, the inheritor's children and their descendants, shall inherit equally without any gender discrimination between males and females. If there is a deceased child among the first class of heirs, the latter's descendants shall replace him/her in the inheritor's estate and shall receive the same part that should have been allocated to his/her surviving parent; this part shall be divided equally among them. A sixth of the estate shall be allocated to the deceased's surviving parents, or one of them, whenever the deceased has descendants. If both parents are living each one gets onetwelfth. If one of them is deceased, the other gets the whole sixth. If the first class of heirs does not exist, the estate shall be allocated to the inheritor's parents in equal parts. If one of the parents is deceased, his/her part of the estate shall be allocated to his/her descendant(s) in equal parts. If the deceased parent does not have any descendants, the latter's part of the estate shall then be allocated to the other surviving parent. If both parents were deceased before the demise of the inheritor, the descendants of each of the parents should inherit equally the part of the estate that should have been allocated to their parent if he/she was alive. If the deceased does not have any surviving descendants, nor any parents or descendants thereof, the estate shall then be allocated to the grandparents. If one of the grandparents is deceased, then his/her descendants should equally inherit his/her part of the estate; otherwise, and in the absence of any descendants, his/her part of the estate shall be allocated to the other surviving grandparent. The inheritor's surviving spouse shall inherit a quarter of the estate in the presence of heirs from the first class; half of the estate in the presence only of the inheritor’s parent(s) or sibling(s); and five-sixths of the estate in the presence only of the inheritor’s grandparents. In the event that the inheritor's spouse is the only surviving heir out of the three classes of heirs listed above upon demise, the full estate shall then be allocated to this spouse. Only if none of the heirs listed above has survived the inheritor's demise will the estate be fully allocated to the State. Forced heirship Forced heirship principle and its application L1.11 The Lebanese civil inheritance law applicable to non-Mohamadi provides for a 'forced heirship' rule according to which a portion of an individual's estate is reserved to certain heirs in certain proportions. The said rule is applicable irrespective of the terms of the deceased's will and is considered part of Lebanese public order. That said, any will that surpasses the use of the disposable estate shall be reduced in proportion to the statutory reserved portions if contested by any of the forced heirship rights' holders. The protected heirs under Lebanese civil inheritance law are the inheritor's descendants, parents, and spouse. In the event that the contemplated will breaches the forced heirship rule, only the protected heirs (or any of them), their successors, or representatives, are entitled to request the reduction of the will in accordance with the reserved portions. For the purposes of the application of this rule, the estate shall include the net assets of the deceased after deducting any debts thereof, in addition to all assets gifted during his/her lifetime, the value of which shall be estimated at the moment of their donation. Reserved portions according to the forced heirship rule L1.12 The reserved portions of the protected heirs, being the inheritor's ascendants, spouse, and parent(s), are determined as a percentage of the deceased's estate, depending on whether such heirs survive the inheritor's demise individually or together with other protected heirs. Treatment of lifetime gifts in calculating inheritance rights L1.13 Lifetime gifts and donations are regulated by the Lebanese code of obligations and contracts that sets forth the obligation of registration before the Lebanese land register, the donation of real estate or real property rights. As detailed above, the estate includes the net assets of the deceased, from which any debts should be deducted. For the sake of calculating the reserved portion only, such portion also includes the assets gifted during the deceased’s lifetime which are valued at the moment of their donation. However, some accounts of the deceased transacted during his/her lifetime will not be deducted as detailed subsequently in paras L1.14–L1.16 below. Survivorship accounts and payable on death accounts L1.14 Survivorship accounts and payable on death accounts do not form part of the inheritance estate and are not calculated as inheritance rights. Payable on death insurance accounts L1.15 Generally, in the event that an insurance is contracted for the benefit of a third party(ies) without a determination of beneficiaries, or for the benefit of the insurer's heirs or successors, the insured accounts shall then be considered as part of the deceased's estate. Otherwise, and if insurance is contracted for the benefit of a determined beneficiary, the accounts payable thereof upon the demise of the insurer shall not constitute part of the deceased's estate. The beneficiary shall be considered entitled to such accounts as of the date of the execution of the insurance contract. Furthermore, insurance accounts do not form part of the estate, in the sense that neither insurance payable accounts nor the insurance instalments paid by the insurer during his/her lifetime shall be considered for the calculation of the reserved portions in application of the forced heirship rule. If the nominated beneficiaries also happen to be statutory heirs and no indication as to the allocation of the accounts is made by the insured, the beneficiaries shall benefit from the payable amounts according to their respective portions of the estate. Their right as beneficiaries of the payable on death insurance accounts remains unchanged, even if they waive their inheritance right. The condition to be able to benefit from such a right is for the beneficiary(ies) to be alive when the payable accounts become due, unless expressly provided otherwise in the insurance contract. Survivorship accounts L1.16 Joint bank accounts have had a special status vis-à-vis inheritance law since the enactment of the Lebanese law on bank joint accounts in 1961. According to this law, in the case of the demise of a co-holder of the joint account, the surviving co-holder is entitled to dispose of the joint account unilaterally and in full. In this situation, the bank shall not disclose any information relating to the contemplated account to the heirs of the deceased co-holder, unless expressly provided otherwise in the contract governing the joint account. This said, and in principle, the liquidity of the joint account does not form part of the deceased's estate nor the deceased's lifetime donations, unless expressly stipulated otherwise in the documents of the joint account opening. In contrast, the attitude of Lebanese banks towards heirs is completely different when it comes to an individual account, in which case, the bank shall freeze the account until the issuance of the certificate of inheritance determining the heirs of the deceased and their respective portions of the estate, based on which the bank shall then transfer the remainder of the account to the nominated heirs. Other categories of heirs L1.17 The Lebanese civil law on inheritance sets forth special provisions applicable to ‘natural’ (discriminatorily denominated 'illegitimate' in the law) and adoptive children, who shall inherit from their ascendants, but in lower portions compared with the first class of heirs, and under certain conditions as detailed hereunder. The natural child contemplated by the provisions of the inheritance law is a child born from the union of two non-married individuals, who are not related in blood in a way that precludes their marriage and neither of whom is married to a third party. A natural child may be entitled to a portion of the inheritance only if the child's filiation to his/her inheritor parent has been acknowledged and declared, either willingly by the parent or by virtue of judicial proceedings as detailed further in L1.30–L1.32 below. Where the natural child is entitled to the inheritance, his/her inheritance portion shall be determined as follows: a quarter of the portion the child would have been entitled to if he/she was legitimate, if there are surviving legitimate descendants of the inheritor; half the portion the child would have been entitled to if he/she was legitimate, if there are no legitimate surviving descendants, but only ascendants or legitimate siblings of the inheritor or their legitimate descendants; three-quarters of the estate if none of the above heirs survived the inheritor's demise; and the full estate if there are no other surviving heirs. The same principles shall apply to the inheritance of an adopted child with respect to the child's rights and portions in the intestate inheritance of the adoptive child's deceased parent. The same portions of rights are also applicable in the case of the deceased parent's will for both the natural and adoptive child. The law is, nonetheless, not clear on this matter, and case law has not had enough opportunities to develop it further. It is therefore assumed by most doctrinal theses that the natural child and adoptive child have the same aforementioned portions applicable to their reserved parts in the will of their deceased parent. It is worth noting that same-sex marriages are not allowed under Lebanese law, and therefore, all the categories of heirs provided for under the law are meant to be related to legally conventional marriages only. Furthermore, the civil inheritance law applicable to non-Mohamadi does not foresee any inheritance rights in the situation of a multiplicity of spouses as polygamy is not allowed under civil law. L1.18 There is testamentary succession when the deceased has left a valid will. As long as the testator has testamentary capacity at the time of executing the will, the testator may include provisions regarding the distribution of his/her assets, provided it respects the forced heirship rule as specified above in para to avoid annulment or reduction (see L1.11–L1.12). Formalities and validity conditions Form of the will L1.19 A valid will executed in Lebanon can take the form of either an official deed or a holographic document. The official deed of a will is construed and executed before a notary public, whereas a holographic will, handwritten by the testator, must be signed and dated by the testator and then personally deposited by the testator or his/her legal representative at the notary public. The holographic will must be deposited in a red waxsealed envelope, and the sealing must be ratified by the notary public. A reference to the existence of the will must be made by the notary public in a special record. The will of a Lebanese national executed abroad may be construed and ratified in the same way as detailed above or in accordance with the laws and regulations set forth in the foreign country under the system of which the will is being executed. A holographic will executed by a Lebanese national abroad is subject to the same conditions of deposit before a notary public or, as the case may be, a Lebanese consul. Revocation of the will L1.20 The revocation of a will is possible through the execution of a subsequent will in the official or holographic form, provided it is deposited at the notary public in the same conditions detailed in para L1.19 above, whereby the testator declares the revocation of the previous will. In the event that the subsequent will does not incorporate an express withdrawal of the previous will, it shall implicitly annul and replace all the provisions of the previous will that are contrary or inconsistent with the provisions of the new will. An implicit revocation of a will also occurs when the testator disposes before his/her demise of the asset(s) that had been bequeathed in the will. Acceptance and refusal of the will L1.21 The explicit or implicit acceptance of a will shall make the will binding following the demise of the testator, noting that the will can only be either fully accepted or fully refuted by the beneficiaries. It can also be accepted by some of the beneficiaries and refuted by others. The effects of the acceptance can only take place after the demise of the testator, and any refusal or waiver from benefiting from the will occurring prior to such demise shall not have any effect. Validity of the will General conditions of validity L1.22 Generally, a valid will must be construed and executed by the testator individually and is invalid if it was construed by more than one person. A will is considered null and void if it provides for impossible or prohibited conditions, or for conditions that are contrary to public order (ordre public) and social morality, such as financing terrorist activities. If such conditions are not the main motive for the execution of the will, then only these conditions shall be annulled while the will remains valid. A will that has the effect of freezing assets is considered invalid unless it incorporates a wakf (as detailed in para L1.41 below), in which case it shall be governed by the regulations applicable to the wakf creation. Conditions concerning the testator L1.23 The testator must be sane, have full capacity to transact a donation and be above the legal age (ie 18 years old). Conditions concerning the legatee/beneficiary L1.24 A will is valid for any person, whether belonging to the pool of heirs or not, as well as to a foetus born alive, provided that the legatee is not statutorily considered as incapable of inheriting, in which case the clause benefiting that person shall be annulled. The beneficiary of a will shall be determined by the testator personally; otherwise, any clause of the will that is executed for the benefit of a legatee who is unable to be determined upon the testator's demise is invalid and shall therefore be annulled. The legatee can legitimately be a religious entity, charity or other public entity that has legal capacity. If the beneficiary is non-Lebanese, the reciprocity principle shall apply, validating the will merely to the extent that the law of the beneficiary's foreign country allows the execution of a testament in favour of a Lebanese national. Enforcement Enforcement of a domestic will through an executor L1.25 The testator may appoint one or more executor(s) to enforce the will, provided such executor enjoys full legal capacity and civil rights. The testator may also determine the role of the will's executor. Otherwise, the executor’s role shall be to manage the estate, pay its debts and distribute its assets as recommended by the testator, and within the extents permissible by law. The executor shall be liable for his/her negligence and for the damages incurred by the estate due to his/her work. The general rules of an agent's liability shall apply to the executor. A valid will that complies with the aforementioned requirements is regarded as an official document and may be executed directly at the procedure department without the necessity of a transaction intended to confer executive force, such as an executive formula or the issuance of a ruling based on the right. As for the request for execution, this is done through a petition submitted by the legatee or the executor of the will, and the prior mentioned department relies on taking the necessary measures to implement the will. Enforcement of foreign wills in Lebanon L1.26 Lebanon is not currently party to the Convention of 5 October 1961 on the Conflicts of Laws Relating to the Form of Testamentary Dispositions; therefore, the provisions of the Lebanese civil procedure code shall be applicable to the enforcement of foreign wills in Lebanon. According to applicable laws, for foreign judgments and decisions to produce their full effect in Lebanon, they must be subject to a special procedure requesting their 'exequatur' before Lebanese courts. The request for exequatur must be submitted by one of the legatees of the will to the court of appeal of his/her place of residence or of the place of localisation of the assets gifted in the will, or otherwise, to the President of the court of appeal in Beirut, who would issue a decision approving or refusing the requested exequatur. The decision to grant an exequatur for a foreign will to be recognised and enforced in Lebanon depends on the fulfilment of several conditions. These conditions pertain to: (1) the validity of the will's form, either under the laws of the country where it was construed or under Lebanese laws; and (2) the validity of its content, which must be compliant with Lebanese public order, provided in all cases that the condition of reciprocity between Lebanon and the country where the will was formed be fulfilled whenever the testator is not Lebanese. Among the main reasons for the court to refuse granting an exequatur to a foreign will is its violation of the forced heirship rule detailed above, which constitutes a breach of Lebanese public order. As for a will drawn up in foreign countries and deposited with the Lebanese consul, this will be equivalent to a will drawn up in Lebanon, and is executed directly at the procedure department. Information publicly known after death L1.27 In contrast to many other countries, Lebanon does not have any record or register of wills to which reference may be made if searching for a will or testament. However, in practice, if potential heirs of a deceased person doubt that the latter left a will, it is possible to solicit the Minister of Interior who can request the information across all the notaries in Lebanon. Such situations are rare as, upon demise, the notary public, the will’s executor, and/or the deceased’s lawyer will disclose the existence of a will, if any, to the inheritors. Administration of the estate L1.28 As previously mentioned under courts’ jurisdiction (see para L1.4), the courts of the last residence of the deceased shall have jurisdiction to administer the deceased’s estate. This remains the case regardless of the place of situation of the inherited assets, as the inheritance procedures under Lebanese law are deemed to be subject to a universality principle. Furthermore, Lebanese courts have jurisdiction over the process of inheritance whenever the deceased is a Lebanese national, even if the demise occurred outside Lebanese territory. The administration of the estate includes movable and immovable assets, without any statutory distinction as to the treatment of both types of assets. Any heir can voluntarily waive his/her right to the estate of the inheritor. However, such a waiver can only be full (covering all the estate) and can only produce its effect if it occurs following the demise of the inheritor as pacts on future succession are prohibited by law. Furthermore, the withdrawal of inheritance is required to be clear, express, and declared by virtue of the certificate of inheritance as detailed subsequently. The administration of the estate can only be started by requesting the issuance of a certificate of inheritance before a competent judge. Certificate of inheritance L1.29 The certificate of inheritance (Hassr Erth) under Lebanese law is a judgment issued by the first-instance court – a single judge of the place of the last residence of the deceased. It has the function of officially declaring the death of the individual and stating its legal consequences, specifying the heirs of the deceased as well as their respective portions in the inheritance. This certification grants the heirs authorisation to dispose of the estate's assets after payment of inheritance taxes, in accordance with their respective shares, and therefore to enforce and register the transfer of assets before the relevant entities (eg banks) and authorities (eg real estate registrar). Any of the legal heirs or their legal representatives (duly appointed by a general power of attorney) can file a request for the issuance of the certificate of inheritance. It is worth noting that, under Lebanese civil law, there is no room for the appointment of an executor or administrator when intestacy rules apply; the heirs shall then administer the inheritance process and execute any transfer of ownership under the supervision of competent courts. The heir(s) requesting the issuance of the said certificate must provide the courts with the following documents: family record extract (ekhraj kayd aa'ili) issued by the local authority of the deceased's main residence or origin; death certificate (wathikat wafat) issued by the local authority of the place of demise; inheritance declaration statement (ifadat hassr 'erth) issued by the local authority of the deceased's residence (requires an individual record extract for each heir); copy of the deceased's identity card; and financial and rights declaration form – transfer fee (namouthaj tasrih bi al'amwal w alhoukouk – rasm al'entikal), representing an inventory of all the deceased's assets and rights. This inventory can include one of the assets only at this stage of submission of the certificate request. It must be completed later on during the valuation phase following the certificate issuance (see para L1.44–L.46). Once issued, the certificate of inheritance has a value of a first-instance 'gratuitous decision' (decision issued without any dispute). This can be challenged by any damaged party or third party to the decision before the same court that issued it within eight days of notification, or within the duration of the general statute of limitation (ten years from the date of issuance) in case no notification was made. A third party damaged by the decision of the inheritance certificate shall also be able to file for an annulment of such a decision for breach of law, within 30 days of being duly served a notification of the decision, or otherwise, for the whole duration of the time limit on his/her rights. Opposition on a will L1.30 There is a possibility to file an objection to the will by an interested party such as an heir, claiming the invalidity of the will, or its violation of the forced heirship rule. After scheduling a hearing, the court will issue a ruling on the validity. If upheld, the will shall be executed as written; if invalidated, the estate will be distributed according to intestate succession laws. If either party disagrees with the court’s decision, they have the right to appeal to a higher court within a specified time frame. Action for affiliation L1.31 The contemplated civil law on succession provides for the possibility to recognise paternity and maternity for the ‘natural’ child, referred to in the law as the ‘illegitimate child’. The recognition of the paternity of an illegitimate child can be established either willingly by the parent or by virtue of judicial proceedings. Voluntary recognition L1.32 The voluntary recognition should, in principle, take the form of a notarial deed, and may be included in a will. It can only produce effect if it occurs before the child reaches 18 years of age. It is important to note that, the voluntary recognition has effect only in relation to the person who issued it. In other terms, the acknowledgment act of one parent, does not produce any effect regarding the child’s filiation to the other parent. Judicial declaration of paternity or maternity L1.33 The provisions of the contemplated law pertaining to the judicial action for affiliation do not determine which courts have jurisdiction to rule on such action; they merely mention the term ‘competent courts’ without naming them. Consequently, and as the Law dated 2 April 1951 on the Determination of the powers of religious authorities of Christian and Israeli communities provides under its article 4 that the actions on affiliation fall under the jurisdiction of religious authorities (along with the legitimacy of children and its effects, adoption and custody matters), the case law had produced contradictory decisions on the subject matter leading to the issuance of judgments in affiliation actions from both civil and religious courts, each reserving their respective jurisdiction on the matter. In an enlightening decision of the Court of Cassation dated 3 January 1991, the court explained that the enumeration stated in article 4 of the aforementioned law regarding the matters for which religious courts have jurisdiction is restrictive rather than enumerative. This decision was complemented by another comprehensive decision of the court of cassation (59/2009) dated 30 July 2009, which further clarified that, as long as the judicial action seeks merely to acknowledge the affiliation of the child to one of the parents whereby the ‘illegitimate’ quality of the child is undisputed for its occurrence outside the frame of a marriage, the jurisdiction of religious courts is excluded and the subject matter shall fall within the general jurisdictional scope of civil courts. No trusts and no foundations Lebanese law is silent on trusts and foundations L1.34 Lebanese legal jargon does not include the terms 'trust' or 'foundation'. Neither construct is governed by any law in Lebanon and they are not recognised as such for succession planning purposes, which means that they are rarely used by Lebanese individuals, especially those individuals and families who only have assets within Lebanese territories. Under the civil law system, Lebanese legislation expressly prohibits the conclusion of any agreement whose object pertains to a future succession of a living individual based on article 188 of the Lebanese COC, and also, as noted earlier, forbids a will from producing the effect of freezing an asset or making it inalienable in respect of the provisions of article 51 of the Lebanese civil inheritance law (except within the limits of wakf). Such principles as well as the absence of a legal framework for this type of succession planning make it harder for Lebanese individuals to consider the trust and foundation as mechanisms for structuring and planning within Lebanese territory; although trusts and foundations are and can be used in several situations for planning. Treatment of foreign trusts and foundations L1.35 Over the past few decades, interest in creating foreign trusts and foundations abroad has been growing among Lebanese nationals. As Lebanon has not ratified the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition (‘HCCH 1985 Trusts Convention’), the country is placed 'off the map' of international trusts' recognition and makes it difficult to achieve clear and objective guidelines on trust enforcement in Lebanon. The outcome of cases related to trusts and foundations before courts, will largely depend on the judge’s qualification and classification of a trust or a foundation. Additionally, some Lebanese authors erroneously qualify trusts as ‘fiduciary acts’ or ‘succession contracts’ and assimilate foundations to charitable associations, due to the fact that these constructs do not exist in Lebanese law. What is beyond doubt is that if a trust or a foundation would produce effects that violate Lebanese public order, this would lead to their annulment and non-recognition. There are specific legal provisions and public order principles that clearly cannot be violated, as noted below. Breach of the statute governing the acquisition of real estate property by non-Lebanese persons L1.36 Legislative Decree No 11614 dated 4 January 1969 and its amendments (notably Law No 296/2001) set forth prohibitions and limitations to the acquisition by non-Lebanese persons of real estate rights in Lebanon. According to the said decree, non-Lebanese persons (physical and legal entities) are not allowed to acquire, whether directly or indirectly (through companies), more than 3,000m2 across the total surface of Lebanon without special permission. Above this ceiling, the acquisition by non-Lebanese persons of real estate property in Lebanon requires a presidential decree. However, the law does not stipulate any objective conditions for obtaining such a decree, the issuance of which remains at the discretion of the President of the State. Consequently, a foreign trustee aiming at owning real estate property situated in Lebanon must abide by the aforementioned limitation in force. Any structure that violates these principles will not be recognised or enforced in Lebanon and can trigger criminal sanctions. Violation of Lebanese public order L1.37 A typical example of a public order rule in succession law is unequivocally the forced heirship rule set forth in the civil inheritance law applicable to non-Mohamadi. This has been endorsed by Lebanese courts as a mandatory rule, the violation of which, by any means, shall prevent the recognition and enforcement of the related mechanisms by Lebanese courts, if challenged. In practice, if the structure of a foreign trust or foundation reduces the rights of the heirs protected by the forced heirship rules to less than their statutorily reserved portions, the heirs shall have the right to raise their right to ownership before courts and object to the enforcement of the contemplated structure. Finally, Lebanon does not offer any legislative tools specific trustees' liability, for protecting the prejudiced interests of beneficiaries or for enforcing sanctions where necessary. The general principles of liability included the Lebanese Code of Obligations and Contract might apply on a case-by-case basis. The only recognised trustee duty: a fiscal obligation L1.38 Although Lebanese legislation does not govern the legal construct of a trust, nonetheless, it foresees a fiscal obligation for Lebanese residents who act as trustees for trusts created outside Lebanon. The only Lebanese law currently in force that mentions the term 'trust' is Law No 74 dated 27 October 2016, according to which, any individual residing in Lebanon and carrying out, on a professional basis or otherwise, a trustee activity for a foreign trust, regardless of its nature or type, shall declare his/her activity and pay taxes on the income generated by the trustee's activity. Available planning structures and techniques L1.39 The structures made expressly available by Lebanese legislation for wealth planning and management are, on one hand, the fiduciary, reserved however for banks and financial institutions and subjected to restricted conditions, and on the other hand, the wakf, a construct inherited from the Ottoman era and kept in place for specific purposes. These tools are permissible without prejudice to the rooted principle of prohibition of pacts pertaining to future successions. Fiduciary L1.40 The fiduciary contract was introduced in Lebanon for the first time in 1996 by virtue of Law No 520 entitled 'Development of the Financial Market and Fiduciary Contracts'. The relatively newly established fiduciary is merely financial, aiming, as its title indicates, at developing financial markets rather than serving as an estate-planning tool. According to the said law, only banks, financial establishments, and other establishments regulated by the Central Bank have the authority to act as fiduciary agents. The conveyance of assets to a fiduciary entails the transfer of the ownership of such assets, which the fiduciary has to keep separate from his/her/its personal estate. The investor may act as either the grantor or the beneficiary in this arrangement. The fiduciary shall act on behalf of the beneficiary, and the latter shall bear responsibility for the economic decisions that the former takes. Additionally, the decisions taken by the fiduciary shall always be for the benefit of the beneficiary and not for his/her/its personal gain. It remains the case that fiduciary contracts shall be void if they do not abide by Lebanese public order. Wakf L1.41 As noted above, the wakf is an Ottoman-inherited construct that manifests itself in the perpetual immobilisation of an asset, with a revenue that is allocated for charitable purposes. The wakf can be either religious (wakf Khairi), whereby the property is immobilised for the benefit of a charitable institution that receives all the income deriving therefrom, or domestic (wakf ahli, zirri), attributed to a certain category of beneficiary determined by the settler for a certain period. The period shall be limited to two family generations, after which the immobilised property shall be transferred to a charity or be affected to the public interest. The wakf is a legal person created by virtue of a unilateral act that shall have the effect of immobilising a property/properties owned by the settler when executing such an act. The executed act will then have the effect of making the property inalienable, nontransferable among living individuals, non-transmissible upon death and protected from any mortgage. The wakf is represented and managed by an administrator. It is irrevocable and can only take effect upon its registration before the real estate registrar to which the property is affiliated. One of the major advantages of establishing a wakf is benefiting from statutory tax exemptions, as detailed under paras L1.34–L1.38 below, provided that the wakf remains in conformity with its limited purpose and does not compete with commercial enterprises. The wakf is not a practical construct for estate planning because its enforcement is not clear in law nor protected by courts; thus, it is not currently a common practice in Lebanon, except to a certain extent by some religious orders and a few families through structures conceived decades ago. Alternative legal vehicles used for estate planning L1.42 In the absence of a variety of legal constructions for estate planning and structuring in the Lebanese legal environment, Lebanese nationals have created some conventional means of using general legal tools for the purpose of planning and structuring, such as agencies, companies and bank accounts under the joint-account bank regime detailed in para L1.16 above. Territoriality and residence L1.43 In principle, inheritance taxes in Lebanon are levied on all movable and immovable assets situated in Lebanon and transmitted by a Lebanese or non-Lebanese person upon demise, regardless of the inheritor's usual place of residence or domicile, but without prejudice to contrary dispositions of tax treaties. Inheritance taxes are also due on all movable and immovable assets situated outside Lebanon and transmitted upon the demise of a Lebanese or non-Lebanese person who was resident in Lebanon prior to such demise, again without prejudice to contrary dispositions of tax treaties. That said, tax liability upon inheritance relies on both territoriality and the residence principle, with priority for the latter, without prejudice, however, to contrary provisions of bilateral tax treaties. The criteria of 'residence' for the purpose of levying inheritance taxes are defined in Decree No 2827/1959. According to the decree, residents for inheritance tax purposes are deemed to be deceased individuals who were residing in Lebanon prior to their demise, or had an enterprise in Lebanon where they are used to carry out an activity. In 2016, an amendment to article 1 of Law No 44/2008 with respect to the definition of 'tax residency in Lebanon' added that any individual is considered tax resident in Lebanon, in addition to the aforementioned criteria, if one: has an abode in Lebanon permanently available to one's family members (ie spouse and dependent children); or is present in Lebanon for more than 183 days in any given 12-month period. Inheritance and gift taxes Inheritance tax L1.44 Several steps are required for the determination of the taxable amount pertaining to inheritance and the calculation of the tax due. First, an inventory of the deceased's assets shall be established, as well as the debts of the inheritance. It will then be possible to determine the portion of inheritance of every heir on which a progressive and linear tax rate shall be applicable, following the application of deductions and allowances depending on the personal and social status of each heir. The valuation of assets pertaining to inheritance is determined by the administration. The assets transferred through inheritance are valued at their real market value captured at the day of the demise, the date upon which inheritance tax becomes due. According to Legislative Decree No 146/1959, which determines the taxes applicable to gift and inheritance, taxes apply to certain assets including, in addition to the assets mentioned in paras L1.34–L1.38 above: all movable and immovable assets transferred during the two years preceding the demise of the inheritor, whether directly or through a nominee/agent, to an heir or legatee having such quality at the moment of the transaction; the financial securities and other assimilated assets (shares, titles, funds, etc) that are given and/or registered under the name of an heir or legatee and transferred by the inheritor during the year preceding the demise; and the amounts and securities deposited in joint or collective bank accounts, or in safe-deposit boxes, which shall be considered as equally owned by all the holders of the account or the safe, unless the contrary was proved. Although it might seem difficult for the fiscal administration to establish concealment pertaining to the value of inherited assets, tax inspectors benefit from a wide variety of verification tools to control the price and valuation of an asset. Such tools include carrying out investigations through field visits or via comparison with recent similar transactions. Gift tax L1.45 Even though Law No 520/1996 is silent with respect to tax liability, gift tax might apply to certain fiduciary transactions carried out under fiduciary Law No 520/1996 detailed above, notably when such transactions operate a free transfer of an asset or a movable right constituting the fiduciary fund to a third-party beneficiary, through the fiduciary or trustee. Gift tax is also relevant for manual donations, which traditionally pass from hand to hand. Practically, some manual donations pertaining to certain tangible and movable assets (eg jewellery, stones, furniture and similar objects), or tangible securities escape any taxation for lack of detectability despite the clarity of legal provisions requiring the declaration of such donations to tax authorities and imposing a tax right on these assets. In fact, the tax administration is not capable of detecting the existence of these assets nor of tracing their transfer from one person to the other. Therefore, it remains very difficult for tax authorities to establish an inventory of manual donations and to include them in the inheritance mass of the deceased in order to impose taxes. Calculation of inheritance and gift tax L1.46 Once the certificate of inheritance and other documents required are deposited before tax authorities, the tax administration will evaluate the succession file and proceed with additional verifications or valuations, if needed, in order to reach a final valuation of assets based on which the taxes are calculated. A tax notice will then be delivered separately to each heir. Therefore, if one or more heir(s) do(es) not pay the tax due on his/her portion of the inheritance, the inheritance process shall not be blocked for the other heirs according to the principle of the autonomy of each inheritance portion. Taxes levied on inheritance are of two types: (1) a fixed tax rate of five per thousand due on the gross inheritance portion of each heir; and (2) a progressive tax rate that varies depending on the class of heirs and which applies to the net value of each heir's portion of the estate after relevant deductions. The fixed tax rate is five per thousand for all movable and immovable assets transmitted to the heirs, after the deduction of LBP 200 million from the gross value of such assets. The progressive tax is levied on the net inheritance portion transmitted to an heir or transferred to a recipient, according to the rates detailed in the table above and after operating the deduction of relevant exemptions detailed thereunder. The payment of inheritance tax can be made in five equal instalments, with interest of 1 per cent per month. In this case, the public treasury has a priority creditor right on the mass of assets transmitted and can proceed with the inscription of such a right before the real estate registrar for property, as well as before the commercial registrar in respect of corporate structures. Inheritance tax and gift tax deductions and exemptions L1.47 Once the valuation of the inheritance is established, tax authorities will be able to determine the value of the tax base out of which inheritance taxes shall be levied. They will then apply the multiple exemptions and deductions set forth by the law. Deductible charges L1.48 Tax is levied on the net value of the transmitted inheritance portion after the deduction of certain charges, such as the debts due on the estate and supported by documents of proof, including funeral expenses and the fixed tax rate of five per thousand and other types of debts previously contracted by the deceased. Exemptions L1.49 Some exemptions on inheritance taxes pertain to the inherited assets, while others are personal, and depend on the personal and social status of each heir. Exemptions pertaining to the transmitted assets include: retirement pensions and termination indemnities, including all amounts paid in relation thereto; the value or securities exonerated by virtue of a special legal provisions; portraits and sculptures representing the deceased and/or his/her family members, and considered as personal objects; and libraries, works of art, old books, stamps and other collections, as well as furniture existing in the domicile of the deceased within the limit of a maximum of LBP 40 million. Personal exemptions are applied on the tax due on the net inheritance portion of each heir not exceeding: LBP 600 million for the descendants, spouses, the father and the mother of the deceased; LBP 240 million for the ascendants other than the deceased's parents, as well as for his/her siblings; and LBP 120 million for the other heirs. The following also apply to the value of the exonerated portion of the deceased's children: LBP 360 million in case the child suffers from a permanent disability rendering him/her unfit to work; LBP 24 million on the year or fraction of the year preceding the 18th year of age of the minor child; LBP 240 million when the heir handles the expenses of a spouse; and LBP 120 million for every child that has not reached 18 years of age (for a maximum of three children). As for gifts, the amounts exempted from tax rights include the following: aids and subventions offered by a public fund; any gift and the part of the gift not exceeding LBP 14.4 million; and any donation or portion of a donation for a caritative, religious, cultural or sports charity not exceeding LBP 900 million. Taxation of trust, foundation and wakf transactions Taxation of a trust L1.50 Lebanon does not have a law governing a trust as such; neither does it offer any particular tax regime for a trust. Consequently, trust transactions concerning Lebanese assets or Lebanese individuals will be analysed and characterised on a case-by-case basis and assimilated to a certain existent tax regime. The choice of the applicable tax regime will depend, inter alia, on the nature of the settlor’s legal person (company or individual), his/her/its residence, the location of the assets and the nature of the trust (revocable or irrevocable), and hence on the characterisation of the transaction as a gift or will. Based on Lebanese tax principles and foreign comparative laws (notably France and Luxembourg), there are reasons to believe that as long as the trust is revocable (ie the settlor has the right to revoke the trust or have all, or a portion, of the trust property returned to him/her), the designation of different classes of beneficiaries in the trust deed by a settlor resident in Lebanon or for Lebanese-located assets will not itself trigger tax consequences, as for instance liability for a gift tax. Hence, tax will not, in principle, be due out of the mere creation of the trust nor the transfer of Lebanese assets from Lebanon to a trust account abroad. This analysis is supported by the opinion of some respected tax advisors in Lebanon but is yet to be practically confirmed by legislative texts or fiscal authorities. In the event that the trust becomes irrevocable due to the settlor's demise, two scenarios should be considered: If the settlor is not a Lebanese resident upon demise, Lebanese authorities would not have the power to impose any taxation in this regard. If the settlor is residing in Lebanon upon his/her demise, the integral value of the trust fund would probably be imposable under Lebanese inheritance tax, in accordance with the principles stated above. Conversely, an irrevocable trust designating heirs or third parties as beneficiaries (irrespective of the class of beneficiaries) can constitute, as some eminent Lebanese tax advisors believe, a donation that would be subject to gift tax in Lebanon upon the creation of the trust, and subject to declaration within 90 days of the establishment of the trust in accordance with the provisions of the aforementioned Legislative Decree No 146 dated 12 June 1959 and its amendments. Another tax liability triggered by the trust is that of Lebanese-resident beneficiaries. If the beneficiaries of any trust are tax residents in Lebanon, they are liable to tax on income generated and distributed from the trust's assets. According to the Lebanese Income Tax Law, income from movable assets is treated independently from business revenue or wages and salaries. Under the said law, any income from movable assets (interest, dividends, arrears, bonds, etc) whether derived in Lebanon or reverting to a Lebanese resident (local and foreign proceeds) is considered as liable to the local (Lebanese) tax. Practically, the tax liability of capital gains on movable revenue is due on the beneficiary's worldwide income at the rate of 10 per cent whenever deemed residing in Lebanon; except as specified in a double taxation treaty (if any) and provided that such revenue is effectively distributed or paid to the beneficiary and not capitalised or carried forward. The declaration and payment by the beneficiary of the tax on revenue from movable assets is possible under two procedures: If the payment is made by or through any Lebanese-resident person entitled to withhold tax payments (mainly banks and similar), the latter will be bound to withhold the applicable tax of 10 per cent and remit it to the Treasury at the end of each semester. In the event that the beneficiary of the foreign shares/bonds and movable assets, domiciled in Lebanon, collects abroad, personally or through an agent, proceeds deriving from the said shares/bonds or movable assets, the beneficiary will be compelled to file a declaration (tax return) of the said taxes before 1 March each year showing the total amount of earnings collected during the preceding year and pay it to the Treasury before 1 April. The last tax liability generated by the creation of a trust is that of a Lebanese resident trustee. Based on Law No 74 dated 27 October 2016 detailed in para L1.43 above, a Lebanese resident carrying out trustee activities for a foreign trust is liable to the declaration and payment of income tax in Lebanon, based on the real profit tax regime, on the totality of income generated out of such activities. The rate of income tax will depend on whether the trustee is a legal entity, in which case the Corporate Income Tax (CIT) rate will be applicable, or an individual, in which case the personal income tax (PIT) rate will be applicable. Taxation of a foundation L1.51 Since foundations are not governed by Lebanese laws nor by any specific tax regime, the applicable tax regime for the creation of foundations will be assimilated into an existing regime, depending on the characterisation applied by judges or authorities to such a foundation. If characterised as an association (the most common scenario, as previously explained), the foundation will be exempt from CIT, as well as capital gains tax (in the case of a transfer of property) and will only be liable for gift taxes on funds received, with an exoneration amounting up to LBP 900 million on funds received, provided the foundation remains in compliance with the association principles and avoids generating commercial revenue. Taxation of wakf L1.52 Religious wakf (wakf Khairi) is subject to the fiscal regime applicable to public authorities, exempt from any direct and indirect tax, and any tax assimilated thereto. Domestic wakf (wakf ahli) is subject to the fiscal regime of associations, as detailed above, provided its scope of activity remains limited to charitable objectives and that it does not compete with private corporations. International taxation: framework for double taxation treaties and measures against tax evasion Double taxation treaties (DTTs) L1.53 Lebanon currently has 29 DTTs with foreign jurisdictions as follows: Armenia, Algeria, Bahrain, Belarus, Bulgaria, Cyprus, the Czech Republic, Egypt, France, Iran, Italy, Jordan, Kuwait, Morocco, Malaysia, Malta, Pakistan, Poland, Qatar, Romania, Russia, Senegal, the Sultanate of Oman, Syria, Tunisia, Turkey, the United Arab Emirates, Ukraine and Yemen. These DTTs mainly eliminate double taxation on income such as income derived from dividends, salaries, capital gains, interest gains and royalties. The DTT with France includes further details, such as the method of elimination of double taxation for gift tax and inheritance tax. Combating tax evasion, exchange of information and Common Reporting Standards (CRS) Standards L1.54 Lebanon has taken many actions to further combat tax evasion and enhance transparency, which is part of the process of equipping tax authorities in Lebanon to be better able to trace and sanction attempts to evade tax. The adoption in 2015 of Law No 44 on Fighting Money-Laundering and Terrorism criminalised tax evasion by including it as a crime that can be a source of money laundering. Tax evasion was subsequently defined by the Budget Law of 2019 as the act of 'knowingly and intentionally refraining from declaring and/or paying the taxes and duties due to the State and payable on the income or on the fortune, and/or refraining from paying or remitting the taxes a person has the obligation to withhold at source, and/or declaring lower taxes or withdrawing the declaration and payment in an illegal manner by the use of illegitimate means'. Lebanon has also signed the Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of financial account information based on the CRS framework. This was ratified and implemented by domestic Law No 55/2016 on the Exchange of Information for Tax Purposes, to facilitate the automatic and non-automatic exchange of information between Lebanon and other participating jurisdictions. Consequently, Lebanon has committed to implementing the CRS for the automatic exchange of financial account information according to which financial institutions in Lebanon are required to identify and report financial accounts held by tax residents of CRS-participating jurisdictions to the Lebanese authorities, who will then exchange this information with the tax authorities of those jurisdictions on an annual basis. The practical implementation of the automatic exchange of information and CRS is determined by Decree No 1022/2017.
Legal Footprints
