LEBANON. Jalal El Ahdab Myriam Eid. Ginestié Magellan Paley-Vincent

Transcription

1 LEBANON Jalal El Ahdab Myriam Eid Ginestié Magellan Paley-Vincent

2 TO: Pascal Hollander, IBA Sub-Committee on Recognition and Enforcement of Awards FROM: Jalal El Ahdab (GMPV), Co-Chair of the IBA Mediation Committee & Myriam Eid (Ahdab Law Firm) DATE: 8 April 2015 SUBJECT : IBA Public Policy Project / Country Report (LEBANON) I. Legal Framework of Arbitration in Lebanon 1. The New York Convention : Lebanon ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards [hereinafter the New York Convention ] on 11 August 1998 by virtue of Law No. 629/1997, which entered into force on 9 November Lebanon has made the reciprocity reservation under article I (3) according to which the Lebanese State will apply the New York Convention only to recognition and enforcement of awards made in the territory of another State that is party to the New York Convention. 2. The Lebanese Arbitration Act : The Lebanese arbitration law currently in force in Lebanon was issued in 1983 as part of the Code of Civil Procedure [hereinafter the CCP ], which devotes a complete chapter to arbitration [hereinafter the LAA ]. 1 The LAA, much inspired from French law, has equally adopted a dualist approach, and thus split the chapter into two separate sections: one for domestic arbitration and 1 See articles 762 to 821 CCP issued on by decree-law No.90/1983 which entered into force on 1 January 1985 and can be found under the Chapter Arbitration of Book I: Various Disputes and Procedures. The Chapter on Arbitration was subsequently amended by Law No.440 of PARIS place des Etats-Unis Paris HONG KONG Ice House Street Central Hong Kong association ginestié paley-vincent & associés AARPI ISO 9001 : 2008

3 the other for international arbitration. 2 However, whereas it has adopted the French liberal approach with respect to international arbitration, it has departed from it when it comes to domestic arbitration. Regarding the definition of international arbitration, the LAA has chosen to adopt the objective economic criterion of French law based on the character of the subject matter of the underlying dispute. Thus, article 809 considers arbitration to be international if it relates to the interests of international commerce. 3 The dual approach adopted by the Lebanese lawmaker when it comes to domestic and international arbitration has also been reflected on matters of setting aside and enforcement, where separate rules govern domestic and international and foreign awards, 4 notably when it comes to the public policy grounds. Hence, regarding international and foreign awards only a violation of international public policy is required, as will be seen further below. 5 It should be noted that both domestic and international arbitration are those conducted in Lebanon or governed by the CCP rules. Conversely, foreign arbitrations are those that are conducted outside the Lebanese territory The Setting Aside and Enforcement of Awards under the LAA: Both domestic and international awards acquire res judicata effect as of the date they were rendered according to article 794 CCP. 7 However, arbitral awards cannot be enforced without having been granted exequatur. 8 2 Articles 762 to 808 CCP include provisions on domestic arbitration while international arbitration is mainly governed by articles 809 to 821 CCP. 3 The Court of Appeals in Beirut has expressly and thoroughly defined international commerce within the meaning of article 809 CCP to be established where the contractual relationship between the parties to the dispute has led to the transfer of monies, assets or services cross-borders back and forth with all that may result there from as to the economic connections of the disputed transaction with more than one country. See Beirut Court of Appeals, Arbitration Chamber, Decision No.1778/2001, dated 10 December 2001,The Lebanese Review of Arab and International Arbitration, No.36/2006, page For the setting aside and enforcement of domestic arbitral awards, see articles 795, 800, 805 and 806 CCP; for international and foreign awards, see articles 814, 816 and 819 CCP. 5 See infra, Section II (2). 6 This is mainly reflected at of article 810 CCP which gives jurisdiction to the Lebanese courts to settle matters pertaining to the tribunal s constitution where the international arbitration is conducted in Lebanon or where the parties have chosen to apply the Lebanese CCP. It further can be inferred from the distinction between international and foreign award under the LAA which only allows an action Lebanese courts for the setting aside of international awards that have been rendered in Lebanon, as per article 819 CCP. 7 Also applicable to international awards by virtue of article 815 CCP. 8 This word is Latin and literally means let it be executed. It is commonly used in many civil law countries as the equivalent of order of enforcement. For a domestic award to be enforceable, it should be granted exequatur from the competent court. Article 793 CCP provides that, for the purpose of enforcement, arbitral awards must be deposited with the registry of the Court of First Instance in the jurisdiction of which the award was made. Such a procedure can be conducted by the arbitrators or by the most diligent party. The award must be accompanied by a certified copy of the arbitration agreement. Article 795 CCP further provides that if the subject-matter of the arbitration was within the jurisdiction of the administrative courts, exequatur is granted by the President of the Conseil d Etat the highest administrative court).if exequatur is refused, objection thereon is made before the Section du Contentieux of the Conseil d état. For international and foreign awards, exequatur is granted as per the same procedure, and for such purposes the Court of First Instance in Beirut shall be competent mutatis mutandis (article 810 (3)). 2

4 a. In Domestic Arbitration : Article 796 CCP provides that exequatur shall not be refused except for one of the grounds for the setting aside [of arbitral awards] contemplated at article 800 and that such refusal decision should be reasoned. Hence, enforcement of domestic arbitral awards can only be refused for one of the following six grounds: (1) if the award was made without any arbitration agreement or if the agreement was void or time-barred; (2) if the award was made by arbitrators who were not appointed in compliance with the law; (3) if the award exceeded the scope of the mission entrusted to the arbitrator/s; (4) if the award was rendered in violation of the parties' rights of defense; (5) if the award did not contain the mandatory particulars relating the parties claims, their allegations and supporting grounds, the names of the arbitrators, the reasons and dispositive of the award and the date and signature of the arbitrators; (6) if the award violated a rule of public policy. Furthermore, a request for the setting aside of domestic arbitral awards is also possible notwithstanding any agreement to the contrary as per the provisions of article 800 CCP 9 and on the same abovementioned six grounds. b. In International Arbitration : The LAA has treated international and foreign arbitral awards under the same Chapter. Hence, article 814 CCP pertaining to the recognition and enforcement of foreign and international arbitral awards provides as follows: arbitral awards shall be recognized and granted exequatur if the party relying thereon has established their existence and if they do not blatantly 10 violate international public policy. [Emphasis added] It stems from the provisions of the abovementioned article that two conditions are required for the recognition and enforcement of foreign and international awards: - A formal condition: the existence of the award must be proved by the party in whose favor such award was issued: this condition is met by the production of the original or a certified copy of the award together with the arbitration agreement; 11 - A substantive condition: the award must not be rendered in blatant disregard of an international public policy rule. 9 Article 802 CCP provides that such a request shall be submitted to the Court of Appeals in which jurisdiction the arbitral award has been rendered and should be filed within 30 days as of the date of the notification of the arbitral award that had received exequatur. 10 The exact word used in the Arabic original of article 814 which we have translated as blatantly is bisoura wadiha, that is in a clear manner. 11 If these documents are drafted in a foreign language, they must be translated by a sworn translator. 3

5 In this respect, the provisions of Lebanese law on international arbitration differ from those concerning domestic arbitration. In international and foreign arbitration, the control of the enforcing judge is reduced to a very strict minimum. When the judge reviews the award, he shall only examine whether the award contains an obvious and flagrant violation of international public policy. The wording of article 814 CCP would also suggest that Lebanese law has gone beyond the New York Convention (article V) which provides for five grounds on which the court may refuse to order enforcement of a foreign award, in addition to the faculty given to the enforcing judge to refuse enforcement for inarbitrability and public policy considerations under article V (b) of the New York Convention. Article 814 CCP restricts the enforcement judge s review over international and foreign awards to its strict minimum; not only exequatur can only be refused if the violation is blatant ; but such violation must also relate to international public policy as opposed to domestic public policy applied to refuse enforcement of domestic awards. 12 However, article 817 CCP gives the parties the right to challenge before the competent Court of appeals the decision granting exequatur on the following grounds: (1) if the arbitrator settled the dispute in the absence of an arbitration agreement, or on the basis of a void or expired agreement; (2) if the arbitral tribunal was irregularly constituted; (3) if the arbitrator exceeded the mission entrusted to him; (4) if the award violated the parties' rights of defense; and (5) if the award is contrary to international public policy. This article gives rise to a controversial situation. On one hand, and according to article 814 CCP, the President of the Court of First Instance may only refuse enforcement if the award is in obvious violation of international public policy. On the other, the parties may still challenge the decision granting exequatur on the abovementioned five grounds. This practically means that the five grounds, albeit not foreseen at article 814 CCP, should have been taken into consideration by the First Instance Court granting exequatur in order to render a decision that may not be validly appealed. This also shows that article 814 CCP, on its face, would seem more liberal than the New York Convention itself. However, Lebanese law has integrated the provisions of the New York Convention elsewhere, namely at article 817 CCP relating to the challenge that can be made against a decision granting exequatur. Albeit surprising on the form, the difference between the only ground of article 814 CCP and the five grounds of article 817 CCP is not substantively revealing. This is because, as confirmed by the Lebanese Cour de Cassation on several occasions, the 12 See section II (C) (1) above where the definition and application of the concept of international public policy by Lebanese courts has been discussed. 4

6 four additional grounds of article 817 CCP are actually part of the international procedural public policy as will be seen further below. 13 Regarding the requirement that the violation of international public policy should be obvious and blatant, such requirement has been confirmed by the Lebanese courts despite the fact that it was not reiterated at article 817 CCP. Hence, the Court of Appeals has expressly confirmed in the course of examining an appeal against the First Instance Judgment granting exequatur to an international arbitral award that it has been established in Lebanese doctrine and case law that the court ruling on the request shall on examine in this case whether the outcome reached in the arbitral award does not blatantly violate the international public policy, without reviewing the adopted reasoning or the extent the legal rule is applicable to the dispute 14 [Emphasis added] As to the setting aside of international awards, Article 819 CCP provides that the setting aside of international arbitral awards rendered in Lebanon is possible and may be made before the Court of Appeals in the jurisdiction of which the award has been rendered within 30 days as of the date of the notification of the arbitral award having been granted exequatur. The setting aside can only be made for the same abovementioned five grounds indicated at 817 CCP. II. The Notion and Scope of Public Policy Under Lebanese Law 1. Notion of Public Policy under Lebanese law: The Lebanese legal texts have not provided a definition for the notion of public policy but rather required compliance with public policy on different instances. 15 Hence, article 800 CCP governing domestic arbitration mentioned public policy as a ground to set aside or refuse enforcement of domestic arbitral award as explained above. Thus, domestic awards are subject to compliance with national or domestic public policy as set out under the Lebanese Civil Law/Code. Conversely, articles 814, 817 and 819 CCP relating to the setting aside of international awards and enforcement of international and foreign awards, restricted the Lebanese courts control over international and foreign arbitral awards to an obvious violation of international public policy, in addition to the other grounds listed at article 817 CCP. This shows that Lebanon has clearly adopted a dualist approach when it comes to public policy, i.e. domestic public policy and international public policy, following in this instance the French system from which it is inspired. 13 See Section II (c) below. 14 See Court of Appeals in Beirut, 1 st Chamber, Decision No. 1786/2011, dated 21 December 2011, World Journal of Arbitration, Issue No. 20, page See for example, articles 166 and 1037 of the Lebanese Code of Obligations and Contracts. 5

7 As in many other systems, Lebanese texts do not give a definition for public policy whether domestic or international, such definition having been left for the Courts as will be seen below. However, a comparison between the provisions of the LAA on domestic and international arbitration may help identify the difference between the two concepts under Lebanese law. a. Public Policy (Domestic Public Policy): The Lebanese courts have defined public policy as the body of principles that underpin the higher values of a society as that which aims at protecting State institutions and regulations and to ensure their proper functioning as well as the foundations of a society by preserving the fundamental rules that govern it. 16 Such definition has been confirmed by the Lebanese judges when dealing with public policy in the course of an action for the setting aside and enforcement of domestic awards. Hence, the Beirut Court of Appeals has expressly stated as follows: It has been established by case law that the violation of public policy means the violation of mandatory rules that relate to the higher interests of the society, thus what is required of the arbitrator is limited to giving enough reasoning to his decision in a way that would allow the judge to examine whether he exceeded the scope of his mission. 17 [Emphasis added] This shows that Lebanese public policy can be comprehended in view of the purpose it aims to reach, namely the preservation of the community s general interests as part of the State s sovereignty. 18 b. International Public Policy: Lebanese courts have constantly confirmed that that international public policy is part of the Lebanese (national) public policy in the sense that it is also a national concept that should be found in Lebanese law and cases. This concept has been confirmed by Lebanese Courts when dealing with arbitration, where the Beirut Court of Appeals has confirmed that Such examination [of the arbitral award] shall be made on the sole basis of the concept of international public policy adopted in Lebanon. 19 [Emphasis added] The Court of Appeals of North Lebanon has also confirmed in the course of examining a request for exequatur for a foreign arbitral award that had applied English law on the merits that the public policy to which compliance should be made is the Lebanese international public policy and not Lebanese domestic public policy. 20 [Emphasis added] 16 See Lebanese Court of Cassation, 1 st Chamber, decision No. 47 dated 3 June 1967, Judicial Bulletin, 1967; ee also, Sami Mansour, The Guide to International Private Law, in Arabic, Dar Al ouloum Al Arabia, 1994, page Beirut Court of Appeals, 1 st Chamber, Decision No. 1253/2010, dated 7 October 2010, World Journal of Arbitration (Journal released in Arabic only), Issue No.9/2011, page See Sami Mansour, Public Policy as an obstacle to enforcing arbitral awards in Lebanon: Flexible application The Lebanese Review of Arabic and International Arbitration (Journal published in various languages), Issue No. 33, page 6 et.seq. 19 See Beirut Court of Appeals, 1 st Chamber, Decision No. 1786/2011, dated 21 December 2011, World Journal of Arbitration, Issue No. 20, page See Court of Appeals of North Lebanon, 1st Chamber, Decision No.201, dated 29 May 1984, Judicial Bulletin, 1974, page

8 Lebanese Courts have however asserted that, albeit part of the national public policy, international public policy is narrower since the interests at stake are of international nature and may not require the same degree of protection as interests that are entirely domestic. 21 Thus, a violation of domestic public policy does not necessarily entail violation of international public policy. 22 Lebanese courts have had the chance to give a definition to international public policy on different occasions, notably when dealing with international private law issues and as well as in the course of examining request for the enforcement or setting aside of arbitral awards. For instance, a Court of Appeals has defined Lebanese International Public Policy within the meaning of article 814 CCP to be a set of legal international rules applicable in international legislations and usages and which are contemplated by the Lebanese legal system and are not the rules of domestic arbitration [ ]. 23 The Beirut Court of Appeals has in a more recent decision confirmed that definition by considering international public policy to be formed of a set of rules of important nature that are applied in so many countries thus giving them an international character. 24 This shows that Lebanese judges have adopted the notion of effective international public policy, commonly known as transnational public policy. 25 The distinction can actually be made following the choice of substantive law applicable to the subject matter of the dispute. A judge is normally required to apply the lex fori to the subject matter of the dispute brought before him. In such a case and where the national law is applicable to the dispute, the complete set of rules pertaining to public policy shall apply to preserve the national interest that such law should preserve. Thus, there is no need to distinguish between domestic and international public policy. This is what the Court of Appeals has concluded when it asserted, upon ruling on a request for the enforcement of a foreign arbitral award governed by English law, that the reasoning of the award, albeit required under domestic public policy, does not form part of international public policy since it is not required under international arbitrations or under the substantive applicable (English) law. 26 However, if the law governing a dispute whether further to a choice-of-law clause or by application of a conflict-of-law a rule is a foreign law vis-à-vis the judge of 21 See Court of Appeals of North Lebanon, decision No.201, 29 May 1974, op.cit.; see also: Beirut Court of Appeals, 1 st Chamber, Decision No. 1786/2011, dated 21 December 2011, op.cit.; see further: Marwan Karkabi, Civil and Arbitral Procedures, Sader Editors, 4 th Edition, 2006, page See Beirut Court of Appeals, 3 rd Chamber, decision No. 301/2008, dated 21 February 2008, World Journal of Arbitration, Issue No.1/2009, pages 132 et seq. 23 See Court of Appeals of North Lebanon, decision No.201, 29 May 1974, op.cit. 24 See for example, Beirut Court of Appeals, 7 th Civil Chamber, Decision dated 7 October 2005, The Lebanese Review of Arab and International Arbitration, Issue No.33 page 31 et. seq. See also Beirut of Appeals, 3 rd Chamber, Decision No.32/2008, dated 10 January 2008, Lebanese Review of Arab and International Arbitration, Issue No.45 page 18 et. seq.; See further: Beirut Court of Appeals, Decision No. 301/2008, dated 21 January 2008, The Lebanese Review of Arab and International Arbitration, Issue No.45 page 38 et. seq. 25 See Roger Assi, Is it time to amend the Lebanese Arbitration Act? World Journal of Arbitration, Issue No. 16/2012, pages See Court of Appeals of North Lebanon, decision No.20, 29 May 1974, op.cit. 7

9 the forum (and thus not the lex fori), a distinction is drawn under Lebanese law between domestic public policy and international public policy. In the latter case and when a law other than Lebanese law is to apply to the dispute before the judge, only the rules on international public policy become relevant and remain applicable to the dispute, despite its being subject to a foreign law. In this case, such rules may be used by the judge to hinder the application of the provisions of the foreign law. 27 In arbitration, foreign rules are often set to apply to the dispute whether by a choiceof-law clause or otherwise. Thus, the judge ruling on the annulment or enforcement of an arbitral award may be required to resort to international public policy to protect some fundamental principles arising from its forum s legal system. Whereas this is not an issue when it comes to an international arbitration applying Lebanese where the complete set of public policy rules, including domestic ones, are applicable, it could become an issue when the award applies a law other than the Lebanese law. As seen above, this was the rationale behind the Lebanese legislator s distinction in the LAA between the required compliance between two sets of rules: domestic public policy (for domestic awards) and international public policy (for international and foreign awards). The above distinction calls for a first comment: the LAA has equated between international and foreign awards subjecting them both to the same rules, notably when it comes to their compliance with international public policy. This view as taken by Lebanese legislator is not surprising on the form since it is consistent with the New York Convention, as adopted by Lebanon, which provisions deal with both international and foreign awards; 28 It may cause some issues however in view of the definition of international arbitration under the LAA. As explained above, the LAA has chosen to adopt the objective economic criterion of French law considering arbitration to be international if it relates to the interests of international commerce. 29 This means that the parties nationality or place of residence may be irrelevant to characterize the dispute, in such a way that if the contract is fully performed in Lebanon and does not entail any cross-border transaction the dispute arising thereof remains governed by the provisions on domestic arbitration, even if the contract has international affiliation or effects. 30 By 27 See Fayez Hage-Chahine, Applicable Law to the Subject-Matter of the Dispute, The Lebanese Review of Arabic and International Arbitration, Issue No See article 1 of the New York Convention: This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought. [Emphasis added] 29 See section I (2) above. 30 It follows that under the CCP the following criteria are not taken into consideration and would not affect the character of the arbitration: - The nationality or place of residence of the parties: a contract will still be considered as governed by domestic arbitration even if the parties are not Lebanese or even if they reside abroad as long as the subject matter of the underlying contract does not relate to international trade; - The place where the contract is signed or executed does not have a bearing on the character of the arbitration which would remain domestic if the underlying contract does not relate to international trade; - The application of a foreign law on the contract or even international institutional arbitration rules would not affect the character of the arbitration which will remain domestic if the underlying contract does not relate to international trade; and 8

10 the same token, a dispute with Lebanese parties residing in Lebanon, but involving some cross-border flow of goods or capitals, may very well end up being characterized as international according to the LAA s criterion. This also practically means that the provisions on domestic arbitration, stricter by nature, shall apply on arbitration between foreign parties having no connection with Lebanon save for having chosen Lebanon as the place of arbitration if the contract does not involve any cross-border commercial activities as per article 809 CCP. Such provisions include the domestic public policy requirement which constitutes, as per the LAA, a ground for which enforcement shall be refused or the award shall be set aside on the basis that the arbitration, not involving cross-border transactions, will be deemed domestic. Consequently, the rationale for choosing more flexible public policy considerations when it comes to international arbitration by referring to international public policy seems to encounter limits in this case. This is because the LAA has not chosen the law applicable to the merits of the dispute as a benchmark for triggering a less demanding review when it comes to international arbitration. For instance, under the LAA, cross-border transactions that are subject to Lebanese substantive law as per the parties choice-of-law clause may still benefit from the flexible international public policy provisions albeit governed by Lebanese law, as these are still considered international by nature and subject to the international public policy criterion. Conversely, a dispute or contract that does not involve cross-borders transaction and that is not subject to Lebanese law will still be considered domestic under the LAA if the arbitration is conducted in Lebanon and will still be subject to the stricter rules of domestic public policy when it comes to its enforcement or validity. This has led the Lebanese judge to apply, in some cases, domestic public policy to international arbitrations, as is the case with the disputes on agency agreements governed by Décret-loi No 34/67, where despite the fact that the dispute relates to international trade and the arbitration would be international, and despite the parties attempt to demonstrate that it did not violate international public policy, the Court ruled that there was no need to distinguish between domestic and international public policy as inarbitrability is a matter that may authorize courts to refuse to refer to arbitration under the New York Convention. 31 c. Procedural Public Policy and Substantive Public Policy: As far as domestic arbitral awards are concerned, and a previously stated, article 800 CCP enumerates 5 grounds on which to set them aside or refuse their recognition: - The parties express will to make the contract or the arbitration international has no impact thereon if effectively the contract does not relate to international trade. See A-H El-Ahdab, La loi libanaise sur l arbitrage, Al-Adl Review, Special Edition, Issue No.2/1994, pages See for example, Beirut Court of Appeals, 7 th Civil Chamber, Decision dated 7 October 2005 (unpublished). See Court of Cassation, 5 th Chamber, decision dated 27 April 2006, Lebanese Review of Arabic and International Arbitration, Issue No.38, page

11 (1) if the award was made without any arbitration agreement or if the agreement was void or expired; (2) if the award was made by arbitrators who were not appointed in compliance with the law; (3) if the award exceeded the mission entrusted in the arbitrator/s; (4) if the award did not observe the parties' rights of defense; (5) if the award does not contain the obligatory contents concerning the claims of the parties, their supporting means and arguments, the names of the arbitrators, the grounds for the award, the text of the award, the date and signature of the arbitrators; (6) if the award violated public policy. The first 5 grounds pertaining strictly to procedural public policy that relate to the jurisdiction of the arbitral tribunal and due process, 32 as these are considered fundamental rules that aim at protecting the parties rights of defence as preserved by the Lebanese Constitution 33 as well as the Lebanese Code of Civil Procedure. 34 The 6 th ground encompasses all other substantive public policy rules, including what is referred to as ordre public de protection. As for international arbitrations, the grounds for setting aside such awards and for refusing to enforce them are more limited and restricted to the following: (1) if the arbitrator settled the dispute in the absence of an arbitration agreement, or on the basis of a void or expired agreement; (2) if the arbitral tribunal was irregularly constituted; (3) if the arbitrator exceeded the mission entrusted to him; (4) if the award violated the parties' rights of defense; (5) if the award is contrary to international public policy. As can be seen, the procedural rule of domestic public policy pertaining to the particulars that should be mentioned in the award is not included in the grounds upon which an international award can be set aside or refused enforced. This clearly shows that international procedural public policy is narrower than for domestic procedural public policy and does not include any formal requirements when it comes to the formal content of the award. On another level, whereas in domestic arbitration the non-compliance of the arbitral tribunal s constitution with the law is a matter of procedural public policy, such non-compliance is not relevant in international arbitration unless and to the extent it entails also an irregularity in the constitution of the arbitral tribunal. 32 See I. Najjar, The Concept of domestic and international public policy in international arbitration, The Lebanese Review of Arabic and International arbitration, Issue No. 11, page See article 8 of the Lebanese constitution Adopted on 23May 1926 and its subsequent amendments. 34 See article 7 CCP. See also articles 372 and 373 CCP. 10

12 2. Scope of Public Policy Under Lebanese Law: a. Ordre Public de Protection : In fact, Lebanese courts are required to set aside an award that has violated a public policy rule. This means in practice that an arbitrator can and should in principle apply a public policy rule and apply it correctly. In this case, it is only when the arbitrator misapplies such a rule that his award may be set aside. Conversely, when it comes to the so-called ordre public de protection (protective public policy rules), there is no room to assess the arbitrator s application of such provisions: the mere fact a matter has been the subject of an arbitration clause or an arbitral award renders the latter invalid and subject to annulment even if no violation of the actual rule has been found on the part of the arbitrator. This is the case with disputes relating to commercial agency contracts 35 and statutory issues relating to labor contracts, 36 as well as lease contracts under article 21 of the law on leases No 160/92 which has given exclusive jurisdiction for sole judge in civil matters to rule on disputes relating to lease agreements. 37 However, Lebanese case law has not been always straightforward when it comes to the characterization of the provisions relating to commercial agency to the extent that Lebanese courts have rendered controversial and conflicting rulings before reaching what appears to be stable and final position. In fact, article 5 of Décret-loi No. 34/1967 on Commercial Representation 38 provides that the court in the jurisdiction of which the commercial agent exercises his activity has exclusive personal jurisdiction over disputes arising from the commercial agency contract, notwithstanding any agreement to the contrary. Such a territorial jurisdiction exclusively granted by the law to Lebanese courts has triggered a discussion on whether such exclusivity extends to arbitration and prohibits the parties to a commercial agency agreement to resort to arbitration for the resolution of their disputes. After a long judicial and doctrinal debate, the Lebanese Cour de Cassation has settled the matter favoring a strict and literal interpretation of the abovementioned article 5 that would preclude any possibility to refer future disputes to arbitration by way of an arbitration clause inserted in a commercial agency agreement. In this 35 See for example Sami Mansour, op.cit., page Labor law mainly encompasses disputes relating to work contracts, labor accidents and social security, arising between employees and employers. They are of the jurisdiction of the Arbitral Labor Council. Though it is referred to as the arbitral council, the Arbitral Labor Council is however part of the state courts system and is constituted of one judge (chairman), a representative of the employer and a representative of the employees. The members are not elected but appointed by decree. Moreover, a delegate of the government is attached to this Council. However, Lebanese courts do not have a constant position concerning labor arbitration: arbitration is admitted sometimesby virtue of the principle of autonomy of will of the employer and the employee as mentioned in the Labor Code. However, arbitration is prohibited in other cases due to the fact that the jurisdiction of the Arbitral Labor Council relates to public policy. See for example, the Beirut Labor Council, Decision dated 20 October 1970, Al - AdlReview 1971, page 202. Contra, see the Beirut Arbitral Labor Council, Decision dated 9 May 1967, Al - Adl Review 1969, page Lebanese Court of Appeals of North Lebanon, 6 th Chamber, 4 December 2000, Obeid vs. Barakat Rahme. 38 Article 5 of Décret-loi No.34 issued on 5 August 1967 provides as follows: Notwithstanding any agreement to the contrary, the courts that have jurisdiction to rule on disputes arising out of commercial representation are those located in the place where the commercial representative exercises his activity. 11

13 respect, the Cour de Cassation has clearly characterized the provisions of article 5 of Décret-loi No.34/67 giving exclusive jurisdiction to Lebanese courts in commercial representation as relating to the ordre public de protection, which the parties cannot contract out by way of a prior agreement. 39 However, in a recent decision, Lebanon s highest Court elaborated on its position and declared that, since the exclusive jurisdiction of Lebanese Courts is a measure aiming at protecting the agent s rights, such provision cannot be validly waived beforehand. 40 However, the Lebanese Supreme Court asserted that, once the dispute has arisen, the agent may validly waive such a protection by submitting the dispute to arbitration. 41 In short, while arbitration clauses are forbidden in commercial agency agreements, submission agreements may still be validly concluded once the dispute has arisen. b. Ordre Public de Direction : As opposed to the ordre public de protection, the ordre public de direction (directive public policy) aims at controlling the arbitrator s application of a public policy rule. Such public policy rules do not render the award invalid or unenforceable per se, unless and to the extent their application was not observed by the arbitrator. This is the case with Courts refusal to enforce an award that has violated due process or which has applied laws involving religious discrimination. 42 c. Arbitrability: Article 762 CCP relating to domestic arbitration provides as follows: the contracting parties may include in civil and commercial contracts executed between them a clause which provides that all disputes which may be subject to comprise (amicable settlement) arising out of the validity, interpretation or performance of this contract shall be settled by way of arbitration. Article 762 CCP mentioned above and which determines the scope of arbitrable matters under Lebanese law is inserted in the section governing domestic arbitration. The CCP provisions governing international arbitration do not tackle the arbitrability matter and are silent on its scope in international disputes. Moreover, and as indicated above, the LAA provisions on the enforcement and setting aside of arbitral awards, whether domestic or international, do not mention inarbitrability among the grounds upon which Lebanese courts may set aside or refuse to enforce arbitral awards. 39 See Court of Cassation, 4 th Chamber, decision No. 34, 19 July 2001, Sader Cassation Bulletin, 2001, page See Court of Cassation, 4 th Chamber, Decision No.34/2001 dated 19 July 2001, The Lebanese Review of Arab and International Arbitration, Issue No.22, pages See Court of Cassation, 5 th Chamber, Decision No. 4/2005 dated 11 January 2005, The Lebanese Review of Arab and International Arbitration, Issue No.33, page See Cour mixte, decision No.412, 5 September 1939, The Guide to Lebanese Case Law, years of , part II, page

14 In fact, the New York Convention to which Lebanon has acceded, provides for the possibility for the country where enforcement of international 43 and foreign awards is sought to refuse such enforcement if the subject-matter of the difference is not capable of settlement by arbitration under the law of that country. 44 In other words, a country that is party to the New York Convention may refuse enforcement of international or foreign arbitral awards if these have dealt with a matter that is deemed inarbitrable under the laws of that host country. Lebanon, albeit party to the New York Convention, did not incorporate into its CCP (namely article 817), the inarbitrability as a ground for refusal to enforce international or foreign arbitral awards as will be seen below. The CCP has limited the possibility to set aside or refuse enforcement of international awards only to the event of a violation of international public policy, departing from the New York Convention which plainly referred to public policy in general. 45 The above entails two questions: (1) By providing for narrower grounds for the setting aside and enforcement of international public awards, did the CCP mean to oust the provisions of article V (2) (a) giving the courts the possibility to refuse enforcement for inarbitratility or violation of the country s public policy? Or do these provisions remain simultaneously applicable? In the event Lebanon has indeed chosen to narrow down grounds for refusal to enforce international arbitral award to a violation of international public policy, to what extent would the inarbitrable matters as perceived in domestic arbitration be included within the notion of international public policy as contemplated by Lebanese courts. The Court of Appeals has defined international public policy to be: formed of a set of rules of important nature that are applied in so many countries thus giving them an international character. It has however considered that the international character of an arbitration as well as the CCP requirement that it conform to international public policy do not preclude the judge from controlling its conformity to the country s public policy under the New York Convention. In this respect, a Court of appeal 46 has noted that article II (3) of the New York Convention provided that arbitration agreements may be invalid if the subject matter of the dispute is inarbitrable, irrespective of any other considerations, notably that relating to the international public policy. The court also noted that it arises out of article II read together with article V of the Convention that an arbitration agreement on a matter that is not arbitrable as per the law of the host country should be declared invalid. Consequently, the Court refused to refer to arbitration in a dispute on an agency agreement governed by Décret-loi No 34/67 on commercial representation, albeit the dispute relates to international trade and the arbitration would be international, despite the parties attempt to demonstrate that it 43 See article I (1) which provides that the New York Convention also applies to awards that are not considered domestic in the state where their recognition and enforcement is sought. 44 See article V (2) (a) of the New York Convention. 45 See article 817 CCP. Also see on enforcement of international arbitral awards in Lebanon, paragraph III (C) (6) below. 46 See Beirut Court of Appeals, 7 th Civil Chamber, Decision dated 7 October 2005, op.cit. 13

15 did not violate international public policy. The Court further noted that there was no need to distinguish between domestic and international public policy as inarbitrability is a matter that may authorize courts to refuse to refer to arbitration under the New York Convention. Therefore, despite the wording of article 812 CCP, Lebanese courts have refused to enforce arbitration awards dealing with inarbitrable matters under Lebanese law, irrespective of whether the underlying arbitration is international or domestic, rather treating such matters as relating to the country s public policy and the New York Convention See Court of Cassation, 5 th Chamber, decision dated 27, April 2006, op.cit. See also the Beirut Court of Appeals, Ruling No. 843/2009, dated 18 June 2009, op.cit. 14

16 Appendix Identification of the decision Summary of the public policy argument Substantive Procedural Enforcement denied Enforcement accepted Court of Appeals in Beirut, 9 th Chamber, decision No.96/762, dated 11 July Misinterpretation of the law constituting a violation of public policy No violation of public policy which is limited to the lack of reasoning or application of a law not chosen by the parties and does not include misapplication or misinterpretation of the law Court of Appeals in Beirut, 3rd Chamber, Decision No. 364/2002, dated 14 February Cour de Cassation, 5th Chamber, Decision No. 61/2007, dated 10 May Request to reverse the decision granting exequatur for having dealt with issues outside the arbitration agreement s scope Challenge of an Appeal Decision Granting Exequatur for having done so to an award in violation of Due Process Exequatur confirmed, Applicant not having proven any violation of any of the grounds set out at article 800 CCP Challenge rejected and exequatur granted as such ground has been raised for the first time in cassation President of the third - Arbitral Award s setting aside 48 Published in the World Journal of Arbitration, Issue No.3/2009, page Published in the Lebanese Review of Arabic and International Arbitration, Issue No.33, page Published in the International Journal of Arab Arbitration, No. 4/2009, page

17 Chamber of the Beirut Court of Appeals, Decision No. 1453, dated 14 November President of the Court of First Instance in North Lebanon, Decision No.44/2009, dated 30 September Violation of Public Policy in that the arbitrator did not ensure an adversarial process before Lebanese Court having been denied, Such decision has already granted exequatur to the arbitral award ex officio Exequatur Granted as no violation of the adversarial process has been demonstrated Court of Appeals in Beirut, Decision No. 843/2009, dated 18 June Appeal against a First Instance Decision for having granted exequatur for an arbitral award that allegedly violates international public policy for having dealt with an agreement that delivers goods to Iran which at the time was under Embargo Appeal rejected and exequatur confirmed. An agreement violating the embargo against Iran does not constitute a violation of international public policy Beirut Court Violation of the Arbitrator having 51 Published in the World Journal of Arbitration, Issue No.23, page Published in the World Journal of Arbitration, Issue No.6/2010, page Published in the International Journal of Arab Arbitration, No. 4/2009, page

18 of Appeals, 1st Chamber, Decision No. 1109, dated 27 July Procedure Agreed between the Parties applied the procedure agreed between the Parties Court of Appeals in Beirut, 1 st Chamber, Decision No. 1253/2010, dated 7 October Violation of the rights of Defence in that the arbitrator has ordered damaged without identifying the grounds thereof No violation of public policy since the arbitrator is only required to give enough reasoning in a way to allow the judge to examine whether he exceeded his mission or not. Court of Appeals in Beirut, 1st Chamber, Decision No. 1786/2011, dated 21 December Violation of the arbitral tribunal of the rights of defence and request to reverse the First Instance Decision Granting Exequatur Exequatur confirmed, No violation of the parties rights of defense President of the Court of First Instance in Beirut, decision 52/74 dated 8 July Rendering of the arbitral award outside the legal time-limit for the arbitration Court of Appeals of Request for the Reversal of Such plea or objection not 54 Published in the World Journal of Arbitration, Issue No.21, page Published in the World Journal of Arbitration, Issue No.9/2011, page Published in the World Journal of Arbitration, Issue No.20, page Published in the World Journal of Arbitration, Issue No.21, page

19 Beirut, 9th Commercial Chamber, Decision No. 773 dated 28 May Judgment of the Court of First Instance Granting Exequatur on the basis of the Award having been rendered outside the Scope of the Arbitration Agreement having been raised primarily before the arbitral tribunal which implies waiver of the right to raise such plea and implicit agreement to arbitration with respect to the underlying claim 58 Published in the World Journal of Arbitration, Issue No.20, page