1. In two decisions dated 17 July 2001,1 the Lebanese Council of State confirmed that the arbitration clauses included in BOT infrastructure contracts signed by the Lebanese Republic and two mobile telephone companies were null and void. The Council of State characterized both contracts as concessions, and introduced a general principle of non-arbitrability of administrative contracts in general and of concessions in particular, which principle applied to both domestic and international contracts. The Council of State also considered that this was a public policy rule, and decided that Article 20 of the Lebanese Constitution2 gave it exclusive jurisdiction to settle administrative disputes.

2. The Council of State nevertheless accepted the use of arbitration in one of the above-mentioned cases, on the ground that international treaties take precedence over national public policy rules: in this case, the Franco-Lebanese 1996 treaty for reciprocal encouragement and protection of investments.3 In the other case, however, the non-arbitrability of the agreement was confirmed.

3. These two decisions, dismissing the possibility of recourse to arbitration for administrative contracts, have been strongly criticized by scholars. It was thought that they discouraged foreign investors, who regarded arbitration as a safeguard against the risk of partiality of the host country's national courts.4

4. Alerted to the economic repercussions of these decisions, the Lebanese legislature amended seven articles of the Lebanese New Code of Civil Procedure (NCCP)5 by means of Law 440/2002 of 29 July 2002. This reform6 is threefold, and each of the three aspects will be examined in turn in this article: the right of the State and public law entities to have recourse to arbitration (I), the arbitrators' extended powers (II) and available remedies (III).[Page48:]

I. The right of the state and public law entities to have recourse to arbitration

5. The impact of the Council of State decisions is reflected most clearly in the legislative changes concerning the right of the State and public law entities to enter into arbitration. The result of the reform is the same for both domestic (A) and international (B) administrative contracts in general. However, in the case of concessions (C) the new law differentiates between domestic and international contracts, creating a special category: concessions entered into by the State for international trade purposes.

A. Domestic administrative contracts

6. Article 762 of the NCCP, as amended by Law 440/2002, is part of the section on domestic arbitration. It provides that:7

Contracting parties may insert in their commercial or civil contracts a clause providing that all disputes open to settlement by compromise which may arise in connection with the validity, interpretation or performance of the contract shall be referred to arbitration.

The State and public law entities may have recourse to arbitration, irrespective of the type of contract concerned by the dispute.

From the date of entry into force of this new law, arbitration clauses and arbitration submission agreements relating to administrative contracts shall be enforceable only if authorized by a decree issued by the Council of Ministers following a proposal by the relevant minister, for the State, or by the relevant regulatory authority, for public law entities.

The intention of the second paragraph of this new article is to make up for the omission in the former Article 762,8 which provided for arbitration only in the case of disputes arising from commercial and civil contracts. The lack of any mention of administrative contracts in the law had led to serious debate between, on the one hand, those9 who advocated the arbitrability of disputes relating to contracts involving the State and public law entities, and who invoked Article 795 of the NCCP,10 and, on the other hand, those who considered that administrative matters should not be settled by arbitration.11 This second group were able to cite in support of their argument the decisions of the Council of State prohibiting recourse to arbitration by the State and public law entities in contracts where they exercise their prerogative rights as a public authority, irrespective of the type of contract.

7. The new Article 762 used the Council of State's words ('irrespective of the type of contract') but reversed the supreme court's decision, allowing contracts entered into by the State and public law entities to be referred to arbitration subject to prior authorization by the Council of Ministers ruling on a proposal by the relevant minister, for the State, or the relevant regulatory authority, for public law entities.

B. International administrative contracts

8. Article 809 of the NCCP, which is part of the section on international arbitration, recognizes that the State and public law entities can use arbitration 'to settle disputes [Page49:] that may arise from any international commercial contracts they may enter into'. For a long time this article was considered to be general in scope, applying to all international contracts signed by the State and public law entities.12 However, the Council of State's decisions of 17 July 2001 restricted the scope of Article 809 to those contracts entered into by the State in a private capacity:

Whereas, there is no cause to apply Article 809 of the Code of Civil Procedure, which allows the State and any other public law entity to have recourse to international arbitration to defend its interests in international trade, because the provisions of this article apply only to contracts entered into by the State where it is subject to private law and does not exercise its prerogative rights as a public authority, and which come within the jurisdiction of the judicial courts, and does not apply to administrative contracts, which are subject to public law and come within the jurisdiction of the administrative courts.

9. The 2002 reform has had the effect of nipping this new case law in the bud. Although Article 809 of the NCCP has not been amended, the newly worded paragraphs 2 and 3 of Article 762 of the NCCP lay down as a general principle that the State and public law entities can have recourse to arbitration, as it authorizes them to refer matters to arbitration irrespective of the type of contract. Although this provision is in the section of the NCCP devoted to domestic arbitration, its general terms mean it can be considered to apply to all contracts, both domestic and international. This means that arbitration clauses are allowed in administrative contracts, whether they are domestic or international, provided prior authorization is obtained from the Council of Ministers.

10. The situation with regard to concessions, as a special sub-category of administrative contracts, is, however, less straightforward.

C. Concessions

11. Article 77 of the NCCP on concessions13 provides that:

Any legal action concerning the validity of a concession granted or recognized by the Lebanese State must be brought before the Lebanese courts, subject to the provisions of the new Article 762, paragraph three and of Article 809, paragraph two.

The purpose of the reference to the new Article 762 and to Article 809, paragraph 2, is to differentiate between domestic concessions and international concessions, subjecting the arbitrability of the former to authorization by the Council of Ministers while exempting the latter from any such conditions.14

12. The author believes this to be a new approach to international contracts which will have important practical consequences. As the Council of Minister's authorization is necessary for any arbitration agreement signed by the State or a public law entity exercising its prerogative rights as a public authority, except for international concessions, each administrative contract will need to be analysed beforehand to establish whether it is a concession and, if so, whether it is domestic or international. This will not always be easy, because it is the national courts that have jurisdiction to determine whether a contract is domestic or international in the event of a dispute. To avoid this legal uncertainty, parties to international trade contracts are advised [Page50:] systematically to apply for prior authorization from the Council of Ministers before signing any arbitration agreement with the State or any public law entity.

II. The arbitrators' extended powers

13. The reform of the NCCP has given arbitrators authority to rule on the validity of a contract (A) and extended their powers concerning aspects of procedure (B).

A. The arbitrators' authority to rule on the validity of the contract

14. The principle of 'Kompetenz-Kompetenz' laid down in Article 785 of the NCCP,15 which gives the arbitrators power to determine the extent and principle of their own jurisdiction, was previously limited: unless agreed otherwise, the arbitral tribunal could not settle disputes relating to the validity of the contract. The new Article 762, paragraph 1,16 recognizes the arbitrability of disputes relating to the interpretation or performance of the contract and also to the validity of the contract. The arbitral tribunal can now therefore rule on any type of dispute concerning the contract.17

15. The aim of this change in the law is to enshrine the substantive rule recognized in private international law that the arbitrator has full jurisdiction. However, the law still contains an exception with respect to administrative contracts: the Council of State continues to have sole authority to assess their validity.18

B. Extension of the arbitrators' procedural powers

16. The new Article 789, paragraph 2, of the NCCP authorizes arbitrators to order, in the course of arbitration proceedings, any interim or conservatory measures they consider necessary in light of the nature of the dispute during arbitration proceedings, in accordance with Article 589 of the NCCP.19 This new provision has brought an end to the ongoing debate and contradictory interpretations of the previous law by the courts and scholars. It was believed in some quarters that any judge ruling on summary or urgent applications (juge des référés) had full powers (imperium) and therefore had exclusive jurisdiction to order any urgent measures, notwithstanding the existence of an arbitral tribunal appointed by the parties.20 Others, differentiating between two different cases - the first where the arbitral tribunal had already been appointed and the second where it had not yet been appointed21 - believed that a judge ruling on summary or urgent applications had authority to order urgent measures only in the second case, in accordance with Articles 579 and 589 of the NCCP. In the first case, an intervention by the judge would only be justified where there was clearly a situation of extreme urgency. The reform settled this issue, confirming that any arbitrators appointed to settle a dispute had full powers to order any urgent measures, in domestic or international cases.

17. The new Article 789, paragraph 3, of the NCCP, authorizes arbitrators to make interim or partial awards before the final award. The purpose of this new provision is [Page51:] to confirm the authority arbitrators already enjoyed in practice, and to improve the effectiveness of arbitration by giving arbitrators greater leeway.

III. Available remedies

A. Challenge of an arbitrator

18. Article 770 of the NCCP, as amended by Law 440/2002,22 provides that arbitrators may be removed from office only with the consent of all the parties and may be challenged only on the same grounds as apply to judges.

19. The purpose of this amendment is twofold: first, to limit the number of challenges of arbitrators, often used as a stalling tactic, and second, to determine the admissible grounds for challenges, bringing these in line with those that apply for judges. According to the new law, challenges should be brought in the court of first instance where the agreed place of arbitration is located or, failing this, the Beirut court of first instance. The amended law has extended the deadline for submitting a challenge from five to fifteen days from the date of the arbitrator's appointment or the date on which the challenging party becomes aware of the reason for the challenge.

20. A new addition to Article 770 provides that the court's decision on the application challenging an arbitrator is final, thus bringing an end to past controversy on this issue as reflected in court decisions.23

B. Legal remedies against arbitral awards

21. The legal remedies available in connection with arbitral awards will depend on whether arbitration is domestic or international.24

Remedies available in connection with domestic arbitration

22. The Lebanese New Code of Civil Procedure differentiates between two types of arbitration: arbitration at law and arbitration by amiable composition.25 Although a third party and any of the parties to the proceedings may apply to have an award set aside in either type of arbitration, appeals against awards are possible only in arbitrations at law, unless the parties have expressly allowed for such remedy in an arbitration by amiable composition. A third party application to set aside should be brought before the court of first instance that would have had jurisdiction in the absence of the arbitration proceedings, while an appeal or an application to set aside made by one of the parties should be brought before the court of appeal. The 2002 reform has limited the possibility of bringing an action in the supreme court against a court of appeal decision to those cases where the court of appeal has set aside an award rendered in an arbitration by amiable composition.26 An action in the supreme court is not allowed when the court of appeal has dismissed an application for the award to be set aside. The aim of this change in the law is to encourage prompt [Page52:] execution of arbitral awards made by amiable composition once they have been confirmed by the court of appeal. The impact of the change is all the greater because arbitration by amiable composition is the most popular dispute resolution method in the country.

Remedies available in connection with international arbitration

23. The only available remedies against an international arbitral award made in Lebanon are applications, whether by one of the parties to the dispute or a third party, for the award to be set aside. Opinions were divided as to whether an action could be brought in the supreme court against a court of appeal decision on an application to set aside. The new Article 821 of the NCCP has brought an end to this uncertainty by referring to Articles 804 and 802, paragraph 2. International arbitration henceforth obeys the same rules as domestic arbitration in that an action may be brought in the supreme court against all court of appeal decisions on applications to set aside in the case of arbitration at law, but only against decisions setting aside the award in the case of arbitration by amiable composition.

24. The NCCP does not mention any available direct recourse against international awards made abroad. However, the Code's Article 816 provides for the possibility of appealing 'any decision refusing to recognize or authorize execution of an arbitral award made abroad, or an international arbitral award'.

25. By maintaining the possibility of an appeal to the supreme court in certain cases but ruling it out in others, the legislature has come up with an uneven solution which does not have an equivalent in any other arbitration system. The author believes the legislature should have taken things further, more broadly limiting supreme court appeals, given that this remedy is used far too often as a stalling tactic to delay execution of awards.

Conclusion

26. The Lebanese Republic has embarked upon a privatization process. Amongst the measures it has already introduced to encourage investments are the ratification of the Convention on the Settlement of Investment Disputes between States and Nationals of other States27 and the reform of its arbitration laws. The main consequence of this reform has been to lay down the principle that arbitration clauses inserted in administrative contracts are valid, provided they are authorized by the Council of Ministers ruling on a proposal by the relevant minister, for the State, or by the relevant supervisory authority, for public law entities. It is unfortunate that the treatment of concessions, which entails a preliminary analysis of the nature of the contract, leaves the investor in an uncertain legal position. In the author's opinion, this uncertainty can be avoided only by systematically referring all contracts to the Council of Ministers for authorization, irrespective of their nature. As for the changes to available remedies, they only go halfway to achieving the objective of speeding procedures up, as appeals to the supreme court remain possible in some cases.

27. Although the reform of the NCCP has only partially satisfied expectations, it is nevertheless an important first step pending a more thorough reform, which practice will surely show to be necessary.

1
Applications 9536/2000 (Etat libanais v. Société LibanCell ) and 9537/2000 (Etat libanais v. Société FTML), 19 The Lebanese Review of Arab and International Arbitration, 47, 55.

2
'Judicial power, operating within the framework of a statute established by law and providing necessary guarantees for judges and persons subject to their jurisdiction, shall be exercised by courts of various categories and levels. . . .'

3
Article 6 of this treaty states: 'Any dispute relating to investments between one of the Contracting Parties and an investor belonging to the other Contracting Party shall be settled amicably between the two parties concerned. If such dispute has not been settled within six months of being raised by one or other of the parties involved, it shall be referred to arbitration under the International Centre for Settlement of Investment Disputes (ICSID) created by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature in Washington on 18 March 1965. If one of the Contracting Parties is not a party to the aforementioned convention, the dispute shall, at the request of one or other of the parties, be submitted to arbitration by an ad hoc tribunal established in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).' [unofficial translation from the French]

4
G. Mahmassani, 'Arbitration and Investment, Study and Commentary of two Decisions of the Lebanese State Council of 17 July 2001 Concerning two Mobile Telephone Companies' 19 The Lebanese Review of Arab and International Arbitration 5 (in Arabic); A. Baroud, 'Two Decisions of the State Council and the Curb on Development in the Matter of Investment' 19 The Lebanese Review of Arab and International Arbitration 13 (inn Arabic).

5
The Lebanese Code of Civil Procedure, promulgated in 1983, contained an entire chapter on arbitration. It followed French legal thinking by distinguishing between domestic arbitration (Articles 762 to 808) and international arbitration (Articles 809 to 821). Law 440/2002 modified Articles 77, 762, 770, 789, 795, 804 and 821 of this code.

6
Given that the purpose of the reform was to modify existing legislation and not to interpret it, Law 440/2002 cannot be applied retrospectively. Consequently, the general principle of the non-arbitrability of administrative contracts laid down by the Council of State in its decisions of 17 July 2001 continues to apply to any contracts made by the state and public law entities prior to the entry into force of the new law.

7
The extracts from Law 440/2002 and other quotations included in this article are unofficial translations from the original Arabic, unless stated otherwise.

8
The former Article 762 read as follows: 'Contracting parties may insert in their commercial and civil contracts a clause providing that all disputes that may arise from the performance or the interpretation of such contracts and that are open to settlement by compromise shall be referred to arbitration.'

9
M. Sfeir-Slim, 'Le nouveau droit libanais de l'arbitrage a dix ans' [1993] Rev. arb. 543; I. Najjar, 'The Arbitration Clause in Lebanese Administrative Contracts' 7 The Lebanese Review of Arab and International Arbitration 7 (in Arabic).

10
Prior to the reform, Article 795 of the NCPC provided that 'if the dispute to which the arbitration relates comes within the jurisdiction of the administrative courts, the enforcement order shall be issued by the President of the Council of State'.

11
E. Tyan, Le droit de l'arbitrage, Beirut, Librairies Antoine, 1972 at 6ff. See also the following decisions: Beirut, 27 December 1950, [1951] Revue judiciaire libanaise 339, affirming the public prosecutor's sole jurisdiction under Article 828 of the Lebanese Code of Civil Procedure; Council of State, 1st February 1988, Medreco, Revue administrative 1990-1991, 37.

12
There has been one judgment - by the 10th division of the Beirut Court of Appeal, 21 March 2001, [2001] al-Adl 139 - distinguishing between domestic and international administrative contracts and recognizing the validity of the arbitration clause in an international commercial contract to which the state was a party. It justified its decision on economic grounds, by referring to cross-border exchanges of goods and services inherent in international commercial contracts. The Court of Appeal expressly referred to 'a substantive rule of international commercial law upholding standard contractual stipulations in international relations, irrespective of how they are treated under the law applicable to the contract'. It should be mentioned that the contract to which the judgment related was subject to the former Code of Civil Procedure, 'which, unlike Article 809 of the NCCP, did not allow the Lebanese State to have recourse to international arbitration and that the article simply confirms a direct substantive rule that applies in the international commercial contracts to which the State is a party'.

13
Under Article 89 of the Lebanese Constitution, a law authorizing ratification is required for the granting of contracts and concessions relating to the exploitation of natural resources or public utilities. Such contracts and concessions must also be for a fixed term.

14
This analysis is borne out by the Implementation Decree of the Council of Ministers of 16 August 2002 (Official Journal, 22 August 2002). Referring to Law 440/2002, this decree recognized the enforceability of the arbitration clause in the one-year fixed-term operating agreements between the Telecommunications Ministry and the two mobile telephone companies that were parties to the BOT contracts to which the Council of State's decision of 17 July 2001 related.

15
'If one of the parties objects to the principle or the extent of the arbitral tribunal's jurisdiction to hear the dispute referred to it, such objection shall be decided by the arbitral tribunal itself.'

16
See above at para. 6.

17
The arbitrators' jurisdiction over disputes concerning the validity of the contract also covers those relating to the validity of the arbitration clause.

18
Article 795 of the NCPC as modified by Law 440/2002 contains a new third paragraph affirming the arbitrability of disputes concerning the interpretation or performance of administrative contracts. Unlike the first paragraph of Article 762 (see above at para. 6), there is no mention here of the validity of the contract.

19
Article 589: 'Without prejudice to Article 581, the court seized of the merits of the case and any court dealing with urgent proceedings may, at a party's request, order any interim or conservatory measures aimed at upholding rights and avoiding damage, such as installing seals, inventorizing goods, impounding property, selling perishables and describing their condition, irrespective of whether or not security is provided in return.'

20
Mont-Liban Court of Appeal, 31 January 1984, Hatem no. 185 at 547; Beirut Court of Appeal, 10 July 1970, Hatem no. 179 at 179; and the following decisions in urgent proceedings: Beirut, 7 September 1984, [1985] al-Adl 252; 2 August 1961, (1961) Revue judiciaire libanaise 623; 5 December 1957, (1985) Revue judicaire libanaise 335.

21
Beirut, 12 December 2002, (2002) 24 The Lebanese Review of Arab and International Arbitration 37 (in Arabic). This case involved an international arbitration under the ICC Rules of Arbitration.

22
'Arbitrators may be removed from office only with the consent of all parties to the dispute and may be challenged only on grounds that arise or appear after their appointment.The grounds on which arbitrators may be challenged are the same as those for judges.Challenges shall be brought in the court of first instance where the agreed seat of the arbitration is located or, failing this, the Beirut court of first instance, within 15 days of the challenging party learning of the arbitrator's appointment or, subsequently, becoming aware of the reason for the challenge.The court's judgment shall be final.'

23
Lebanese Court of Cassation, 2d civil division, 18 March 1997, (1997) Revue judiciaire libanaise 134; Lebanese Court of Cassation, 7 June 1994, [1994] Recueil Baz, no. 31, 167; Beirut Court of Appeal, 11 October 2001, (2001) 20 The Lebanese Review of Arab and International Arbitration 35 (in Arabic); Beirut Court of Appeal, 7 June 1994, [1994] Revue judiciaire libanaise 396.

24
Article 800 of the NCPC covers the legal remedies available in connection with domestic arbitration awards and Article 819, which refers to Article 817, those available in connection with international arbitration awards.

25
Articles 776, 777, 799 and 804 of the NCPC cover arbitration in equity.

26
According to Article 800 of the NCPC, the grounds on which such awards may be set aside are limited to the following:- the award has been rendered in the absence of an arbitration agreement or on the basis of a void or lapsed agreement;- the award has been rendered by one or more arbitrators whose appointment was irregular;- the award exceeds the limits of the terms of reference given to the arbitrator(s);- the award has been rendered without respecting the parties' rights of defence;- the award lacks certain compulsory elements (parties' claims and supporting arguments; name(s) and signature(s) of arbitrator(s); the reasons, findings and date of the award);- the award is contrary to public policy.

27
Law authorizing ratification, 5 June 2002, Official Journal, 13 June 2002, 416. Instrument of ratification deposited with IBRD on 26 March 2003. Entry into force: 25 April 2003.