The restrictions imposed by Lebanese banks on foreign currency funds deposited prior to April 2020 have raised a myriad of legal issues with regards to the international wire transfers of these funds. Over the past few months, we have witnessed an abundance of requests filed by depositors before Urgent Matters Judges to compel their respective banks to wire funds to foreign bank accounts.
After contrasting decisions have been rendered by Urgent Matters Judges in the First Instance, the Court of Appeal of Beirut has recently confirmed that the refusal of a Lebanese Bank to carry out an international wire transfer on the request of its client constitutes a manifestly unlawful infringement on the rights of the depositor and ordered the Bank to comply with the wire transfer request.
The facts of the case were relatively straightforward. A depositor asked her bank to wire the amount of $ 136, 237 to an account opened at a Bank in Dubai. The Bank refused to comply with the transfer request and, instead, presented the client with a check payable only in Lebanon. After refusing to accept the check, the depositor filed a request before the Urgent Matters Judge of Beirut seeking an order to compel the Bank to comply with the international wire transfer request.
THE URGENT MATTERS JUDGE OF BEIRUT
On February 2nd, 2020, the Urgent Matters Judge of Beirut ruled in favor of the depositor and ordered the Bank to comply with the request to wire the funds to the depositor’s account in Dubai under the penalty of a coercive fine of 3 Million LBP per day of delay.
THE COURT OF APPEAL OF BEIRUT
The Bank filed an appeal before the Court of Appeal of Beirut claiming that the Urgent Matters Judge of Beirut did not have jurisdiction to rule on the request. Alternatively, the Bank claimed that it was not under any obligation to comply with the transfer request and that the presentation of a check payable Lebanon validly discharges it of its obligations to the depositor.
On February 11th, 2021, the Court of Appeal of Beirut rendered a decision in which it rejected these claims and held that:
1. The Urgent Matters Judge has jurisdiction to rule on the request
The depositor filed a request to compel the Bank to wire the funds based on the second paragraph of Article 579 of the Code of Civil Procedure. According to this provision, the Urgent Matters Judge may take any measure destined to put an end to a manifestly unlawful infringement on the rights of the plaintiff.
The Bank contested the jurisdiction of the Urgent Matters Judge and claimed that the depositor could not call upon this provision because the scope of this provision is limited to infringement on real rights (rights in rem) and the issue raised a serious dispute that falls outside the jurisdiction of the Urgent Matters Judge.
The Court of Appeal rejected the reasoning of the Bank and ruled that paragraph 2 of Article 579 of the Code of civil Procedure can be called upon every time there is an infringement on the rights of the plaintiffs without any distinction between real rights and other rights. In addition, the Court held that the jurisdiction of the Urgent Matter Judge is not removed every time a defendant alleges the existence of a serious dispute between the parties and that it is for the Urgent Matters Judge to decide whether the issue raises such a serious dispute between the parties. In this particular case, the Court of Appeal held that the issue did not raise such a serious dispute.
2. The Bank has an obligation to comply with the request of international wire transfer
The Bank claimed that it was under no obligation to comply with any request to transfer the funds to a foreign account because the contract between the Bank and the depositor did not explicitly require the Bank to comply with such a request and the Bank had the right to refuse the wire transfer for legitimate reasons. The Bank added that the current economic crisis justified its refusal to comply with the request and that it had a duty to protect the rights of other depositors which it would not be able to fulfill if it loses liquidity by agreeing to wire the funds to a foreign account.
The Court of Appeal rejected this reasoning and held that the contract between the Bank and the depositor grants the latter a legally protected right to benefit from cashier services provided by banking institutions in Lebanon which include wire transfers. Although legislation in Lebanon did not provide an express definition of the wire transfer operation, Law n˚81/2018 on electronic transactions and personal data has expressly included wire transfers within the scope of banking services provided by banking institutions in Lebanon.
The Court added that the contract between the bank and the depositor did not exclude transfer operations from the scope of these services and the Bank had no right to refuse the wire transfer without objective reasons or legitimate suspicions. In this particular case, the Court noted that the Bank account of the depositor showed a credit balance and the Bank could not call upon the theory of Force Majeure to avail itself of its obligation to comply with the transfer request because it failed to prove that foreign events have prevented it from processing the transfer request. The Court also added that the need to preserve foreign currency reserves do not constitute events beyond the control of the Bank and the Bank could not call upon the principle of equality between depositors to avail itself of its obligation.
3. The presentation of a check payable in Lebanon does not discharge the Bank of its obligation to wire the funds
Finally, the Court of Appeal held that the presentation of a check payable in Lebanon does not validly discharge the Bank of its obligations to the depositor because it does not provide any satisfaction to the depositor. Therefore, the Court held that the Bank’s refusal to comply with the transfer request constituted an infringement on the rights of the depositor and that the Urgent Matters Judge had the power to compel the Bank to comply with this request.
By ordering the Bank to comply with the request to transfer funds to a foreign account, the Court of Appeal sided with the depositors and condemned the de facto banking restrictions implemented by Lebanese Banks outside any existing legal framework. Although the Bank retains the right to file an appeal before the Court of Cassation, the decision of the Court of Appeal is bound to trigger a new wave of claims against Lebanese Banks which could, hopefully, lead to a legislative regulation of Banking services in the aftermath of the current crisis.