As Lebanon experiences a shortage of United States Dollar bills, the issue of the payment of debts denominated in foreign currencies was bound to reach the courts.
Four recent decisions show that Lebanese Courts do not share the same views on the matter.
1. The Execution Judge of Beirut held that the payment of a debt denominated in USD can be made by checks written in LBP.
On January 15th, 2020, the Execution Judge of Beirut rendered a decision that allowed a debtor to validly make a payment of a debt denominated in United States Dollars by offering checks written in Lebanese pounds.
The facts of the case were relatively simple: a lender sought repayment of the sum of 198 500 United States Dollars against a borrower who had offered to repay his loan by depositing three checks written in Lebanese pounds as well as paper money.
The lender contested the validity of the repayment on the grounds that the loan, that was denominated in United States Dollars, could not be repaid using national currency and that the presentation of a check does not constitute a valid payment in light of the refusal of Lebanese banks to cash the checks drawn on them.
The Execution judge of Beirut had to rule on two issues.
The first issue was whether the lender that had borrowed a sum of money denominated in United Stated Dollars could validly repay his loan in national currency. On this issue, the Judge held that the payment of a debt denominated in USD is valid when made in national currency and that currency conversion shall be made at the exchange rate applicable on the date of actual payment.
According to the Execution Judge of Beirut, a creditor cannot force a debtor to make a payment in a foreign currency and the creditor cannot refuse a payment made in national currency.
The Execution Judge of Beirut based his reasoning on three provisions:
- Article 301 of the Code of Obligations and Contracts which, according to the Execution Judge of Beirut, states that the payment of monetary obligations must be made in national currency.
- Article 7 of the Code of Money and Credit which states that “banknotes of a value of 500 pounds and over shall be unlimited legal tender throughout the Lebanese territory”.
- Article 192 of the Code of Money and Credit which states that “refusal to accept Lebanese money within the framework of conditions laid down in articles 7 and 8 is subject to penalties listed in article 319 of the Penal Code”.
The second issue was whether the lender could validly repay his loan by presenting a check to the lender. According to the Execution Judge of Beirut, the debtor is liberated upon presentation of a check and prior to the issuance of the funds to the beneficiary. The Execution Judge of Beirut characterized the presentation of a check as a payment concluded under the resolutive condition that the check does not bounce.
2. The Execution Judge of Tyre held that the payment of a debt denominated in USD cannot be made by presentation of a check written in USD.
On April 8, 2020, the Urgent Matters Judge of Tyre held that a local bank must pay one of its customers the sum of 15 000 USD. As a result, the creditor seized the assets of the local branch of the Bank in Tyre who, in turn, requested the release of these assets by presenting the creditor with a check written in USD.
The issue was whether the Bank could validly repay its debt by presenting a check to the creditor.
On April 15, 2020, the Execution Judge of Tyre held that the presentation of a check by the debtor does not constitute a valid payment because of the current context that is characterized by the refusal of Lebanese banks to cash the checks drawn on them.
3. The Execution Judge of Tyre held that the payment of a debt denominated in USD cannot be made by the presentation of national currency bills at the rate of 1$=1514 LBP.
After the Execution Judge of Tyre rendered his decision on April 15, 2020, the Bank deposited the cash equivalent of the sum of 15 000 USD in national currency at the rate of 1$=1514 LBP.
However, on April 16, 2020, the Judge held that the payment of a debt denominated in USD made in national currency and at the rate of 1$=1514 LPB is not a valid payment because the debt is denominated in USD and the current market exchange rate is at least 1$=3000 LBP.
4. The Execution Judge of Beirut held that a bank guarantee denominated in LBP at the rate of 1$=1514 LBP is not sufficient to lift the attachment made against the payment of a debt denominated in USD.
The creditor of a debt denominated in USD had carried out a precautionary attachment on the assets of his debtor who, in turn, requested the release of the assets against a bank guarantee denominated in LBP at the rate of 1$=1514 LBP.
On July 8, 2020, the Execution Judge of Beirut deemed the bank guarantee insufficient to release the attachment made against the payment of a debt denominated in USD due to the instability of the current monetary situation.
Surprisingly, it appears that the Execution Judge of Beirut has deemed that the presentation of a guarantee denominated in LBP at the rate of 1$=1514 LBP is insufficient to release the attachment made against the payment of a debt denominated in USD after ruling that the presentation of a check denominated in LBP at the same rate is sufficient to constitute a valid payment of a debt denominated in USD.
5. Legal issues raised by the payment of a debt denominated in a foreign currency.
The aforementioned decisions show that Lebanese case law lacks consistency with regards to the matter of the payment of a debt denominated in a foreign currency.
4 issues must be resolved in order to provide a clear solution to the problems that are bound to reach the courts.
Issue #1: Is the contractual provision that requires the payment of a debt in a foreign currency valid?
Issue #2: Is the payment of a debt denominated in a foreign currency in national currency a valid payment?
Issue #3: When the payment of a debt denominated in a foreign currency is made in national currency, what is the exchange rate that applies to the payment?
Issue #4: Can the debtor validly pay his debt by presenting a check to the creditor?
These 4 issues do not find clear answers in Lebanese Law. Although, courts have rendered decisions on some of the issues raised by the payment of debts denominated in a foreign currency, it is unclear whether these decisions remain relevant in the current context that is characterized by the unprecedent emergence of multiple exchange rates and the unofficial capital control exercised by the Lebanese banks.
Under normal circumstances, these issues require a legislative intervention. However, it does not seem that the payment of a debt denominated in a foreign currency is currently scheduled in the parliamentary agenda. To this effect, we can only hope that the matter will reach the Plenary Assembly of the Court of Cassation who has the authority to unify case law under Article 95 of the Civil Procedure Code.
