After years of economic collapse, Lebanon’s appeal to international investors hinges on a new approach for its judiciary

Lebanon’s new Prime Minister, Nawaf Salam, has a rare privilege: to start a new government from scratch.

For more than two years, Lebanon has been bound by circumstance. But now, Prime Minister Salam’s new government faces the unenviable challenge of enacting fundamental systemic reforms before the next parliamentary elections in 13 months’ time.

To salvage the conflict-ravaged country, the government must first rebuild its institutions. At the centre of this is a banking system facing allegations of widespread corruption, and a judiciary which needs to restore its vital autonomy from political influence and corruption. Without either, the country cannot hope to rebuild and attract external investment from the international community.

After years of political impasse, economic collapse and public distrust in institutions, Salam as former President of the International Court of Justice now has both a crucial and very public opportunity to signal his intent to his international neighbours and demonstrate that investors can rely on the rule of law in Lebanon.

The example of the high-profile arbitration between Iraq Telecom Ltd and Intercontinental Bank of Lebanon (IBL) is a case in point, which could capture the judiciary’s renewed commitment to principled decision making as it rebuilds its credibility and moral authority.

In 2021, an arbitration panel – presided by Swiss arbitrator Pierre-Yves Gunter – found that IBL colluded with Korek Telecom, an Iraqi mobile operator, to defraud Iraq Telecom to the tune of hundreds of millions of dollars. Under the fraudulent scheme, IBL acted as a fictitious lender for a $150 million sham loan to Korek, which was designed to take priority over a loan that Iraq Telecom had extended to Korek, effectively blocking Iraq Telecom from recovering on its loan.

IBL was found by the arbitration panel to have collected a multimillion-dollar fee for its role in the fraudulent scheme. The decision was confirmed by the Beirut court of first instance and by the New York courts, but IBL then sought to annul the decision before the Beirut court of appeal, arguing among other things that the tribunal had accessed documents allegedly covered by the Lebanese banking secrecy law, and that IBL was therefore not in a position to debate.

In a rare decision upholding annulment, the Beirut court of appeal annulled the arbitral award. This annulment decision naturally raised suspicion, given the rarity of annulment decisions, and the timing of the ruling, which was issued in the thick of the Lebanese crisis and rampant corruption, where judges were paid as little as $50-200 per month, with many of them said to have accepted bribes for a particular ruling to make ends meet. IBL was represented before the Court of Appeal by Randa Abou Sleiman, the sister of a politically prominent figure, Camille Abou Sleiman, former minister and previously rumored candidate for the Governorship of the central bank.

The parties are now waiting on a judgement from the Lebanese Court of Cassation which will either uphold the arbitration award to Iraq Telecom, aligning with the position taken by New York courts, or uphold the lower court’s decision, suggesting that international investors cannot rely on the rule of law to protect them in the new Lebanon.

The impending court decision is a litmus test not just for political stability but for economic recovery. The ability of international investors to enforce contracts and to resolve disputes through arbitration is critical if the nation is to secure the inflows of overseas capital necessary to rebuild Lebanon.

Salam has promised to adopt a law ensuring judicial independence and merit-based appointments. These, as Justice Minister Adel Nassar has affirmed, should be ‘swift, not rushed’ if they are to be effective.

One need only consider the paralysis afflicting the Beirut port explosion investigation to fully appreciate the problem. In what Amnesty International called an example of ‘rampant’ political interference into the justice system, the release of the suspects detained in the catastrophic explosion is exemplar of the type of judicial politicisation the court must avoid.

Lebanon’s new government has made a point of its commitment to root out corruption in the court system, allegedly encouraged by past governments. It has promised to adopt a law ensuring merit-based judicial appointments, albeit in a non-binding statement. In light of these promises, how then should the international community feel comforted by the new leadership?

Lebanon’s 2024 revisions to its Arbitration and Mediation Rules mark a significant modernisation of its dispute-resolution framework, aligning itself with global benchmarks to reinforce its position as a regional arbitration hub. If these reforms are to be worth anything, the Court of Cassation must show that it respects the New York Convention and will not interfere with legitimate arbitral awards.

So, can years of economic collapse be rectified by a new leadership driven by the mantra of rescue, reform and rebuild?

The new leadership under President Joseph Aoun and Prime Minister Salam certainly has the political will to deliver on its promises. Salam’s appointment itself signals this, but high expectations are staggered against the weight of high levels of corruption.

Meaningful judicial reform will be essential for Lebanon to break free from decades of impunity and mismanagement. In practice it means acknowledging to the world that it is ready to play by international rules.

Success in judicial independence, exemplified by the upholding of the New York Convention, could set a precedent for broader reforms. If it can demonstrate integrity with an aligned judiciary, it will be able to attract the international investment it so desperately needs to advance. Failure, on the other hand, risks deepening Lebanon’s institutional crisis in a post war-stricken society.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.