BITs to which Lebanon is party

Potential claims that could be raised under BITs


Lebanon is going through tough times. The crisis-hit country is embroiled in a deep political and financial meltdown, compounded by intermittent lockdowns, the catastrophic blast in the port of Beirut back in August 2020 and prior widespread protests. In October 2019, banks closed down, and while they did eventually reopen, there are severe restrictions on the withdrawal and transfer of funds and foreign currency transactions – known as "de facto" capital controls. In light of the impact that these restrictions have had on businesses, investors may be tempted to challenge them through recourse to investor-state arbitration.

Investors have challenged such restrictions before international forums in the past – for example, in response to Egypt's suspension of the supply of gas to a Spanish-owned plant following the Arab Spring(1) and in response to the measures taken by Argentina to counteract its severe economic crisis in 2001.(2) Foreign investors might well follow in the footsteps of such precedents and challenge Lebanon's de facto capital controls.

BITs to which Lebanon is party

Lebanon is party to more than 50 bilateral investment treaties (BITs), of which no less than 40 are currently in force.(3) Each one of these treaties provides various protections and guarantees for foreign investments. They also grant foreign investors access to some form of investor-state dispute-resolution mechanism. In essence, depending on the wording of the relevant provisions in the treaty, various conditions will need to be met for the investor to access arbitration. These conditions depend on:

  • the dispute settlement clause, which may require the consent of the state to arbitration, among other things;
  • the qualification of "investor" – as many potential claimants may be from the Lebanese diaspora, it is important to consider whether, under the treaty, dual nationals (where one nationality is Lebanese) would qualify to assert claims against Lebanon;(4)
  • the qualification of "investment" – if the case is submitted before the ICSID, it is important to take into account that the tribunal might decide to add additional requirements to the BIT definition. These requirements are contained in the so-called "Salini test", whereby once the tribunal is satisfied that the conditions for an investment are met under the BITs, it then separately examines whether the conditions are met for an investment for the purposes of article 25 of the ICSID Convention. These additional conditions generally include considering whether the investment:
    • consists of a contribution of money/assets;
    • entails a risk;
    • has a certain duration; and
    • contributes to the host state's development;(5) and
  • state attribution of wrongful acts – in order for Lebanon to be found liable under a BIT, it is relevant to attribute the wrongful actions of the Lebanese banks to the Lebanese state. With regard to the harm suffered by investors in relation to the capital controls, it must be noted that the position in relation to attribution is not straightforward. While individual banks assert that restrictions have been imposed on them by the Central Bank, depositors contend otherwise, arguing that the various circulars and existing laws fall short of amounting to a formal capital controls law. Although the Central Bank maintains that it has not directed the measures, the restrictions are likely to have been endorsed by the Central Bank.

Potential claims that could be raised under BITs

Free transfer of funds
Lebanon's investment treaties contain a free transfer provision that guarantees foreign investors' rights to freely transfer funds relating to their investment in and out of Lebanon. Such funds may include the initial capital, the returns and the proceeds from the sale of an investment. Typically, such provisions also guarantee access to the foreign exchange market, which requires payments to be made into a freely convertible currency, such as the US dollar (USD).

Due to the current situation in Lebanon, many investors' funds are blocked, and their access to the foreign exchange market is restricted. There are two known occurrences of investors successfully invoking free transfer provisions: Valores Mundiales v Venezuela(6) and Pezold v Zimbabwe.(7) Therefore, foreign investors in Lebanon might have a valid claim under the free transfer provision provided for in BITs to have their funds unblocked and be granted unrestricted access to the foreign exchange market.

Fair and equitable treatment
Similarly, a claim for violation of a fair and equitable treatment provision (FET) may allow an investor not only to recover the banking deposits that they cannot access, but also to be awarded damages for consequential harm. Such consequential damages may include harms for lost business opportunities or liabilities to third parties.(8)

The jurisprudence, which has applied the FET standard and identified elements of its normative content, is relatively recent and non-uniform, and therefore does not allow for a firm and conclusive list. However, through an analysis of arbitral jurisprudence, a number of elements can be identified, including due process, arbitrariness, non-discrimination, vigilance, legitimate expectations, stability and predictability, transparency, good faith, and proportionality.(9)

The key issue in assessing whether a host state has breached the FET standard is whether the host state has adversely affected investments by substantially altering the legal and/or economic framework of the investment against the legitimate expectations of the investor.(10) To balance the obligation of stability, some arbitral tribunals have referred to the necessity for an investor to conduct a due diligence investigation before investing in a host state.(11)

Full protection and security
The full protection and security (FPS) provision guaranteed by investment treaties may also be relevant. Many investors suffered harm to their investment in Lebanon, arguably due to the state's unofficial capital controls. While the situation is ambivalent, the state was possibly complicit in either:

  • working in concert with the Central Bank and other banks, issuing unofficial restrictive measures; or
  • failing to police the measures taken by the banks and failing to crack down on the currency exchange offices on the black market.

Such failure led to an absurd situation where no one knows what the Lebanese pound (LBP) is worth anymore, given the vastly different exchange rates at which the LBP is exchanged into USD.

In light of case law, the FPS standard of treatment requires that either the state's forces should not be utilised to harm the foreign investor's property or that the state should protect the interests of the foreign investor from violence, if such violence could be reasonably anticipated.(12) Tribunals tend to expand the scope beyond customary international law, with the notion that the clause mandates the maintenance of conditions of stability for the investment.

As such, tribunals have generally agreed that the host state is to exercise reasonable care to protect and secure foreign investment,(13) and that a state's obligation to afford full protection and security relates not only to state actions, but also to its omissions.(14) There is a split of opinion as to whether the FPS standard accords protection to physical security alone, or whether legal security is covered as well. While some tribunals have been willing to extend the FPS standard to legal protection,(15) others have been reluctant to do so.(16) The prevailing view, however, is that FPS may be breached if no physical violence or damage occurs and that "it is not only a matter of physical security; the stability afforded by a secure investment environment is as important from an investor's point of view".(17)

Investors could, therefore, argue that the Lebanese state breached investors' rights by:

  • contributing to the financial crisis; and/or
  • failing to control private banks from imposing various restrictions and impeding access to foreign exchange and the transfer of funds.

This argument may be particularly pertinent given the government's inability to act against black currency exchange offices involved in selling USD above the official rate.

While the Lebanese government may rely on the holding in Czescik v Cyprus,(18) where a Stockholm Chamber of Commerce (SCC) tribunal found that funds in a bank account could not be characterised as an investment, there are inconsistent holdings in this regard. For instance, in Anderson v Costa Rica,(19) the tribunal recognised the wide definition of "investment" under the applicable treaty, which included "any type of asset", in order to determine that interest-bearing deposits of funds constituted investments.


As Lebanon battles one of its worst economic crises, time will tell whether foreign investors will challenge Lebanon over its unofficial capital controls and/or, in some respects, omissions to act at all. Whether they will succeed in convincing a tribunal that funds deposited in bank accounts constitute investments and that Lebanon is in breach of its obligations under various investment treaties will ultimately turn on the language of the treaty in question and the intended purpose of the funds.

For further information on this topic please contact Alexandra Tompson at Obeid & Partners by telephone (+961 1 36 37 90) or email ([email protected]). The Obeid & Partners website can be accessed at


(1) Unión Fenosa Gas, SA v Arab Republic of Egypt, ICSID Case No. ARB/14/4.

(2) See "Argentina: From International Market Isolation to Promising Opportunities for Investors".

(3) See "The Middle Eastern and African Arbitration Review 2021", Global Arbitration Review.

(4) See "Do International Investment Agreements Provide Remedies for Foreign Investors Harmed by the Lebanese Financial Crisis?", Business Law Today.

(5) Peter Tzeng, "The Salini Test", Jus Mundi, 26 November 2021.

(6) Valores Mundiales, SL and Consorcio Andino SL v Venezuela, ICSID Case No. ARB/13/11, Award, 25 July 2017.

(7) Bernhard von Pezold and Others v Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award, 28 July 2015, para 605-609.

(8) See "Do International Investment Agreements Provide Remedies for Foreign Investors Harmed by the Lebanese Financial Crisis?", Business Law Today.

(9) See "Investment Disputes Oltre lo Stato: On Global Administrative Law, and Fair and Equitable Treatment", Sebastián L Escarcena.

(10) CME Czech Republic BV v Czech Republic, United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, partial award (13 September 2001), paras 517 and 611.

(11) Stadtwerke München GmbH, RWE Innogy GmbH, and others v Kingdom of Spain (2019) ICSID Case No. ARB/15/1.

(12) American Machine Tools v Zaire (1997) 36 ILM 1531; Wena Hotels v Republic of Egypt (2002) 41 ILM 896.

(13) The Channel Tunnel Group Lt. E Franche-Manche SA v Royaume Uni et France, partial award rendered on 30 January 2007.

(14) CME Czech Republic BV v Czech Republic, UNCITRAL Arbitration Rules, Partial Award (13 September 2001).

(15) Siemens AG v Argentine Republic, ICSID Case No. ARB02/8, award (6 February 2007), para 303; Azurix Corp v Argentine Republic, ICSID Case No. ARB/01/12, award (23 June 2006), paras 406– 408; Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania, ICSID Case No. ARB/05/22, award (24 July 2008), para 729; CME Czech Republic BV v Czech Republic, UNCITRAL Arbitration Rules, partial award (13 September 2001), para 613.

(16) Gold Reserve Inc v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1, award (22 September 2014), paras 622–23; Saluka Investments BV (the Netherlands) v The Czech Republic, UNCITRAL, partial award (17 March 2006), paras 483–484; AWG Group v The Argentine Republic, UNCITRAL Arbitration Rules, decision on liability (30 July 2010), para 179.

(17) Azurix Corp v The Argentine Republic, award, 14 July 2006, para 408.

(18) Robert Aleksandrowicz and Tomasz Czescik v Cyprus – SCC Case No. 2014/169.

(19) Alasdair Ross Anderson et al v Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3.