Disputes

Courts and tribunals

Are there any specialised tribunals that are dedicated to resolving construction disputes?

Generally, Iraqi first instance courts have the competence to determine the disputes of all kinds of construction contracts. These courts exist in every region of Iraq. Specialised first instance courts were established in all governorates of Iraq (except the Kurdistan region) under the name 'courts concerned with commercial matters' to determine the disputes of contracts, governmental construction contracts and commercial nature disputes in which a foreigner is a party.

Judgments rendered by either of the two courts above can be challenged by appeal within 15 days and by cassation within 30 days from the day after judgment is served or considered served.

As for tribunal establishment, the Iraqi Civil Procedure Code permits parties to a dispute to resort to the competence of a national arbitrator or arbitration committee (tribunal), which parties could be of the legal or technical profession of any specialisation of relevance to the matter of dispute as the parties may elect for the tribunal to decide on the subject of dispute; the procedural requirement for this dispute settlement mechanism is that the tribunal award is not automatically executable; rather, it must receive validation from the first instance court for the execution department to put it into effect.

Dispute review boards

Are dispute review boards (DRBs) used? Are their decisions treated as mandatory, advisory, final or interim?

In Iraq, matters disputes are not subject to review by the dispute review boards but by the appeal committees or appeal court established to review court orders as well as to review tribunal awards in the exact mechanism of a judicial verdict; the appeal decisions are also subject to be challenged before the court of cassation.

However, dispute resolution and review in government bidding and contracting processing are regulated as follows.

First, disputes after signing the contract shall be resolved amicably by forming a joint committee of the disputing parties according to the provisions of the law and the relevant regulations, and the contract terms and conditions. Minutes shall be prepared for the foregoing, and will be authenticated by the head of the government contracting party.

Second, if no amicable settlement is concluded, one of the following mechanisms should apply, which shall be included in the contract:

  • arbitration, which shall be as follows: 
    • domestic arbitration. This shall be according to the procedures outlined in the tender conditions or the Civil Procedural Code No. 83 of 1969; 
    • international arbitration. The governmental party of the contract may choose to settle the disputes by international arbitration in case of emergency, for big and significant strategic projects or if one of the contracting parties is foreign, provided that the following should be considered:
      • the accredited international arbitration body to be chosen; 
      • the place and language of arbitration should be designated;
      • using Iraqi laws as the governing law; and
      • the governmental party shall have employees whose qualifications meet the requirements of settling the disputes by this mechanism; or
  • referring the dispute to the competent court for determining its subject matter.

 

Third, the contracting parties shall choose the optimal mechanism for settling disputes resulting from the contract's implementation according to one of the mechanisms listed above and according to the conditions of the contract, which must be stated from the beginning in the tender documents.

Mediation

Has the practice of voluntary participation in professionally organised mediation gained acceptance and, if so, how prevalent is the practice and where are the mediators coming from? If not, why not?

In Iraq, there is no voluntary participation of professional organisations in mediation because mediation is a rarely used mechanism of dispute resolution. Usually, each of the disputing parties appoints a representative for the purpose of the mediation process of a specific dispute but it is rare for mediation to resolve a dispute in Iraq, even if it is included as a condition in the contract.

Confidentiality in mediation

Are statements made in mediation confidential?

The obligation of confidentiality concerning mediation is subject to its contractual extent, meaning that the parties that executed the confidentiality provision must be bound by this obligation from a contractual perspective. However, such an obligation is not extendable to proceedings or arbitration because the court may order to revoke any obligation of confidentiality in favour of investigating the case or hearing the facts related to the proceedings.

Arbitration of private disputes

What is the prevailing attitude towards arbitration of construction disputes? Is it preferred over litigation in the local courts?

Domestic arbitration in Iraq under the Civil Procedural Code is not preferred to resorting to local courts because Iraqi law adopts a provision that prevents the execution of the arbitral award unless it is certified by the court (article 272/1 of the Civil Procedural Code). In such an event, the certification case gives the court of competence the authority to interfere in the arbitral award and re-examine the dispute (article 274 of the Civil Procedural Code).

In practice, the arbitral award is considered as similar to an expert report, as the courts usually resort to cancelling the arbitral award and referring the case subject matter to experts for re-determination of the dispute, and render a new judgment accordingly.

Accordingly, domestic arbitration is considered an additional phase that involves unnecessary effort and expenditure because the local Iraqi courts will re-determine the dispute as if the arbitral award did not exist.

Governing law and arbitration providers

If a foreign contractor wanted to pursue work and insisted by contract upon international arbitration as the dispute resolution mechanism, which of the customary international arbitration providers is preferred and why?

As a matter of the Iraqi legal system, international arbitration has been subject to increasing recognition in the past 10 years. Although it was not explicitly stipulated in the Iraqi Civil Procedure Code, it is stated in the Regulations of Governmental Contracts Implementation No. 2 of 2014 as a legally recognised mechanism of dispute resolution with foreign contractors doing business in Iraq. As a matter of procedural law, international arbitration may adopt any legal system that the seat of arbitration considers, whether ICC rules or similar procedural provisions, as the referral to such provisions and disregarding the Civil Procedural Code is not a matter of public order and may be subject to the agreement of the parties. If it was stated in the contract that Iraqi law would govern and interpret substantive aspects of the contract including the dispute, then Iraqi law would be referred to as the governing law of contract, although the parties also may agree on a different substantive law to be the law governing the contract.

The other side of this dispute settlement mechanism is the enforcement of the arbitral award, which would need to consider whether there are treaties or conventions between Iraq and the country of the seat of arbitration, knowing that the local Iraqi court would have to validate the award for it to be executable in Iraq.

Dispute resolution with government entities

May government agencies participate in private arbitration and be bound by the arbitrators’ award?

According to Regulations of Governmental Contracts Implementation No. 2 of 2014, Iraqi government entities are permitted to participate in private arbitration, whether ICC or ICDR, and they will be subject to whatever award is issued in favour of the contractor. However, the execution of the award should consider the procedural requirement for having it validated by an Iraqi court unless the plaintiff decides to consider executing the award abroad against any assets belonging to the Iraqi respondent.

Arbitral award

Is there any basis upon which an arbitral award issued by a foreign or international tribunal may be rejected by your local courts?

The enforcement of arbitral awards issued by a foreign or international tribunal is subject to the same rules that apply to the enforcement of arbitral awards given by a domestic tribunal. Both domestic and foreign or international arbitral awards should be certified by the local courts. Certification of the arbitral awards by Iraqi courts gives those local courts the right to re-determine the dispute.

Law No. 30 of 1928 of Foreign Judgments Implementation in Iraq does not state the principle of automatic tribunal awards execution in Iraq. It may be extended to apply to foreign arbitral awards, especially now that Iraq is a signatory of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention).

The Iraqi Civil Procedures Law 83/1969 contains provisions governing the arbitration undertaken based on Iraqi law without reference to foreign arbitral awards. However, to get a sense of how this would work in practice, as long as the applicable law considered in resolving the dispute is Iraqi law and that the procedural laws or regulations applied do not conflict with Iraqi arbitration procedural laws, the foreign arbitral award could be, in principle, enforced in Iraq.

On 4 March 2021, the Iraqi parliament voted that Iraq will become a party to the New York Convention, which came into force on 7 June 1959. The law maintained the following reservations:

  • the provisions of the Convention shall not apply to arbitral awards issued before the enforcement of this law;
  • the provisions of the Convention shall not apply to recognising arbitral awards issued by other contracting countries. The enforcement of said awards shall also be subject to reciprocity;
  • the Convention should not apply to Iraq unless those disputes resulting from the contractual legal relationships are considered commercial ones under Iraqi law; and
  • the law of becoming a party to the Convention shall come into force starting from publication in the official gazette. The law mentioned above can be used as a ground for claiming the enforcement of foreign or international arbitral awards within Iraq according to the Convention's provisions.

 

Iraq also is a party to several treaties, such as the Riyadh Convention, which governs the execution of arbitration awards in the member countries of the Arab League.

Limitation periods

Are there any statutory limitation periods within which lawsuits must be commenced for construction work or design services and are there any statutory preconditions for commencing or maintaining such proceedings?

The prescription of right does not automatically extinguish the stipulation of the contractor's or engineer's 10 years' warranty mentioned in the Iraqi Civil Code. Instead, it is required from the other litigant to argue or plea the statute of limitations. If the debtor argues the statute of limitations, the original lawsuit must be dismissed because the law prohibits hearing cases or pleas of the lapsed right by prescription if the debtor has filed a plea for a prescription. Therefore, the effect of a lawsuit regarding a forfeited or outdated right by prescription shall be equal to the effect of the plea, that they are not heard, and that the court will dismiss them both because of the statute of limitation that prevents hearing of the lawsuit.

As regards the validity of an agreement of statute of limitations and whether it is recognisable following Iraqi substantive law, note that the rules of prescription are not of a public order nature; hence, courts do not raise such a plea on their own, and that the right to argue prescription is forfeited by acknowledging the right claimed. Furthermore, the statute of limitations is to be applied to the subjective right. When the subjective right has elapsed by the statute of limitations a lawsuit in its regard is not to be heard, yet the contracting parties are not lawfully entitled to conclude an agreement by which they set a rule to deprive one of the parties, after a certain date, from being entitled to make a claim or even counterclaim because such a stipulation is considered as obstructing a constitutionally guaranteed right of litigation. Hence, the means of protecting rights by way of claims are not to be blocked because such agreement is contrary to public order and shall be deemed null and void if argued from an Iraqi legal perspective.

The statute of limitations is of several types in terms of gaining or extinguishing the right (the prescription and the statute of limitations).

There is a long prescription (15 years) and a short prescription (five, three or two years) in terms of its period. As for the statute of limitations, it is one reason for acquiring ownership and rights in rem if their possession continues for the period stipulated by law.

The extinguishing prescription leads to the lapse of the right if the owner neglects to use it or claim it for a specific period. It leads to the forfeiture of all personal and real rights except the property right. The 15-year statute of limitations includes movable and real estate. The short statute of limitations is five years. This statute of limitations pertains to the periodic renewable rights (such as building rent), taxes and fees owed to the state, and finally, the rights of some self-employed. There is also the triple statute of limitations, that is, the prescription for the right to it after a lapse of three years, and this type applies to unjustly paid fees and taxes. The last type is the annual statute of limitations (where the right in this type expires after a lapse of one year) which concerns the rights of professionals, vendors, merchants and manufacturers, among others.

Certain elements and conditions are to be assessed and looked at in each type of statute of limitations or prescriptions mentioned above.

Law stated date

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19 May 2021