Introduction

On its road to recovery, Iraq has witnessed an avid influx of foreign investment in its economy despite political uncertainties, security concerns, a lack of sufficient and consistent regulations protecting investors and limited access to international dispute resolution options to protect such investments.

With the ongoing developments in Iraq's legal infrastructure, it is anticipated that further regulations concerning international dispute resolution and judicial cooperation will be enacted in order to create a legal environment suitable for the country's attractive investment opportunities.

Until now, Iraq has only been a signatory of the Riyadh Arab Agreement for Judicial Cooperation of 1983 (Riyadh Convention), and is yet to become a party to the New York Convention of 1958, which is an essential instrument for the recognition and enforcement of foreign arbitral awards, and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927.

As a result, the enforcement of international arbitral awards and foreign judgments issued in a country that is not party to the Riyadh Convention has always posed a legal risk for every investor and company looking to enter the Iraqi market.

Governing laws

The Civil Procedures Law (83/1969) addresses both arbitration in Iraq and the enforcement of foreign judgments. While some provisions regulate domestic arbitration in a detailed manner, any mention of international arbitration is absent from the Civil Procedures Law.

Nevertheless, Law 30/1928 on the enforcement of international arbitral awards and foreign judgments in Iraq lists the required conditions for an exequatur of a foreign award or judgment to be approved by the Iraqi court of first instance:

  • a bilateral or multilateral agreement must exist between the foreign jurisdiction and Iraq, ratified by an Iraqi law, confirming the reciprocal enforcement of foreign judgments;
  • the foreign court must have competence to issue the judgment;
  • the judgment cannot violate mandatory provisions of Iraqi laws or public order; and
  • the judgment must be enforceable in the foreign jurisdiction.

Adhesion to international treaties

Aside from a few bilateral treaties, Iraq is only a signatory of the Riyadh Convention, which was ratified through Law 110/1983. The signatories of this convention consist of members of the Arab League and the convention is widely considered the primary international treaty for judicial cooperation between Arab states. Consequently, the Riyadh Convention serves as one of the few means for the enforcement of foreign judgments and arbitral awards in Iraq.

Under Article 30 of the Riyadh Convention, the recognition of foreign judgments or arbitral awards may be refused in the following cases:

  • the existence of any contradiction with the stipulations of Islamic Sharia, the constitution or public order;
  • the judgment does not duly observe the right of defence and notification requirements;
  • the dispute is being resolved in another final judgment (res judicata); or
  • the dispute is the subject of a case being heard by the courts of the requested party and had been brought before the court on a date preceding the presentation of the dispute to the court of the requesting party.

Finally, the major and most awaited development in this respect is Iraq's potential adhesion to the New York Convention, which has been contentious since 2011. The debate on this matter is based on both legal and political arguments, including issues such as retroactivity concerns, reciprocity issues and fear of bias against Iraq in international arbitration proceedings.

Draft arbitration law

In order to enhance its efforts in attracting foreign investment, Iraq is working on establishing a predictable and consistent legal framework for arbitration procedures; therefore, an attempt to draft a new arbitration law replacing the provisions found in the Civil Procedures Law began in 2010. This draft law is intended to be substantially identical to the provisions of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, while also reflecting other applicable arbitration laws in neighbouring Middle Eastern countries. However, developments in the drafting process have been slow, and the wait for a modern arbitration law in Iraq persists.

Recent progress

Jurisprudence in Iraq has historically been averse to international arbitral awards, despite international arbitration becoming the increasingly preferred dispute resolution option in business dealings as a result of the economic development and expansion of the Iraqi market. In addition, the progress seen in practice has incited a similar judicial development with courts often inclining towards a more flexible interpretation of the Iraqi Civil Procedures Law in an attempt to modernise the existing legal system.

A notable example on such developments was the recent judgment rendered by the Federal Court of Cassation in Iraq Ministry of Finance v Fincantieri Cantieri Navali Italiani. In this particular case, substantial reference to the UNCITRAL Model Law and the New York Convention was made to support and complement the Iraqi Civil Procedures Law.

In this specific case, the Commercial Court's initial arguments were based on the Iraqi legal principle that allows judges to refer to international principles when Iraqi law is vague, mute or incomplete. Moreover, the Commercial Court argued that the Civil Procedures Law does not differentiate between foreign and domestic arbitration, and that the legislature clearly did not mean to prohibit international arbitration in the law, given the increasing common inclusion of arbitration clauses in commercial dealings, for both governmental and private parties. The Court of Cassation subsequently confirmed the Commercial Court's rationale and upheld its judgment.

However, despite this remarkable progress, the recognition and enforcement of foreign judgments and arbitral awards by local courts remains arbitrary and problematic, lacking the consistency and predictability in practice a foreign investor or a company would confidently rely on in its assessment of the legal risks posed by the Iraqi market and its legal system.

Comment

Based on the foregoing, it is clear that the development of a modernised and stable legal framework governing dispute resolution can become one of the essential drivers of economic growth and market expansion in Iraq. A worthy example of constructively drafted laws is Investment Law 13/2006, where parties have expressly been allowed to include international arbitration provisions in their contracts. Despite the promising direction of this law, its enforcement remains problematic and uncertain in practice due to the legislative gaps explained above.

To conclude, all of the above considerations lead to the inevitable need for Iraq to join the New York Convention, in addition to further development of the existing flexible approach of the Iraqi jurisprudence towards foreign judgments and arbitral awards, paving the way for the creation of an attractive legal environment capable of minimising the legal exposure and risks for investors which would expedite the market growth Iraq is aspiring to reach.

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For further information on this topic please contact Alain Hannouche or Amanda Mezher at Hannouche Associates by telephone (+964 771 444 7447) or email (ahannouche@hannouchelaw.comor amezher@hannouchelaw.com). The Hannouche Associates website can be accessed at www.hannouchelaw.com.