Iraq’s New Commercial Courts

Iraq’s New Commercial Courts

JURIST Guest Columnist Adam Al-Sarraf, International Program Specialist at the United States Department of Commerce, discusses Iraq’s new commercial court…

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, the US Department of Commerce or the Commercial Law Development Program.

Faced with the prospect of a failed state, Iraq’s main political blocs reached a compromise agreement that has allowed the country to slowly confront its internal and external threats in order to achieve some level of stability. Despite ISIS’s successes in Mosul and Ramadi, the Iraqi government, supported by the international coalition, has made significant progress in containing Daesh’s (ISIS) expansion and in retaking cities such as Tikrit earlier this year. However, in order to address the root causes of Iraq’s instability and turn the tide against ISIS, Iraq will need to achieve real economic growth as quickly as possible to create jobs for the newly liberated areas. Unemployment and the lack of basic services fuel much of the terrorism that threatens the lives of Iraqis, and ISIS and other terrorist groups have capitalized on this reality to reinforce their ranks and propagate their ideology.

While the Iraqi legislature has enacted an Investment Law [PDF] to provide incentives to foreigners to invest, and the Iraqi executive branch is attempting to address investor concerns through an amendment to the Investment Law, the Iraqi judiciary has achieved significant progress in creating an efficient and predictable legal environment for foreign companies. It did so through the creation of a system of commercial courts, whose decisions have been deemed fair by foreign companies. The early track record of these courts suggests that they will play an important role in moving Iraq from its socialist past, when foreign investment was viewed as a source of suspicion and mistrust. However, the courts alone will not be able to provide the long-term guarantees that are needed to transform Iraq’s legal environment for businesses, foreign and domestic, to thrive. Since Iraq is civil law country, the legislative and executive branches will need to enact comprehensive legislative and regulatory reforms to Iraq’s intellectual property, investment and arbitration systems, among others. Without a codified set of modern laws and regulations, the courts will be limited to gap-filling measures that are susceptible to narrow or inconsistent application.

By way of background, in 2009, while the Iraqi government was rolling out its first oil bid rounds, the Iraqi Higher Judicial Council (HJC) announced that it would start training Iraqi judges in modern commercial law topics with the goal of assuaging the concerns of foreign companies and investors. The HJC was fully aware of the country’s unemployment problems, of the need for foreign investment and international trade and of the complaints of both foreign and Iraqi companies that Iraqi courts were not capable of handling complex commercial disputes in an unbiased manner. Aware of the growing trend of business courts in the US, the UK and the Middle East, such as Egypt, the HJC sought to apply these successful models to the Iraqi context by creating its own specialized commercial courts, staffed by judges highly trained in commercial matters. The HJC focused its training efforts initially on letters of credit, international arbitration and intellectual property disputes given their critical roles in international business transactions. The HJC inaugurated a multi-phase training program in 2009 with the Commercial Law Development Program of the US Department of Commerce to prepare Iraqi judges for the new courts, the first of which was eventually created in Baghdad in 2010. The HJC subsequently expanded its training efforts to include other regional and international technical assistance providers following the court’s establishment.

In order to achieve its two primary goals, efficiency and specialization, the judiciary limited the new commercial court’s jurisdiction to commercial disputes involving at least one foreign party. Moreover, the matter in dispute had to be of a commercial nature, as defined by the Iraqi commercial code (No. 30 1984), which includes 16 separate categories for commercial activities, an example of how Iraq’s outdated commercial laws may tie the hands of Iraq’s judges. A modern commercial code should expand the categories of commercial activities to include modern transactions such as e-commerce and technology transfer.

According to the HJC procedure every Iraqi court would be required to transfer a case to the Baghdad Commercial Court if it fell within the latter’s jurisdiction as defined above. The HJC assigned two judges for the Baghdad Commercial Court based on their performance in the specialized training programs. According to the HJC’s latest statistics the Baghdad Commercial Court has adjudicated 1146 cases out of a total of 1252 cases filed since its inception.The average trial length for these cases is 60 days,according to the HJC, with many cases finally decided in as few as 30 days. The court’s impressive efficiency is a dramatic improvement on Iraqi courts’ past record when adjudication of commercial cases would take months and sometimes years on crowded dockets that included both civil and criminal cases.

Pro-government bias is a concern for foreign companies operating in any jurisdiction, a key reason that international arbitration is required in most international business transactions. Even when international arbitration clauses are included in contracts, national courts can find for a national government party by refusing to enforce contract rights, such as the right to resort to arbitration, or by refusing to enforce foreign arbitral awards. This can become a significant deterrent to foreign investment and trade. Furthermore given the Iraqi government’s hostility towards international arbitration, the Baghdad Commercial Court was uniquely aware of the importance of demonstrating its ability to enforce contract rights, rights that are enshrined in Iraqi law as “the law of the contracting parties” and to specifically enforce the contractual right of parties to resolve their disputes outside of Iraqi courts.

In the area of transparency, the Baghdad Commercial Court began to publish summaries of its major decisions in English and Arabic on the HJC website. The HJC’s most recent statistics show that no less than 40% of the Baghdad Commercial Court cases have been decided against the Iraqi government and in favor of the foreign company. Moreover the Baghdad Commercial Court has achieved significant progress in adapting international principles to cases involving arbitration and intellectual property, which were affirmed by Iraq’s highest civil courts, thereby setting major precedents for Iraqi courts.

In the area of arbitration Iraqi courts’ past hostility to arbitration and the government’s failure to join the UN Convention on the Recognition and Enforcement of Arbitral Awards (New York Convention) exposes companies to the risk that their arbitration agreements and awards will not be enforced in Iraqi courts. However, in 2011, the Baghdad Commercial Court heard a case involving international arbitration in a dispute between an Italian company and the Iraqi Ministry of Finance. The Baghdad Commercial Court decided to revisit Iraq’s longstanding interpretation of the arbitration provisions of its civil procedure code. Iraqi courts previously held that international arbitration was not explicitly recognized in Iraqi law and dismissed requests for enforcement for lack of jurisdiction. However, in 2011 the Baghdad Commercial Court broke with past precedent and held that the civil procedure code did not distinguish between international and domestic arbitration. In determining if a valid arbitration agreement existed, the court referred to the New York Convention and to the UNCITRAL model law to supplement Iraq’s civil procedure code. This decision, which was affirmed by Iraq’s Court of Cassation, is binding on lower courts, establishing a firm judicial position for enforcing international arbitration agreements. While this decision is historic in its interpretation of arbitration-related provisions, it is also critical in demonstrating the Iraqi courts’ ability to enforce contract rights against a government party.

According to the HJC’s latest statistics at least eight cases have been decided by the Baghdad Commercial Court involving the enforcement of an international arbitration agreement. However, we have yet to see if this new interpretation will allow Iraqi courts to enforce foreign arbitral awards, a critical issue for foreign trade and investment. The courts will need the support of a domestic arbitration law or, ideally, a law ratifying Iraq becoming a party to the New York Convention, so that they have a sound legal basis for enforcing foreign arbitral awards without judicial review of the merits. The legislative and executive branches would need to take the lead in passing either or both of these laws.

In the area of intellectual property the Baghdad Commercial Court has decided two landmark trademark cases, involving multi-national companies that were challenging decisions by Iraq’s Trademark Office to register knock-off trademarks. In both decisions, the Baghdad Commercial Court relied on international principles to find that the knock-off products created confusion in the Iraqi marketplace.The Court ordered the Iraqi Trademark Office to cancel the trademarks of the knock-offs and to register the original trademarks.This is yet another example of gap-filling measures where Iraqi courts are faced with a 1950s era trademark law that will need to be updated for Iraqi courts to consistently and effectively apply international best practices.

Since 2010, the HJC has created two additional commercial courts in BasraBasra and Al-Najaf, where there is significant commercial activity related to Iraq’s oil industry and religious tourism respectively The creation of these three specialized courts and the subsequent development of judicial precedents have helped to level the playing field for foreign investors. As such the judiciary has been able to provide foreign companies with a degree of assurance that their investments and resources in Iraq will be protected. However, this is not enough. The Iraqi government will ultimately need to pass and enforce new laws to provide guarantees to foreign investors, reduce corruption and diversify its economy in order to create the level of economic growth that is needed to rebuild Iraq’s infrastructure and dramatically reduce unemployment.

Adam Al-Sarraf is an International Program Specialist with the Commercial Law Development (CLDP) of the U.S. Department of Commerce Office of the General Counsel. Mr. Al-Sarraf works primarily on the Iraq program focusing on capacity building programs for the Iraqi judiciary, state-owned enterprises, investment commissions and legislative institutions.

Suggested citation: Adam Al-Sarraf, Iraq’s New Commercial Courts, JURIST- Professional Commentary, June 30, 2015, http://jurist.org/professional/2015/27/adam-al-sarraf-iraq-commercial-courts.


This article was prepared for publication by Elizabeth Dennis, an Assistant Editor for JURIST Commentary. Please direct any questions or comments to her at commentary@jurist.org


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