On 22 March 2020, the Iraqi Government Crisis Cell took the unusual measure of issuing an announcement declaring the COVID-19 crisis as an event of “force majeure“. 

This blanket declaration will have a significant impact on companies operating in Iraq, potentially triggering contractual force majeure provisions and those imposed under the Iraqi regulatory framework, regardless of whether parties are actually prevented from carrying out their obligations.

Set out below is a summary of the current approach to force majeure under both Iraqi and English law – the two most common governing laws in the State – and the possible impact this declaration may have.

Force Majeure and Contracts Governed under Iraqi Law

Although the Iraqi Civil Code acknowledges the notion of force majeure and generally regulates it, the law does not clearly define what qualifies as an event of force majeure. Instead, it simply regulates the obligations of parties, following the determination of the relevant event as one of “force majeure“.

In many civil law jurisdictions in the Middle East, whether COVID-19 would qualify as an event of force majeure would be subject to the party alleging that it rendered the performance of the contract impossible. However, one possible and likely impact of the Crisis Cell’s announcement is that the courts no longer need to assess whether COVID-19 qualifies as a force majeure event. It appears that a party could willingly (and possibly unnecessarily) default on its obligations and/or even fail to properly mitigate its circumstances, whilst successfully relying on the argument of “force majeure“.

Force Majeure and Contracts Governed under English Law

In light of the Crisis Cell’s announcement, there are two distinct lines of argument that ought to be considered when it comes to contracts governed under English law, with a nexus to the Republic of Iraq – whether the performance (or part of the performance) of the contract is in Iraq, or whether a party to an English law governed contract is located in Iraq.

Specifically, parties to an Iraqi contract governed by English law need to consider whether:

  1. English common law applies to the notion of force majeure, which limits its application to contractual force majeure provisions and the court’s opinion on applicability. This is because English law does not regulate or provide a definition for what qualifies as “force majeure“; or
  2. Iraqi regulations – in this instance – prevail, given the exceptional circumstances the country is under and more importantly the way in which this announcement was made. It is plausible that the announcement will be characterized as one that relates to “public order“. If this is the case, then any order issued under foreign law by any foreign court risks being nullified at the level of enforcement in Iraq.

For further guidance on the Iraqi Government Crisis Cell’s announcement, please do not hesitate to contact us on the details set out in this client alert.

Author

Andrew Mackenzie is the UAE Head of the International Arbitration and Construction practices of Baker McKenzie Habib Al Mulla, based in Dubai. He specialises in international arbitration law, with a particular focus on construction, energy, technology and financial institution disputes. Andrew has been based in the UAE for over 10 years and also has full rights of audience in the DIFC courts. He has advised on complex commercial disputes under a variety of civil and common law systems from across MENA and Africa, tried cases in all of the major arbitration forums (both treaty-based and commercial) and also sits as an arbitrator.

Author

Paul Teo heads Baker McKenzie's Arbitration Practice in Greater China. He handles disputes related to corporate and commercial transactions, energy, mining and resources, infrastructure and construction, offshore and marine, and telecommunications. A Chartered Arbitrator and listed on the Presidential Panel of Arbitrators of the Chartered Institute of Arbitrators, Paul is regularly appointed as arbitrator and serves on the panels of many leading arbitral institutions.

Author

Andy Moody is a partner in the Baker McKenzie Dispute Resolution team based in London. He advises clients on international, commercial and investment treaty arbitration as well as in complex, often multijurisdictional litigation, mediations and expert determinations. He also advises clients on issues pertaining to private and public international law.

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