Commercial Claims And Limitation Period Under Iraqi Law

Article by Mr Saleh Majid (Advocate (Iraq), Rechtsbeistand (Germany) for business laws of Arab countries, B.A.Law (Baghdad), Dip.Air Law, Postgrad Dip.Law (London), M.C.I. Arb.

This article deals mainly with the question of Limitation Period under Iraqi Law. Creditors holding claims against Iraq arising from construction, financing and supply contracts concluded with the Iraqi government entities prior to the fall of Saddam Hussein's regime in 2003 may find this article of interest.

I shall attempt to answer the following questions among other things:

What is the concept of limitation or prescription period under Iraqi law? How does it apply?

How can the limitation period be interrupted or suspended?

Can the creditors rely on certain events or correspondence to claim the suspension or the interruption of limitation period under Iraqi law?

Prior to discussing these questions, a short reference to the categories of claims against Iraq and the related settlement mechanisms may be relevant.

Section One: Categories of the Claims

There are at least three types of claims as to the mechanism of the settlement applicable to each group:

I. Claims arising from Iraq invasion of Kuwait in August 1990, based on the Security Council Resolution no. 687 of 03.04.1991, which rendered Iraq .."liable under international law for any direct loss, damages..or injury to foreign Governments, nationals and corporations, as a result of Iraq's unlawful invasion and occupation of Kuwait".

The U.N. Security Council Resolution no. 692 of 20.05.1991 established the Iraq Compensation Commission as a subsidiary organ of U.N. to settle such claims submitted by individuals, states, and corporations.

As in the word of the Secretary General in his report of 02.05.1991, the Commission is neither a court nor an arbitration tribunal before which the parties may appear. It is a political organ, and decisions are taken by the Commission Council consisting of representatives of the states members of the Security Council. Panels of experts appointed by the Commission review claims and submit their recommendations on the claims to the Governing Council for approval, without giving Iraq, as the defendant, the right to appear or to appeal against their decisions. The process is arbitrary and fails to comply with the minimum requirements of due process.

The Commission has approved approximately 1.55 million claims and awarded compensation amounting to US $ 52.4 billion. To date, the Commission has paid individuals, companies, and governments about US $ 21.8 billion, withdrawn from the sales of Iraqi oil, which Iraqi people today are most in need of. Many of the claims submitted to the Commission by corporations and private creditors were rejected by the Commission for falling outside its jurisdiction or for other legal reasons.

The creditors of those claims which have not yet settled their claims will have to consider seriously the question of the limitation period (subject of this article) which may render their rights extinguished.

II. The second category of claims are private commercial claims, which were estimated about 22 billion US $. The Iraqi Ministry of Finance during 2004 had established through Ernst & Young settlement procedures (which have recently come to an end) to restructure and settle these claims. Creditors of private commercial claims were invited to submit their claims to the office of Ernst & Young. Ernst & Young decided whether the claims were "eligible" for settlement and invited the holder of eligible claims to accept a partial settlement, as follows:

A creditor holding a claim of US $ 35 million or less was offered cash buyback equal to 10.25 % of the value of his eligible claim.

A creditor claiming more than US $ 35 million in outstanding debt, which Ernst & Young accepted as eligible, was offered 20 % of his claim in government bonds that will mature in January 2028

The process was dictated without much regard to the provisions of the relevant contracts, with no room to negotiate. Within one year, a total of US $ 19,7 billion of commercial claims against Iraq were settled. 491 commercial claimants submitted their claims, and more than 12000 claims from Saddam period were settled.

Under this process Ernst & Young rejected a number of claims as being not "eligible" for lack of documentation or because of the...