Iraq ratifies the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards
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On 31 May 2021, Iraq ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Until recently, it was challenging to enforce an international arbitral award in the State of Iraq. The State of Iraq was the only state in the Middle East (other than Yemen) which had not yet ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the "New York Convention"), the major international treaty facilitating the enforcement of foreign arbitral awards. Depending on where the arbitration was seated, where no bilateral enforcement treaty applied, parties only had the following options:
- If the arbitration was seated in a signatory state to the Riyadh Arab Agreement for Judicial Co-operation (the "Riyadh Convention"), parties could enforce against assets in Iraq under the Riyadh Convention, to which Iraq is a party. The scope of application of the Riyadh Convention is limited, however. It only covers awards issued within the territories of some Middle Eastern and African states which have signed the convention (including the UAE, Saudi Arabia and Egypt, for example), and it excludes the enforcement of awards rendered against government entities (Articles 25(c) and 37 of the Riyadh Convention).
- If the seat of the arbitration was in a jurisdiction which was not a signatory to the Riyadh Convention (for example, commonly used seats such as Geneva or London), parties did not have any international instrument to rely on to enforce against assets in Iraq. Under Iraqi legislation, awards could not be enforced unless the courts re-certified the award as an Iraqi award/judgment. Iraqi courts would do so, if it was in the interests of justice. An award creditor in such proceedings could face the argument that the award may violate Iraqi law or that due process during the arbitration was violated. There was also the possibility that portions of the case would be re-litigated. Enforcement of foreign awards was therefore not automatic and a rejection was possible, given the wide discretion of the court.
On 31 May 2021, the Law on the Accession of the Republic of Iraq to the New York Convention which ratified the accession to the New York Convention (the "Law on Accession") entered into effect, when it was published in the Iraqi Official Gazette.
The Law on Accession contains some reservations. Article 1(2) provides that the New York Convention applies to foreign awards issued in other signatory states on the basis of reciprocity only. Further, Article 1(3) provides that the New York Convention applies only to disputes arising from contractual relations which are considered commercial pursuant to Iraqi law.
Iraq’s accession to the New York Convention will simplify the process and allow parties to enforce arbitration awards in Iraq, albeit it will not be of assistance to past award creditors.
Enforcement of Awards that were issued prior to Ratification
Article 1(1) of the Law on Accession provides that the New York Convention will not have any retrospective effect. This means that an award creditor seeking to enforce a foreign award issued prior to the date of entry into force of the Law of Accession cannot rely on the New York Convention. The new development will therefore be of no assistance to award creditors that have been unsuccessful in enforcing an award in Iraq in the past, even in cases where the limitation period for enforcement has not yet expired. It is possible, though, that after the ratification of the New York Convention, Iraqi courts will be more enforcement-friendly such that they are more likely to certify and enforce foreign awards even if they do not fall within the scope of the New York Convention.
Alternatively, creditors of past awards continue to be compelled to resort to other means to obtain payment of their award using one of the options below:
- An award creditor could attempt to follow the two-step process of a "conduit" enforcement. The award creditor would first have to seek recognition of the foreign award in a jurisdiction which is a signatory to both the New York Convention and the Riyadh Convention, for example the UAE or Qatar. In a second step, the award creditor would then have to seek to enforce the foreign judgment recognizing the award in Iraq under the Riyadh Convention. However, there is no guarantee that this route will be successful as these jurisdictions may refuse the recognition of an award if the award debtor has no assets in the country.
- An award creditor could attempt to locate assets outside of Iraq and enforce the award abroad. In doing so, it could consider obtaining worldwide disclosure orders, which are available under certain circumstances, for example, in the USA or in the UK.
- Another option would be to try to sell the award at a discount and avoid enforcement proceedings altogether. However, in light of the abovementioned difficulties, the likelihood of finding a buyer may be limited."
Iraq’s accession to the New York Convention is expected to facilitate the enforcement of foreign awards in the country. In the past, parties have had to resort to lengthy and convoluted means to attempt to enforce awards in Iraq. Parties concluding an arbitration agreement with Iraqi companies and state entities can now seat their arbitration in a New York Convention signatory state without consideration as to whether that state is party to the Riyadh Convention. However, parties are advised to choose arbitration-friendly jurisdictions as a seat (such as Geneva, London or Paris) to avoid any hurdles potentially arising from the reciprocity provision. As regards award creditors of past awards, however, they will not be able to benefit from the ratification of the New York Convention, unless the Iraqi courts adopt a more enforcement-friendly attitude, even for awards made outside the scope of the New York Convention.
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