Foreign Companies’ Right to Litigate in Iraq

A recent decision issued by the Baghdad Al-Rusafa Court of Appeal upheld a ruling of the competent commercial court dismissing a claim brought by a foreign company that was neither registered in Iraq as a branch or representative office nor represented by a commercial agent, based on Article 14(First) of Regulation No. 2 of 2017, which provides:

"A foreign company is prohibited from conducting any commercial activity or opening an office in Iraq unless it has obtained a registration license in accordance with the provisions of this Regulation."

On that basis, the foreign company’s claim before the Iraqi courts was dismissed.

The Legal Issue

This judicial approach raises an important legal question. The prohibition set out in the above provision is directed at carrying out commercial activities or establishing a presence in Iraq. It does not, at least in principle, extend to depriving a foreign company of its right to access the courts.

Preventing an unregistered foreign company from engaging in commercial activity does not necessarily mean that it should be barred from seeking judicial protection of its rights. Expanding the interpretation of the provision in this way is legally questionable, particularly where it affects a fundamental right that should not be restricted except by a clear and explicit legal text.

Access to Justice Under the Iraqi Constitution

This broad interpretation appears to conflict with Article 19(Third) of the Iraqi Constitution, which states:

"Litigation is a protected and guaranteed right for all."

This is a general constitutional guarantee that applies to all persons, whether natural or legal, domestic or foreign. The right of access to justice is one of the fundamental rights that should not be limited or restricted except by express provision. It is also a well-established principle that legal texts restricting rights should not be interpreted expansively.

Practical Consequences of This Interpretation

Adopting this approach may lead to adverse legal and economic consequences. It may unjustly prejudice foreign legal entities that have legitimate rights and interests in Iraq, whether registered or not.

It may also present Iraq as a less attractive environment for investment and negatively affect the confidence of foreign companies engaging with Iraqi counterparties, particularly where their contractual or financial rights may become difficult to enforce before Iraqi courts.

Practical Reality and Existing Exceptions

There is no dispute that prohibiting unregistered foreign companies from conducting business activity in Iraq is understandable in principle as a matter of market regulation and legal compliance. However, practical reality shows that Iraqi entities, including government bodies, often deal directly with foreign companies that are not registered in Iraq, especially in direct supply contracts.

This gives rise to an important question: if a dispute arises out of such contracts, is it reasonable to deny those companies access to the courts despite the existence of a legal or contractual relationship?

Further Legal Questions

Another important issue concerns a foreign company that was previously registered and licensed in Iraq, but whose registration later expired or was not renewed. Should such a company be treated as having lost its legal personality and, as a result, be denied the right to bring a claim?

Adopting this position would lead to unreasonable results and would not be consistent with principles of justice or with the legal nature of corporate personality.

In addition, Iraq deals with many major international companies that provide vital products and services, including medical equipment and other specialized supplies. In many cases, these companies may not wish to establish branches in Iraq for regulatory or commercial reasons. Making registration a condition for access to justice may discourage such companies from dealing with the Iraqi market altogether.

Conclusion

For these reasons, the interpretation and application of Article 14 of Regulation No. 2 of 2017 should be reconsidered in a way that achieves a proper balance between regulating commercial activity and protecting the right of access to justice. Such an approach would be more consistent with the Iraqi Constitution, better serve the public interest, and contribute to a more stable and attractive investment environment in Iraq.

Lawyer Furat Kuba
Al-Nesoor Law Firm