COVID–19/Republic of Iraq: Implications for business

By Mustafa Muayad - Head of Baghdad office in Salt & Associates - m.ridha@saltandassociates.com - 00964 78 050 10222

Salt & Associates
Member of Grimaldi Alliance for Iraq, United Arab Emirates & Oman

Overview

The Federal Government of the Republic of Iraq (‘’ Iraq “), as well as the governments of the Kurdistan Region (“KRG”), have implemented a number of increasingly firm measures to reduce the potential impact of COVID-19 on the health and welfare of the general public. As it currently stands, the most impactful of these measures are as follows:

 

  • Establishing a Committee under the Diwai Decree number 55 for 2020 named “Crisis Committee “giving it all the authority to deal with the COVID-19 situation in Iraq, including imposing and extending curfews.
  • The complete shutdown of all educational institutes, distance learning, and e-learning to take place across all schools and educational institutes of, both public and private, until further notice.
  • Closure of all malls, shopping centers, restaurants, and markets from 15th March 2020 for a period with the recent extension being until 11th  April 2020, with the option to extend such closure. The only exception being the grocery stores and supermarkets, and
  • Closure of all entertainment facilities, cafes, bars, restaurants and tourism-related businesses from 15th March 2020 until further notice.
  • Suspension of all international flights from 17th March 2020 until further notice.
  • Full curfews are requesting all residents to stay at home and strict penalties for breaching such curfew until from 17th March 2020, until further notice. The only exception is commercial transactions, media, and security forces personal and medical crews, in addition, company’s staff whom their work is considered essential Oil and Gas operators, cellphone carriers, and internet service providers may, after obtaining a company authorization transport during the curfew.
  • Extensive “Stay at Home” campaigns.
  • Postponement of all judicial hearings for the Courts of Cassation, the Courts of Appeal, and the Courts of First Instances and suspending testimonies and documentation of personal status until further notice.

 

Government Support For The Economy

The Government of Iraq did not declare any measures to support the economy. The Crisis Committee has recently issued an exemption to Banks to be open on Sunday and Wednesday to enable employees, workers, and companies to settle any payment or receive any payments. Furthermore, The Central Bank of Iraq has issued an instruction that all bank transfers received in USD when withdrawn in full, the withdrawer may only receive 75% in USD, and the remaining 25% will be given in IQD. The Iraqi Ministry of Oil and sent an official letter to all IOC’s requesting to decrease their production budget. KRG’s Ministry of Natural Resources has officially informed its partners that there will be no payments of any dues during this period.

 

Employment & Labor Law

Since the Iraqi government did not release any announcement regarding the work scheme of the employees in the private sector facing the danger of COVID-19, the Iraqi Labor Law’s position regarding situation of force majeure and exceptional circumstances such as the spread of Corona Virus in our cities, is stated in Article 72,

‏Article -72- First of the Iraqi Labor Law No.37 of 2015 states the following:

‏“If work has stopped entirely or in part owing to exceptional circumstances or force majeure, the employer shall be required to pay the worker his wages for the period of the stoppage, for up to thirty (30) days; the employer may, however, assign the worker other similar work, or, in order to make up for the time lost, give the worker additional unpaid work not exceeding two (2) hours per day for up to thirty (30) days a year.”

‏As such, not attending to work due to force majeure or exceptional circumstances – as it may be decided by the Ministry of labor-  and with prior notice to the management is not considered paid leave neither an absence, based on the Iraqi Labor Law  it is considered payable working days up to (30)days.

If the period exceeds (30) days different scinarios might be considered by the employer and the employee based on the options stipulated in the Iraqi Labor Law.

 

Force majeure-related issues

It should come as no surprise that a number of clients are seeking guidance on force majeure and what this entails under the Iraqi law. The Iraqi law recognizes the principle of force majeure; however, it does not define what is or what constitutes a force majeure. The primary legal source for force majeure under Iraqi law in relation to commercial transactions is the Iraqi Civil Code. Specifically, Article 168, of the Code provides as follows:

“If it is impossible for the oblige of a contract to perform his obligation specifically he will be adjudged to pay damages for non-performance of his obligation unless he establishes that the impossibility of the performance was due to a cause beyond his control; the adjudication will be the same if the oblige has delayed  in the performance of his obligation.’’

The keyword in the above-quoted text is “impossible.” The Iraqi law, as mentioned above,  does not provide for an exhaustive list of force majeure events. Still, it is clear that it may only be established on the grounds of impossibility, be it physical (such as a natural disaster) or legal (such as a change in law). Hardship in carrying out an obligation would not count as force majeure. However, in order to relieve a party from contractual obligations, the following principles are applied by the courts to identify the event considered as a force majeure.

  • The event must have emerged after the party has entered into the contract.
  • The event must render the performance of the contractual obligation impossible and not exhausting. In the latter event, there would be a different set of rules.
  • The event must be continuous. Otherwise, the obligations will be deemed as postponed until the event has elapsed.
  • The event must be general and not pertaining to the personal condition of the claiming party.

In light of the above, any potential force majeure event must be studied on a case-by-case basis in light of the governing contract’s provisions and Iraqi legal principles. Although, the Crisis Committee did issue a decree declaring the Coronavirus event as a force majeure for all contracts and projects as of 20th  February 2020 until the coronavirus event has been officially declared over. However, we believe that this only applies to contracts with the public sector and will be challenged in the future by those contracting departments.

In any case, we are advising clients to devise a strategy on how to approach creditors, lenders, suppliers, and other obligors to put into place a plan to deal with potential upcoming liabilities. Such discussions need to be open, honest, and frank. Equally, businesses should discuss the current market situation with their employees as these market conditions are making it difficult for a number of clients to fulfill their obligations to this important stakeholder class.

Salt & Associates

Mustafa Muayad
00964 78 050 10222
m.ridha@saltandassociates.com