Agency Contract in Iraq

Although the Civil Code (no. 40 of 1951, by the Egyptian jurist Sanhuri) of clear French inspiration is in force in the Republic of Iraq, it cannot be overlooked that the codified sources of law must be supplemented by the sources of Islamic law. Sharia, in the context of contracts, assumes particular relevance in the negotiation phase of the contract. The cardinal principle of Islamic Law is that the law is nothing but the will of God, that is, the norm given by God to the People he has chosen, and according to which one day he will judge them. The law is therefore the direct word of God and refers to the acts of those who are bound to observe its precepts. Obedience to the law is therefore, at the same time, a social duty and a precept of faith; whoever violates it, not only breaks a juridical norm, but also commits a sin, from a religious point of view. In the contractual negotiation phase, this extremely ethical - moral perspective of the law translates into attention to the protection of the equity and reciprocity of the various contractual services, with the clear objective of avoiding unjustified or undue enrichment. In Muslim law, the obligation on the part of the parties to a negotiation to behave in good faith - and therefore in a correct manner and with the utmost loyalty - both during negotiations and during the formation of a contract, is of crucial importance, just as the rule according to which the agreements must be respected is fundamental. The principle of good faith must also be respected in all phases of the contractual relationship, even after the conclusion of the agreement.
Therefore, having clarified the influence of Sharia in the contractual sphere, it is necessary to specify that the Republic of Iraq is currently divided into two distinct jurisdictions: the Federal Parliamentary Republic of Iraq and the Region of Iraqi Kurdistan. While the principles of Sharia must be considered applicable throughout the Iraqi territory, the civil laws governing the agency and distribution agreement - the discipline of which has been modified several times in recent decades - are different in the two regions.
In the Kurdish part the old legislation on the agency contract is still applied, specifically, the Law on agents n. 51 of 2000 (Law no. 51/2000) together with some provisions of the Iraqi Civil Code (which will be indicated in detail below), as the Kurdish Parliament has not yet ratified the 2017 law, which was instead adopted in the rest of the territory. Both disciplines will be examined below.

The agency contract in the Kurdish Region

The substantive law of agency contracts is therefore governed by the Law on agents no. 51 of 2000 and although not expressly regulated, please refer to the provisions of the Iraqi Civil Code (hereinafter "c.c.i.").
In mind of art. 3 paragraph 1 of Law no. 51/2000, the agent is a natural or legal person who carries out a commercial activity in Iraq as a representative of another foreign natural or legal person, whether his activity is more attributable to that of an agent in the strict sense, whether he performs the function of commission agent, as regulated by commercial, corporate or transport law.
The second paragraph of art. 3 of the aforementioned law establishes that the status of agent can be held by both natural persons and legal persons possessing Iraqi citizenship or nationality or having their headquarters or residence in Iraq. It should be noted that natural persons are required to possess additional requirements, including full legal capacity, at least 25 years of age, not having been convicted of crimes or violations of morality, being registered with a commercial office of the Chamber of Commerce. Finally, it is established that the agent cannot carry out activities under the authority of the state.
Moreover, pursuant to Art. 4 paragraph 3 L. n. 51/2000, companies are also allowed to assume the status of agent, provided that all their shares are owned by persons under Iraqi law. The Regulation n. 4/1998 of the Iraqi Ministry of Health on the scientific offices of pharmaceutical advertising provides some specific provisions for the pharmaceutical sector (see “Instructions No. 4/1998 of the Ministry of Health related to Scientific Offices of the Pharmaceutical Publicity”).

Clauses and obligations

Pursuant to Law 51/2000, it is not necessary for an exclusivity clause to be affixed to the agency contract, the negotiation of which is left to the autonomy of the parties. The rule in question places a limit on the maximum number of principals that the agent can represent: they cannot be more than three.
From the brief examination carried out, it is clear that the agent is required to comply with the requirements of the law and in the event of violations he could incur in penalties.
It is emphasized that there are no regulatory provisions that list the duties of the agent towards the principal, therefore, it is necessary that the contract contains clear and precise clauses to this effect (for example duties of loyalty and diligence, prohibition of competition, conservation of business secrets of the principal, obligation to keep records on the business procured and to transmit to the principal all relevant information in the context of the agency activity).
Equally, there are no specific obligations of the principal towards the agent, so the same general rules of the contracts contained in the Civil Code apply to articles 71-179 and art. 927-952 relating to specific rules on representation. In particular, art. 940 of the Civil Code establishes the right to compensation of the representative (agent), while art. 941 establishes the right to reimbursement of expenses. Art. 940 of the Civil Code does not introduce any parameter to quantify the commission, so it must be expressly defined by the parties and, in the absence of explicit agreement, the usual commission will be applied. Likewise, the legislator fails to determine the cases in which the commission is due. It follows, therefore, that even the choice between different types of commissions including, the brokerage commission, the conclusion commission or the zone commission, is left to the contractual autonomy of the parties.
Art. 946 of the Civil Code provides that the contract is terminated with the death or inability to act of one of the contractors, with the achievement of the purpose of the contract or with the expiry of the established term. In this regard, it should be noted that the contractors can stipulate the agency contract for a fixed or indefinite period.
In the absence of legal provisions, the parties are given the right to withdraw from both the fixed-term and permanent contracts at any time. Generally, the conditions for withdrawal are: the expiry of the term, withdrawal with adequate notice, the achievement of the purpose of the contract, bankruptcy or change of shareholders, serious breaches of the contract, breach of a non-competition clause, breach of the obligation to confidentiality.
The Iraqi law does not provide for any compensation in favor of the agent in the event of termination of the contract, which is why in the case of illegitimate termination, the right to claim compensation for damage will instead arise. Pursuant to art. 939 of the Civil Code, the appointment of an auxiliary by the representative (agent) may take place with the express consent of the represented person (principal). Once an auxiliary has been appointed, with the consent of the principal, he becomes the direct representative of the same, and his contractual relationship is autonomous and independent from that which binds the agent to the principal. For example, the auxiliary continues to represent the principal despite the agent's withdrawal or the termination of the contract due to the latter's death (Article 939 second period of the Civil Code). In the case of unauthorized auxiliaries, the principal's liability is excluded (articles 942-944 of the Civil Code).
In some cases, it will also be possible to ascertain the agent's responsibility for the auxiliary or for culpa in eligendo (for example, in the presence of specific agreements to that effect or an incorrect choice of the person of the auxiliary by the agent ).
In the Iraqi Law, the rules relating to the agent, as well as those contained in the aforementioned Law no. 51/2000 and in the Implementing Regulation no. 1 of the 2000 Iraqi Minister of Commerce, which governs the agent's obligations towards the state, can be considered imperative.

Federal Republic of Iraq: The agency agreement, the distribution agreement and the franchise agreement

The new Law on the agency contract, approved by the Parliament of the Federal Republic of Iraq on November 13, 2017 (Law No. 79 of 2017), and applied throughout the Federal Republic of Iraq outside the Kurdish Region, is considered applicable also to distribution and franchising contracts. In fact, the definition of agency agreement provided by the aforementioned legislation is as follows: "A contractual agreement in which a natural or legal person is in charge of the sale or distribution of goods or products or the provision of services within Iraq as agent, distributor or franchisee for the principal, for remuneration or commission, in addition to the provision of after-sales services, support for maintenance and procurement of spare parts for the products and goods marketed by the aforementioned agent / distributor / franchisee . " One of the main innovations introduced by this legislative act is substantiated in the disciplining not only of agency relationships, but also those of distribution and franchising. With a view to encouraging trade, the Iraqi government has granted the agent / distributor / franchisee a one-year deadline to comply with the legal requirements governing his figure. Unlike the previous legislation, the new law allows commercial agents to negotiate directly with government procurement entities and to bargain directly with the government.
The obligation to register with the Chamber of Commerce remains unaffected, which must issue a real license in the event that the applicant demonstrates that he meets the following requirements: being an Iraqi citizen; have full legal capacity; have not been convicted of crimes against public morals, have a commercial office in Iraq for the exercise of their business, be registered with a chamber of commerce in Iraq and have a commercial name; not being a civil servant or employee; have at least one commercial agency contract duly authenticated by law.
In addition, pursuant to the aforementioned law, in order to verify that the agent carries out its business directly towards the Principal and therefore does not act as an intermediary in a wider chain of operators, it is envisaged that: "The agency agreements presented by a commercial agent must be presented on behalf of a company that manufactures products or provides services directly, or they can be presented by the original company owned by another company that produces goods or provides services directly, and formally authorized to have branches in Iraq. Furthermore, the registration obligations of commercial agency contracts are determined by means of instructions given by the Ministry ". The obligation to register the contracts in question is binding: failure to register renders the contract non-executable.
Some limits have also been introduced to the possibility of terminating the agency / distribution / franchising contract, not found in the previous regulation: “The Principal cannot withdraw or renew the agency agreement except for just cause. However, an agency agreement may be terminated by mutual agreement between the agent and principal or in accordance with the provisions of a contract concluded between the parties that contains either an arbitration clause or a clause conferring jurisdiction or applicable law. "

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