In the absence of a conventional government in Iraq, what is the legal status of contracts signed with state bodies? And how about those signed with Saddam's regime?
The construction industry is well aware of the opportunities that exist for doing business in post-Saddam Iraq. Recently, Bechtel hosted a series of presentations in the USA, the UK and Kuwait to tell those interested of its role in US Agency for International Development's infrastructure reconstruction programme. But before contractors start jumping on flights to Baghdad, it may be useful for them to understand the legal position in Iraq, and the issues that are important to any firm wishing to do business – or having unfinished business – there.

With the Saddam regime overthrown, the USA and Britain now occupy Iraq. They are not the government of Iraq, but are in de facto control. Under international law, their powers are limited: without UN authority they can not impose a government nor make major structural economic changes. Resolution 1483, adopted by the UN's Security Council on 22 May 2003, recognises that the USA and the UK, acting under unified command ("the authority"), are subject to these limitations. It envisages the formation, with the help of the authority and the UN special representative, of an Iraqi interim administration until an internationally recognised representative government of Iraq takes over.

The resolution lifted the prohibition on trade with Iraq (except for armaments), and the prohibition on supplying finance to Iraq. But funds of the Saddam regime held abroad must be frozen and transferred to the Development Fund for Iraq (held by the Iraq central bank and disbursed by the authority in consultation with the Iraq interim administration) to be used, among other things, to rebuild infrastructure.

The oil-for-food programme will be ended within six months. The UN secretary-general, together with the authority and the Iraqi interim administration, will examine contracts concluded by the Saddam regime that have been approved and funded under the programme. Action on those of "questionable utility" will be postponed until the new government can decide whether to carry them out. But it is not clear that these provisions authorise the secretary-general to interfere with contracts without the consent of the contractor.

All proceeds from the sale of oil or natural gas are to be paid into the development fund until a government takes office. Until 31 December 2007, all oil and gas exported from Iraq will, until the purchaser takes possession of it, be immune from legal proceedings. In other words, if Iraq breaches an export contract, then – in the interests of promoting stability – it can get away with it.

Apart from oil-for-food contracts, those made with the Saddam regime should remain valid. But each case will depend on the terms, including the law governing the contract, and the surrounding circumstances. However, it is not clear who could be sued and where. Oil concessions and contracts granted by the Saddam regime, therefore, may need special attention.

Resolution 687 (the 1991 ceasefire resolution) provides that no claim can be made by the Iraqi government, or by any person or body in Iraq, in connection with any contract affected by sanctions. The new resolution, 1483, does not say that this prohibition is unaffected by the lifting of sanctions, even though a provision to that effect was included in the resolution that lifted sanctions against Serbia. The matter may be important for those banks and financial institutions that gave performance bonds or standing letters of credit. It is not clear how the matter will be dealt with in UK or European Union legislation, or what view the courts would take if their legislation retains the prohibition.

Any firm wishing to do business in Iraq with a state body will need to know with whom it can contract. The position of public corporations in post-Saddam Iraq is not clear, nor is the extent to which the authority will be able to commit the new government to those contracts. This has considerable repercussions for those companies seeking work in infrastructure in Iraq, for example.

One hopes that the present arrangements for administering Iraq, and the eventual establishment of a government, will lead to a stable and secure Iraq – but Yugoslavia and Afghanistan are hardly encouraging precedents.

Postscript

Joe Griffiths is a solicitor in Kendall Freeman's construction and infrastructure group. The piece was coauthored with Tony Aust, a consultant to the firm's public international law group.