Agreed Damages: Their Scope and Legal Basis Under Iraqi Laws

3 min 54 sec December 3, 2025 (Edited)

Often contracts include clauses that specify what damages will be paid if one party doesn’t uphold their end of the deal. These clauses can make things simpler by providing clarity and predictability. However, they typically still have to follow the broader statutory rules in place. In Iraq, agreed damages are governed by the Iraqi Civil Code No. 41 of 1951 (hereafter “Civil Code“) and come with certain restrictions. This article takes a look at how agreed damages clauses work under Iraqi law, including how they interact with both contractual and tort liability. 

Liability under Iraqi Law – The Basics 

In Iraq, there are two main types of civil liability: contractual liability and tortious liability. For both types, there are three key elements that need to be present: a wrongful act or error, some form of damage, and a clear link between the two. 

What makes the two types of liability different is how they come about. Contractual liability happens when one party breaks their promises in a contract, while tort liability can occur from any wrongful act, even if there isn’t a pre-existing contract between the parties involved. Despite their similarities, Iraqi Law treats the two differently, especially when it comes to the range of compensation and whether liability can be limited or avoided altogether. 

Compensation and Damages 

According to Article 169(2) of the Civil Code, default contractual liability usually covers damages that are foreseeable or a natural consequence of the non-performance of the parties’ contractual obligations; basically damages that both parties could have expected when they entered into the contract. However, if fraud or a major mistake is involved, the party at fault might also have to cover damages that were unforeseeable. 

Tort liability, on the other hand, is more expansive. The injured party can claim compensation for all direct damages, even if those damages were not something the parties could have usually predicted. This rule reflects the idea that torts, being unlawful by nature, require a fuller remedy for the person who has been harmed. 

Limiting or Excluding Liability in Contracts 

Iraqi Law allows parties to limit or exclude contractual liability in their contracts, but with a few important exceptions. Mandatory rules under the Civil Code do not allow parties to contractually exclude liability for fraud, gross negligence, and tort. We also note that the choice of a foreign governing law for a contract with an Iraq nexus does not displace these mandatory Iraq limitation of liability rules. 

Overall, the Civil Code gives the parties the freedom to manage liability and risk in their contracts in Iraq, as long as the aforementioned liabilities are not excluded or limited.  

Force Majeure and Impossibility of Performance 

Under Iraqi law, the principle of force majeure provides that a party may be excused from performing contractual obligations when unforeseen and external events make performance genuinely impossible. In such cases, a pre-agreed damages clause may not be enforceable if the breach was caused by circumstances beyond the party’s control or by the actions of the other party pursuant to Article 146 of the Civil Code. This is common in most civil jurisdictions and applies in Iraq. 

Dealy Penalties as a Form of Agreed Damages 

Delay penalties are a form of agreed compensation that parties can include in their contracts to address delays in performance. Under the Civil Code, these penalties are permitted but are also subject to mandatory limits on their amount. In the context of government contracts, procurement laws—such as Instruction No. 2 of 2014 on the Implementation of Governmental Contracts—also require delay penalties to be included in certain cases. 

Court Prerogative to Reduce the Agreed Damages 

In Iraq, courts have the authority under Article 170(2) of the Civil Code to reduce the amount of agreed damages if they are deemed excessive compared to the actual harm suffered. A reduction may also be granted if part of the contractual obligations has already been fulfilled, or if an unforeseen event beyond the parties’ control has made performance impossible or unreasonably burdensome. 

Conclusion 

In summary, under Iraqi law, agreed damages clauses are a valuable mechanism for allocating risk and enhancing contractual certainty. When properly drafted and aligned with legal requirements, they are generally enforceable and offer parties a clear framework for managing liability. 

How Al Tamimi & Company Can Assist 

Al Tamimi & Company regularly advises clients on the drafting and enforcement of key contractual provisions under Iraqi law, including agreed damages clauses. Our Iraq team is well-placed to assist in ensuring such clauses are properly structured and reflect both commercial objectives and local legal requirements. For support in structuring or reviewing such clauses, or to assist with Iraq work in general, please reach out to us.