As coalition forces battle to bring security to post-war Iraq, the country is trying to rebuild its justice system and create the conditions for commercial legal activity, writes Philip Hoult

The news that six City solicitors had to be rescued by ex-SAS soldiers after their jeep broke down and they were surrounded by a hostile crowd in a suburb in Baghdad would be amusing if it were not so serious (see [2003] Gazette, 29 August, 6).

Although the identity of the firm the solicitors worked for has yet to be made public, the incident demonstrates the grave risks lawyers and foreign business people in general face should they rush into Iraq to try and take advantage of commercial opportunities following the removal of Saddam Hussein.

With the security situation in the battle-scarred country declining rapidly after the initial euphoria when the previous regime was toppled, it is no great surprise to learn that the majority of UK firms appears happy to remain on the sidelines for as long as it takes until the country is suitably safe.

'Basically, it is much too dangerous, so we are not sending anyone to Iraq and we have no intention to do so at the moment,' says Martin Amison, head of international at Trowers & Hamlins, which has one of the largest number of offices in the Middle East of any City firm.

Improving the security situation is clearly the priority for the Coalition Provisional Authority (CPA) - the US-backed regime - but much also needs to be done to rebuild Iraq's legal system, to help re-establish law and order through the criminal justice system, and to promote commercial activity.

'The legal infrastructure in Iraq does suffer from being in a time warp as, unfortunately, Iraq has been shielded and excluded from the process of commercial development,' says Abu Dhabi-based Clifford Chance lawyer Farah Killidar, who is co-ordinating the global firm's work in the country.

'Nevertheless, the system as it stands is far from being unworkable.'

According to Christian Ahlund, executive director of the Stockholm-based International Legal Assistance Consortium (ILAC), which is assisting Iraq's efforts to rebuild its justice system and legal profession, one of the priorities is the establishment of an independent judiciary free from government influence.

'What has suffered particularly over the last 35 years of isolation is the concept of the independence of the judiciary,' says Mr Ahlund, who in August led an ILAC mission to Iraq made up of senior judges and lawyers from several countries, including the US, UK and Norway.

'They need to retrain their jurists in the concept of independence and bring them up to speed on the important developments in the last decade in international human rights law, particularly in the field of due process and fair trials.'

ILAC is preparing to train Iraqi judges in these concepts in coming months, either by flying them out of Iraq or, when the security situation improves, providing help on the ground.

The ILAC mission also found that a significant amount of work needed to be done to bring the Iraqi Bar Association - and its admission policies in particular - up to international standards.

'What is basically wrong is that their admission policies have been very lax,' Mr Ahlund says.

'All that has been required for admission has been a law degree, and the problem is that there are a number of night schools and other "diploma mills" churning out law degrees.

The quality and reputation of the bar has suffered very strongly from that.'

However, despite the damage done to the courts and the court system by widespread looting, the legal system is still functioning to an extent.

'The courts are beginning to hear cases again but there is a problem with the lack of physical infrastructure,' Mr Ahlund says.

Some of the ministries with legal responsibilities, such as the trademarks ministry, which is open two days a week, are also open for business.

In terms of the climate for commercial legal activity, while sending out their own lawyers might be off the agenda for now, several City firms have already put in place formal arrangements with prominent and respected Iraqi lawyers as well as dedicated teams to advise clients on opportunities.

They include the likes of Clyde & Co, which has entered an exclusive co-operation agreement with Numan Shakir Numan - whose principal is a former president of the Iraqi Bar Association.

Masons has established a relationship between its joint venture with US construction firm Thelen Reid & Priest, and an Iraqi lawyer named Salam Abdullah, who has been based in France since the first Gulf War but has gone back to re-establish his practice in Baghdad.

Meanwhile, Clifford Chance has formed a firm-wide, multi-disciplined Iraq reconstruction group to advise clients.

'You have to look at Iraq in stages,' says Masons partner Mark Blanksby, who is leading the firm's approach to Iraq.

'In the short term, opportunities are somewhat limited.'

Nevertheless, Mr Blanksby identifies several areas of activity where Masons and other City firms can even now play a part.

First, there are opportunities to work alongside European, US and Asian contractors, trying to capture some of the sub-contracting work available from the US Agency for International Development (USAID) and the likes of construction group Bechtel, which was awarded an emergency infrastructure repair and rehabilitation contract.

Secondly, there is work helping those international contractors establish joint ventures with local Iraqi companies.

Thirdly, there is a certain amount of corporate work for clients putting out feelers into Iraq, although this has gone relatively quiet after the initial flurry of activity in June and July.

Several clients have also been asking for advice about the validity of contracts put in place under the old regime.

'Some of the old contracts from the previous regime have been honoured,' says Clyde & Co international trade disputes partner, Paul Turner.

'This is the case with food contracts, such as for sugar, even though they are at high prices.

Other contracts, such as those on the oil side with Russian businesses and others, are clearly on hold.'

The latter contracts are being categorised as to whether they had approval from the UN among other things.

'It is all very sensitive, particularly on oil, and people are looking at it hard and slow,' Mr Turner explains.

'Politically, the last thing the US wants is to be seen as going in just for the oil and they will be reluctant to make decisions.'

Another key concern for foreign investors is the legitimacy of the current Iraqi Governing Council and the CPA, and the extent of the powers given to them.

'While UN resolution 1483 grants the CPA the power to govern Iraq, it does so with two necessary constraints, that it is "temporary" and only "as necessary", 'says Clifford Chance's Ms Killidar.

'What is paramount to foreign investors is that decisions will hold the test of time and will remain valid in the long run.'

The underlying concern, of course, is that decisions taken now in the handover period will be ruled invalid by any new government and such uncertainty is likely to put off foreign investors.

But it is the long-term opportunities to take part in Iraq's reconstruction - rather than the 'small beer' work for USAID - that are the real attraction to most clients and their legal advisers.

However, one of the main obstacles in place at the moment, is that Iraq's civil code and companies law has a ban on foreign investment except by other Arab nationals.

'In order to attract the right level of foreign investment and for funds to begin to flow rapidly, there is significant value in changing the laws to provide for foreign investment,' says Ms Killidar.

However, it is not just for foreign investors that UK firms are likely to act.

Iraq already has a private sector that has the potential to flourish, according to Clyde & Co's Mr Turner, with companies such as Al-Bunnia having extensive operations in several different areas of commercial activity, including construction.

'They are immensely powerful and are doing business with the West already,' he says, adding that there are a number of significant food importers and private banks as well as a handful of private insurance companies.

'These Iraqi companies are all very interested in developing links with foreign partners and finding future injections of capital.'

This level of entrepreneurial activity is in place even before the potentially significant boost of a privatisation programme, although if the post-handover government were to pursue such a course of action aggressively, it would be highly controversial.

The immediate outlook in Iraq may be gloomy, but if security issues can be dealt with, if a new government with widely accepted legitimacy can be installed and if barriers to foreign investment can be removed, the opportunities for law firms and their clients are likely to be huge.

That is a lot of ifs, but there are many who will share Ms Killidar's view that 'we could be looking at a market larger and more diverse than Saudi Arabia and one that is more open to foreign investment'.

With this in mind, Denton Wilde Sapte banking partner Paul Holland says the view of his firm's Middle East group is that it is not necessarily concerned about being first into Iraq.

'We are happy to let our US colleagues plant their flag,' he says.

'But we are a firm that focuses on the Middle East.

It is a very major part of our practice and that means that Iraq will form part of our strategy going forwards.'

The days when having an office in Baghdad is a crucial part of an international firm's network may not be as far off as one might think.

Philip Hoult is a freelance journalist