Legal Points For Doing Business With IRAN – Commercial Arbitration

Commercial Arbitration

 By: Jahanbaksh Nouraei (Esq.)
Barrister and Solicitor

This is copyrighted material. Permission for use is granted, provided that the names of the author and publisher are mentioned.

January 2016–By virtue of the Law on Statute of Arbitration Center of the Iran Chamber, passed on 3 February 2002, arbitrating the national and international differences which may arise between businesspersons, is a function legally delegated to the Arbitration Center of Iran Chamber of Commerce, Industries, Mines and Agriculture (ICCIMA). The Center has been active in resolving differences on the basis of its own Arbitration Rules and the prevailing arbitration regulations. According to the said law, international commercial disputes shall be resolved by the rules of the Law of International Commercial Arbitration (LICA), approved on 17 September 1997. Since LICA was passed by the parliament, settlement of disputes involving Iranian and foreign businesspersons can be reached through a more comprehensive and updated legal instrument. The Law is based primarily on the principles enshrined in the Model Arbitration Law of the United Nations Commission on International Trade Law 1982, known as UNCITRAL Model Law on International Arbitration.

What is the acceptable form of an arbitration agreement according to the Law of International Commercial Arbitration (LICA)?

The form is varied. An arbitration agreement can be conceived by a document signed by the parties, or through a letter, facsimile, email and the like, indicating the creation of an agreement. If one of the parties in his application for arbitration or in his defense proclaims the existence of an agreement and the other party accepts it in practice, it is considered that there is an arbitration agreement.

When is arbitration international?

In the event that one of the parties at the time of the conclusion of the arbitration agreement is not considered an Iranian national in accordance with Iranian law, then the proceeding is defined as being international.

Who is entitled to ask for arbitration?

All persons who are competent to litigate may ask for settlement of their disputes through arbitration, in line with the rules set out in LICA. Pending lawsuits already in the courts can be put to arbitration by mutual agreement of the parties. However, based on the stipulation of Principle 139 of the Iranian Constitutional Law, putting governmental and public assets to arbitration needs special permission.

What is Principle 139 of Iranian Constitution? 

The Principle states that:

“The settlement of claims relating to public and state property or the referral thereof to arbitration is in every case dependent on the approval of the Council of Ministers, and the Parliament which must be informed of these matters. In cases where one party to the dispute is a foreigner, as well as in important cases that are purely domestic, the approval of the Parliament must also be obtained. Law will specify the important cases intended here.”  

In Article 457 of the Civil Procedure Code approved on 17 April 2000, the requirements of Principle 139 of the Constitution have been reiterated and emphasized.

 According to LICA, in which areas of commercial activities can arbitration be applied?

Recourse can be had to arbitration for resolving disputes emerging from international commercial relations such as the sale and purchase of goods and services, transport, insurance, financial affairs, consulting services, investment, technical cooperation, representation, commission agency, commission, contracting and similar activities.

What about the number and manner of the designation of arbitrators?

The designation of arbitrators lies with the disputing parties. If not designated, a panel of three arbitrators shall be appointed to resolve the difference. In institutional arbitration, the rules of arbitration of the relevant institutions should be taken into consideration.

Should the arbitrator or arbitrators have Iranian nationality?

They can be foreign persons, too. However, as long as a dispute is not arisen, the Iranian side cannot bind itself in the transaction contract by stipulating that in the event of the development of a difference, it would be arbitrated by one or more persons who have the same nationality as that of the other party.

To what extent is the arbitrator empowered to act?

n addition to issuing arbitral awards, the arbitrator can decide concerning his own competence, as well as the existence and/or validity of the arbitration agreement. Upon the request of either party, the arbitrator can take any interim measures he deems necessary in respect of the subject-matter of the dispute. He may also seek the opinion of experts, if required.

Which national law shall take precedence and be applied to the merits of the dispute in the arbitration proceeding?

The arbitrator shall decide on the merits of the dispute in accordance with the laws of any state which the parties have agreed upon. If the parties fail to designate an applicable law, the arbitrator shall apply the law determined by the rules of conflict of laws which he considers applicable.

What is the basis for the judgment of the arbitrator?

In all cases, the arbitrator shall decide in accordance with the terms of the contract and shall take into account the usage of the trade applicable to the transaction. The arbitrator can decide as amiable compositeur or ex aequo et bono, only if the parties have expressly authorized him to do so. The arbitrator is obliged to treat both parties to the dispute fairly and give each of them full opportunity for making claims, mounting a defense and submitting evidence.

How is the procedure and place of arbitration determined?

The parties are free to agree on the procedure to be followed by the arbitrator in conducting the proceeding. Failing any agreement in this regard, the arbitrator may subject the proceeding to the rules of conduct that is considered appropriate by LICA. The parties may also agree on the place (seat) that arbitration is to be held. In the absence of such agreement, the arbitrator shall conduct arbitration at any place he deems appropriate, with due regard being paid to the circumstances of the case and the accessibility of the place to both parties.

In the arbitration proceeding, which language is used?

The parties may agree upon the language or languages to be used in the arbitration proceeding. Otherwise, the arbitrator shall decide about the adoption of the appropriate language or languages.

 If the disputing parties resolve their difference through settlement, what decisions shall be taken about the arbitration proceeding?

In the event that the parties settle their disputes by conciliation and compromise in the course of the arbitration proceeding, the arbitrator shall issue a writ of disposal of the arbitration petition and close the file. However, on the request of one of the parties and provided that the other party does not object, the compromise agreement can be issued in the form of an arbitral award. 

Are all awards made according to the rules of LICA enforceable?

Generally yes. An arbitral award shall be recognized as final and binding under the rules of LICA, so long as it is not in violation of the basics of the arbitration agreement, mandatory laws of Iran, and the public order. In the event that one party demands the court to recognize and enforce the award, and the opposing party asks for annulment, the court may order that the latter deposits an appropriate security.

When is an arbitral award null and void and unenforceable per se?

There are three instances. Firstly, if the subject of difference referred to arbitration cannot be arbitrated according to the Iranian law. The second instance occurs if the content of the arbitral award contravenes public order or good morals and/or mandatory rules. Thirdly, if the award is issued on immovable properties situated in Iran and is contrary to the mandatory laws of the Islamic Republic of Iran and/or the purport of official deeds; unless the arbitrator has been empowered with the specific right of making compromise in the realm of the latter subject. Even in the case an award is not invalid per se, each of the parties may apply to the court for setting it aside on the grounds of the instances stated in Article 33 of LICA.

What about the arbitration costs? Administrative costs and arbitrators’ fees are determined in the rule of ACIC (Arbitration Center of Iran Chamber) on Costs of Arbitration, accessible at www.arbitration.ir.

Are foreign awards enforceable in the Islamic Republic of Iran?

In principle, the answer is yes. Iran is a member of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. On 10 April 2001, the Iranian parliament approved The Law of Accession of the Government of the Islamic Republic of Iran to this Convention. However, as reflected in the introduction of the Law, Iran joined the Convention with the following reservations:

  1. A) The Islamic Republic of Iran shall apply the Convention only with regard to commercial disputes,
  2. B) The Islamic Republic of Iran shall apply the Convention on the basis of reciprocal conduct,
  3. C) Principle 139 of the Iranian Constitution must be observed.

According to the Convention, foreign arbitral awards made in foreign countries shall be enforceable in the territory of the Islamic Republic of Iran under the provisions set out in the New York Convention. Awards issued on Iranian soil shall enjoy the same enforceability as well in the territory of other member countries of the New York Convention.

 Should an arbitration clause be included in contracts which refer future disputes of the transacting parties to the arbitration of the Arbitration Center of Iran Chamber?

An agreement is required but there is no uniform clause. Any wording which indicates the parties will and consent to bring their differences to the Arbitration Center of the Iran Chamber shall be acceptable. The recommended ACIC model clause is as follows:

Dispute Settlement: All disputes and claims arising from or relating to the present contract including its conclusion, validity, termination or breach, and its interpretation or application shall be submitted to the Arbitration Center of the Iran Chamber (ACIC) for binding and final arbitration by one or three arbitrators in accordance with the Law of Statute of the Arbitration Center of the Iran Chamber and Arbitration Rules of ACIC. In addition to the applicable laws and regulations, the arbitrator(s) shall take into account the relevant trade usages. The present arbitration clause shall be treated as an agreement independent of this contract and shall in any case be binding.”

What is the status of the LICA in relation to other Iranian arbitration regulations?

Article 36 of LICA stipulates that arbitration of international commercial disputes subjected to the provisions of this law, is excluded from the arbitration rules set out in the Civil Procedure Code and other related laws and regulations. LICA shall have no effect on the other laws of the Islamic Republic of Iran, wherein certain disputes – such as bankruptcy – cannot be put to arbitration. LICA shall have no effects on different conditions and arrangements made with respect to commercial arbitration in the treaties and agreements between the Islamic Republic of Iran and other states.

Appendix

The Law on Statute of Arbitration Center of the Iran Chamber
Approved on 3 February 2002 by the
Islamic Consultative Assembly (Parliament)

Chapter One – Generalities

Article 1 – In implementation of Paragraph H of Article 2 of the Law Amending Certain Articles of the Law of the Iran Chamber of Commerce, Industries, Mines and Agriculture of the Islamic Republic of Iran approved on 5 December 2000, the Arbitration Center of the Iran Chamber, named “Center” in this law, shall be established as an affiliate to the said Chamber in accordance with the stipulations of this statute.

Article 2 – The subject matter of the Center’s activity shall be settlement by arbitration of commercial disputes whether domestic or foreign.

Article 3 – The Center shall be located in the city of Tehran.

Chapter Two – Organs

Article 4 – The Center shall have the following organs:

A – The Board of Directors,

B – Secretary General,

C – Arbitrators.

Article 5 –  The Board of Directors is composed of the President and one of the Vice Presidents of the Iran Chamber, Chairman or Vice Chairman of the Tehran Chamber, Secretary General of the Iran Chamber and three knowledgeable and well-reputed business persons from the industries and mines sector that are to be elected by the Iran Chamber’s Board of Delegates.

Note 1 – The term of office of the Board of Directors shall be three years and it shall be chaired by the President of the Iran Chamber. Re-election of the members of the board is permitted.

Note 2 – The Board of Directors shall determine the manner of convention of its meetings. The presence of at least five of the members shall be mandatory for having a quorum. The resolutions of the board shall be made valid by a simple majority.

Article 6 – The functions and powers of the board shall be as follows:

A – Preparation and recommendation of the internal regulations of the Center with respect to the manner of offering arbitration services and costs (except for arbitration fees) as well as the financial and employment affairs to the Board of Delegates of the Iran Chamber for approval.

Note – Arbitration fees shall be determined according to the current laws and regulations of the country.

B – Preparation and recommendation of the annual budget will be sent to the Board of Delegates of the Iran Chamber for ratification.

C – Preparation and recommendation of the amendments to this statute and relaying the same via the Board of Directors of the Iran Chamber to the respective legal authorities.

D – Appointment and dismissal of the Secretary General.

Article 7 – The Secretary General of the Center shall be elected for three years from among experienced Iranian jurists who are familiar with domestic and international commercial affairs and shall function on the basis of the resolutions of the Board of Directors and in accordance with the stipulations of this statute. Re-election is permitted.

Note – The Center has a Secretariat which shall be administered under the supervision and chairmanship of the Secretary General. The details of the functions of the Secretariat shall be determined upon recommendation of the Secretary General and approval of the Board of Directors.

Article 8 – Upon recommendation and approval of the Board of Directors the names of competent individuals for arbitration shall be determined from among the jurists, business persons and other knowledgeable, well-reputed and experienced persons who are sufficiently aware of domestic and international commercial rules and customs.

Note – Members of the Board of Directors as well as the Secretary General cannot be appointed by the Center as arbitrators.

Chapter Three – Other Provisions

Article 9 – The expenses of the Center shall be secured out of the sums received from the disputing parties and in case of need, from the revenues of the Iran Chamber.

Article 10 – General regulations and arbitration procedures at the Center shall be as follows:

A – In international commercial disputes according to the Law of International Commercial Arbitration approved on 17 September 1997

B – In domestic commercial disputes in accordance with the Law of Procedural Rules of the General and Revolutionary Courts approved on 9 April 2000 (in Arbitration Section).

Article 11 – Related governmental and public service organs are bound to answer inquiries received from the Center within the limits of and in accordance to the laws and regulations.

Article 12 – General rules and arbitration procedures with respect to the arbitration subject of Paragraph (3) Article (57) of the Law of Cooperatives Sector of the Economy of the Islamic Republic of Iran approved on 4 September 1991, in domestic and international commercial disputes shall be respectively the Law of Procedural Rules of the General and Revolutionary Courts approved on 9 April 2000 (in Arbitration Section) and the Law of International Commercial Arbitration approved on 17 September 1997.