Arbitration in Iran Law
Parties also allowed to refer their disputes to Iranian or international arbitration tribunals instead of public courts. In 2001, Iran became a member of the New York UN Convention of 10 June 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. There are couple of important restrictions regarding arbitration:
- Principle 139 of Iran constitution does not allow Iranian party to accept the arbitration clause if the subject of the dispute arising out of the agreement is related to public or state properties. In that case, approval of the Council of Ministers is required, and the Assembly 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 Assembly must also be obtained. (See also Article 457 of Iranian Civil Procedure Code)
- The only restriction to appoint a foreign arbitrator is that when parties to a dispute are Iranian and non-Iranians, the parties may not, before the dispute arises, refer their potential disputes to arbitration by an arbitrator or an arbitral body with the same nationality as the foreign party to the agreement. (Article 456 of the Iranian Civil Procedure Code). Therefore, they may refer to an Iranian or international institutional or ad hoc arbitration. After arising of disputes, parties can agree to choose an arbitrator with the same nationality of foreign party.
Choice of Law:
There is no rule under the Civil Code of Iran whereby the parties to a contract containing elements characterizing an international contract can freely define the applicable law. To the contrary, under Article 968 of Iran’s Civil Code, the applicable law to each contract is the law of the place where the contract is concluded, unless both (or all) parties are non-Iranians and they choose a different law for their contract.
The contract could be subject to a foreign law provided that it is concluded in the country whose law is chosen to be the governing law for the contract.
We have seen in practice several contracts governed by Swiss law (law on obligations) and concluded in Switzerland.
There is a jurisprudence that Article 968 of Iran’s civil code is mandatory and parties are obliged to observe that. In order to circumvent the law, either parties go to a third country and sign the agreement there to change the place of conclusion or expressly specify the place of conclusion of the agreement.
According to laws, all contracts are based on party’s autonomy and payment terms mentioned in a contract are of such kind so parties can freely agree on that. Generally, all terms and conditions mentioned in a contract are enforceable and respected unless it is in contrast with public order or Islamic morals.