The applicability of international arbitration clause under Iranian law
Are you a company willing to sign an agreement with an Iranians? This article is for you if the disputes raised from agreement shall be refered to the international arbitration.
An Overview of provisions related to international arbitration in the Iranian Legal System
Iran adopted in 1997, the “Law concerning International Commercial Arbitration” (LICA) which provides a modern arbitration framework. LICA follows the United Nations Commission on International Trade Law (UNCITRAL) Model Law (Model Law). However, the LICA is not applicable to arbitration taking place outside Iran.
Iran acceded to the United Nations Convention in the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) with two reservations through the adoption of a specific law for this purpose, the single article Act in 2001(Ratifying Law).
The two reservations are as follows:
Firstly, Iran declared that “in accordance with article 1(3) of the Convention, Iran will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under national law of Iran “.
Secondly “in accordance with article1(3) of the Convention, the Islamic Republic of Iran will apply the Convention, on the basis of reciprocity, to the recognition and enforcement of only those awards made in territory of another contracting state party to the Convention”.
The other piece of legislation which provides for term and conditions under which international arbitration could be used by foreign investors is the Foreign Investment’s Promotions and Protection Act (FIPPA).
The applicability of international arbitration clause in the contracts between international companies and Iranian governmental organizations shall be analyzed through referring to the above acts as well as the Iran’s Constitution.
Enforceability of the foreign arbitration awards in Iran
Since the assistance of Iran to New York Convention, awards rendered outside Iran shall be enforceable in Iran under the terms and condition provided for in the Ratifying Law.
The New York Convention, aims at establishing common legal grounds for the recognition of arbitration clause and recognition and enforcement by state courts of foreign and non-domestic awards.
The Convention deals only with the recognition and enforcement of foreign and non-domestic arbitral awards. The Convention does not define clearly if it applies to domestic and/ or foreign arbitration agreements. However, some Iranian courts reason that the Convention applies if the arbitration agreement is international in nature.
The internationality of the agreement results either from the nationality or domicile of the parties or from the underlying transaction. In addition to the foregoing, when determining whether an arbitration agreement falls within the scope of the Convention.
Under the Ratifying Law of the New York Convention, the following conditions shall be met for the foreign award to be enforceable:
- The legal contractual relationship of the parties should be considered commercial under the law of Iran;
- The provision of the New York Convention shall be implemented on the basis of reciprocal relationship (i.e. the state where the award was made should be a party to the Convention), and
- Article 139 of the Islamic Republic of Iran constitution related to arbitration in the event of government disputes shall be complied with.
After assessing and making sure the award meets the above requirements the Iranian courts will issue an enforcement order and the arbitration award will be enforced under the same rules of procedure required for enforcement of domestic awards rendered in Iran.
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The applicability of international arbitration clause under Iranian law
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