Essentially, commercial arbitration in Iran is divided into two categories: domestic and international, each of which is subject to special regulations. The legal regime governing the domestic arbitration is Chapter Seven of the Iranian Code of Civil Procedure that applies to arbitrations mainly between Iranian nationals. In recent years, the parties to commercial disputes in Iran have become more aware of arbitration as a means of resolving disputes, and thus more disputes are settled in this way. Thus, in international agreements, arbitration has been relatively well received as a result of the desire of the parties to involve an impartial and specialized body to settle the dispute more efficiently. Lack of optimism about specialized proceedings in the general courts, compared to arbitration where the parties have the advantage of choosing a trusted and expert person, has led to the popularity of arbitration. Moreover, for the disputes in which the Iranian party is state-owned, due to the principle of sovereignty of states, arbitration seems to be more appropriate. Of course, when cases are referred to arbitration, the formalities prescribed by the Iranian Constitution in its Article 139 must be observed.
Given the inefficiency of the provisions of Chapter Seven of the Iranian Code of Civil Procedure for international arbitration and the need to update the provisions in the field of international commercial arbitration conducted in Iran, on September 17, 1997, the “International Commercial Arbitration Act” (the Act) was passed by the Iranian Parliament to fill the legal gaps and create an appropriate legal framework for international arbitration. The Act is mainly adapted from the UNCITRAL (United Nations Commission on International Trade Law) Model Law of 1985 and has many similarities to the UNCITRAL Model Law.
Important Features of the International Commercial Arbitration Law:
As mentioned earlier, the Act of 1997 was passed in response to deficiencies of the arbitration regulations of the Iranian Code of Civil Procedure and serves as the legal basis for international arbitration. Such deficiencies were related to, inter alia, lack of rules on multilateral arbitration, silence on the jurisdiction of the arbitral tribunal to determine its jurisdiction, silence on the independence of the arbitration clause from the main contract, silence on the principles of due process, challenges to the arbitrator and how to deal with it, silence on how to determine the language of arbitration and the place of arbitration, the limits of the domestic court’s authority to intervene in the international arbitration process held in Iran, and finally, the issue of recognition and enforcement of arbitral awards.
In fact, the Iranian Parliament decided to separate the legal regime governing international arbitration from non-international arbitration. Today, the Act is the legal framework governing the international commercial arbitration in Iran. Moreover, the two leading arbitration institutions in Iran that have dealt with many international cases in recent years are the Arbitration Center of Iran Chamber (ACIC) and Tehran Regional Arbitration Center (TRAC), both of which maintain a roster of arbitrators from which the parties to the dispute can choose upon referral to these bodies. The important point about the Tehran Regional Arbitration Center, according to the director of the Center, is the increase in referring commercial disputes to the arbitration of this center, the subject of above disputes being mainly related to sales/purchases and construction in the oil and gas industry (including petrochemical).
The scope of the Act includes disputes in international commercial relations including purchase and sale of goods and services, transportation, insurance, financial matters, consulting services, investment, technical cooperation, representation, commission agency, contract work, and other similar activities.
Another significant point is the arbitrability of disputes. In this regard, Article 2(2) of the Act establishes that “any person having legal capacity to file a suit shall be allowed to refer to arbitration his international commercial disputes by mutual consent in accordance with the provisions of this Law whether such disputes have been raised or not in courts, and if raised at whatever stage it could be.” However, paragraph 2 of Article 36 needs to be taken into account, which states that “the restrictions of other laws regarding the referral of disputes to arbitration must be observed.” Notwithstanding Article 496 of the Code of Civil Procedure of Iran, which prohibits the referral of certain claims to arbitration (namely bankruptcy, marriage, revocation of marriage, divorce, and consanguinity), it should be noted that Principle 139 of the Iranian Constitution is an obstacle to recourse to arbitration by Iranian government institutions:
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 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. Law will specify the important cases intended here.
This constitutional principle is highly controversial and has been the subject of debate among Iranian and non-Iranian jurists.
Consequently, arbitration clauses in contracts between government agencies and foreign parties are subject to approval by the Parliament, and the referral of the relevant agency to Article 139 of the Constitution after a dispute arises cannot be considered as a basis for the lack of jurisdiction of the relevant arbitral tribunal, because it can be considered against the principle of good faith.
Finally, the noteworthy development in this field is the potential establishment of a new body called the “Arbitration Organization of Iran.” At the time of writing, a plan is being considered in the Iranian Parliament that would allow the establishment of such an inclusive organization. The introductory part of this plan states: “It is suggested that the Arbitration Organization as a specialized and non-governmental institution shall arbitrate the disputes between the parties, who want to resolve their disputes through the arbitration mechanism.” It will be a non-governmental organization, independent and with legal personality, and some of the principal tasks of this organization (according to article 3 of draft articles), the main purpose of which is to develop the private judicial system, are: providing advisory opinion on the development of regulations related to specialized legal matters and procedures in private courts, cooperation with the judiciary and the government in continuous annual training to promote the scientific and practical knowledge of private judges (judges of the organization), and determining the limits and specialized qualifications and formulating and approving special professional rules and regulations and the necessary executive instructions within the framework of the articles of this law.
In principle, the goal of this organization is to expand arbitration as a means of private proceedings to resolve disputes, and law graduates can become members of the organization by taking part in its training courses and start working as arbitrator. Of course, investigation of the advantages and disadvantages of this new organization (not born yet) requires full knowledge of its details and possible future regulations amendments. Having said that, some commentators believe that the new organization can help shorten the ordinary dispute resolution process of the courts, which is normally very long, and make the proceedings more specialized and flexible. Others, on the other hand, have expressed concerns that the reduction of court caseload at the cost of setting up an arbitral organization is not a good justification for its establishment and that the private sector is not responsible to reduce the caseload of the courts whatsoever.
Dr. Mehrdad Mohamadi has a Ph.D in International Law. He is an international legal adviser, specializing in International Air Law, Arbitration and Dispute Settlement. He can be reached at mehrdad.legal@gmail.com.
Suggested citation: Dr. Mehrdad Mohamadi, Reflections on the Status of International Commercial Arbitration in Iran, JURIST – Professional Commentary, October 25, 2021, https://www.jurist.org/commentary/2021/10/mehrdad-mohamadi-commercial-arbitration-iran/.
This article was prepared for publication by Katherine Gemmingen, Commentary Co-Managing Editor. Please direct any questions or comments to her at commentary@jurist.org
