Article 968 of the Civil Code determines the position of the Iranian legal system with regard to the choice of law. The said Article 968 provides that:
“Obligations arising from contracts are subject to the laws of the place of their conclusion except where all contracting parties are foreign nationals and have, expressly or implicitly, made the contract subject to another law.”
This is the only reference in the laws of Iran to the matter of governing law (“place of conclusion” means where the final acceptance occurs or the last signature is affixed).
According to the well-established doctrine formed on the basis of Article 968 above, the principal rule that applies under the laws of Iran for determination of the governing law, is “place of conclusion” and if the laws of the place of conclusion recognize the right of choosing the governing law for the parties of a contract, then the same would apply. In other words, a contract, when is under review by an Iranian court, shall basically be deemed subject to the laws of the place of its conclusion, for identification of the rights and obligations arising therefrom. Although, if the laws of the place of its conclusion had allowed the parties of a contract to choose the laws of another country as the governing law and they had done so, that would be respected by the Iranian courts within the same extent of liberty granted by the laws of the place of conclusion for the choice of law.
The liberty granted under the Iranian law to the parties of a contract concluded in Iran to choose their own preferable governing law is very limited. Under this legal system, all contracts concluded in Iran shall be governed by the laws of Iran except where all parties to the said contract are foreign nationals and they have, explicitly or implicitly, chosen the laws of another country to govern their contractual relations. To this end, any contract that has been concluded in the territory of Iran and one of its parties is Iranian shall be governed by the laws of Iran even if the parties have selected the laws of another country as the governing law of their contract.
There are, of course, details and niceties that remain out of scope of this general overview.
For more information and advice, please contact us in Tavakoli & Colleagues law firm.
