Legal basis

The Iranian legal system recognizes “arbitration” as a dispute resolution mechanism accessible, with a wide scope of possibility and liberty, to any person who has capacity to bring the same dispute before a court. The only disputes that cannot be referred to and resolved via “arbitration” under this legal system are those related to marriage, divorce, parentage and declaring someone bankrupt.

Section 7 of the Iranian Code of Civil Procedure (Articles 454 – 501) determines general rules and provisions that should be followed for the purposes of referral a dispute to “arbitration”; forming an arbitration tribunal; arbitrating a dispute by the relevant arbitrator/s; and enforcement of the arbitral award. The Code is overall silent on procedural issues and the parties are entitled to fix it as they desire. For this, they can adopt one of “arbitration rules” suggested by arbitral institutions or determine their own arrangements.

 

General rules

Referral to the “arbitration” could have been agreed between the parties as an arbitration clause of the same contract to which the relevant dispute relates or as a separate agreement concluded for such specific purpose prior or subsequent to occurrence of the relevant dispute.

The number of arbitrators, manner of appointment, procedure of referral and review of the case, time limit for issuance of the award, manner of service and objection, language and seat of arbitration all can be freely determined and agreed by the parties. Article 477 of the Code of Civil Procedure stipulates that arbitrators are not subject to the provisions of the said Code but to the provisions determined / adopted by the parties for the “arbitration”. In case of silence, however, the provisions of the Code of Civil Procedure or what determined by the competent court shall be substituted.

Further to issuance of the arbitral award and for the situations that neither the arbitration was treated under an institutional arbitration rules nor the parties had agreed on manner of service, the arbitrator/s shall submit their award to the court for being served on the parties. This court, would be the same who had referred the case to the arbitrator/s or, if there was not such engagement, the one who had competence to review and decide on the case if it had not been referred to “arbitration”.

Upon its proper service, the arbitral award would, basically, be in situation of being carried out by the parties. Notwithstanding to this, the arbitral award, itself, can still be challenged before the competent court under Article 489 of the Code of Civil Procedure that lists seven reasons for considering an arbitration award null and unenforceable:

• If the award is against the creative laws
• If the award goes beyond the specific relief sought from the arbitrator 
• If the arbitrator has acted beyond the authorities given to them
• If the time limit determined for review of the case and issuance of the award had expired before issuance of the award
• If the award is contrary to what officially recorded in the Real Estates Registry or to the contents of a still valid official deed signed by and between the parties
• If the award is issued by arbitrator/s incompetent to act in such position
• If the relevant arbitration clause / agreement itself was invalid

 

Special situation

• When the dispute is about public properties or state properties

In accordance with Principle 139 of the Constitution, repeated in Article 457 of the Code of Civil Procedure, referral of any public property / state property related dispute to “arbitration” is subject to obtaining a specific approval, beforehand. Where the adverse party is foreigner or the subject is in the scope of cases defined as important by law, the approval should be sought from and issued by the Parliament. Otherwise, the matter is in the capacity of the Council of Ministers. 

• When the transacting party is a foreign national

Article 456 of the Code of Civil Procedure provides that when the transacting party is foreign national, an Iranian national cannot agree with an arbitration clause for referral of probable dispute/s to an arbitrator or panel of arbitrators whose nationality is similar to the nationality of the transacting party. This applies equally to an arbitration agreement with a foreign national concluded prior to occurrence of a dispute. Any inconsistent arrangement, shall be deemed null and void. 

 

Enforcement

• If the arbitral award has been issued in Iran (domestic arbitral awards)

In this case, upon its proper service, the arbitral award is to be performed by the relevant party/s accordingly. Otherwise, the wining party will be entitled to ask the competent court to issue a writ of enforcement and the court shall do unless a challenge under Article 489 of the Code of Civil Procedure (see above) is raised by the losing party. In this case, the issuance of the writ of enforcement would be postponed to a final decision in that respect. Once the writ of enforcement is issued, that shall be treated exactly as if it was a writ issued for enforcement of a final judgment issued by a court.

• If the arbitral award has been issued in abroad (foreign arbitral awards)

Since 2001, Iran is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards with only two following insignificant reservations:

• the Convention is applicable for the disputes arising from contractual relations or non-contractual but commercial as defined under the laws of Iran, only; and
• the Convention is applicable to the awards issued within the territory of a Convention party only provided that the said party equally applies the Convention for the awards issued in Iran. 

These two reservations would, of course, add to a ground provided in the Convention itself for refusal of a Convention party to recognize and enforce a foreign arbitral award. Article V(2)(b) of the New York Convention implies that if enforcement of an award, howsoever, deemed contrary to the public order of a country member to the Convention, the right of the said member for refusal of recognition and enforcement of such award within its own jurisdiction shall be well reserved. 

We have been able to use the New York Convention possibilities in Iran and obtain writ of enforcement for number of foreign arbitral awards. 

 

For more information and advice, please contact us in Tavakoli & Colleagues law firm.