1.1 Advantages

Arbitration in Iran is differentiated by clear legal frameworks for both domestic and international disputes, aiding the enforcement of arbitral awards. International arbitral awards benefit from Iran’s adoption of the New York Convention, ensuring efficient recognition and enforcement of foreign awards. Moreover, the Iranian Law on International Commercial Arbitration (LICA) aligns with the UNCITRAL Model Law, providing a flexible and modern framework that appeals to international entities.

1.2 Disadvantages and common pitfalls

Unlike the international standards incorporated in the LICA, domestic arbitration under Chapter 7 of the Civil Procedure Code (CPC) lacks advanced features such as separability doctrine and arbitrators’ ability to issue interim measures. Additionally, domestic awards face extensive judicial scrutiny that can jeopardize their finality, leading to prolonged litigation and uncertainty in enforcement, which might discourage the use of arbitration within Iran for those seeking swift and minimal judicial intervention.

1.3 Distinctive features

Iran employs separate legal frameworks for domestic and international arbitration, with the CPC addressing domestic disputes and the LICA catering to international cases. This bifurcation ensures that each type of arbitration is handled with regard to its specific requirements and aligns domestic practices with global standards under the LICA, enhancing Iran’s attractiveness as a venue for international arbitration.

2.1 Legal framework

Iran’s arbitration framework includes the LICA for international disputes and the CPC for domestic cases. This dual system ensures that both domestic and international arbitrations are appropriately supported within the judicial system, demonstrating Iran’s commitment to the procedural integrity and enforceability of arbitration agreements and awards. Moreover, Iran’s ratification of the New York Convention enhances the global credibility of its arbitration process by ensuring compliance with international standards.

2.2 What qualifies under domestic law as “international arbitration”? Is there a specific statute?

Under the Iranian legal regime, an arbitration is considered international if, at the time of the conclusion of the arbitration agreement, one of the parties is not an Iranian national, as per Article 1 (B) of the LICA. This distinction is vital for applying the correct legal and procedural frameworks to international arbitrations involving foreign parties.

2.3 Ratification of the New York Convention

Iran ratified the New York Convention in 2001, limiting its application to commercial disputes and based on reciprocity, supporting the enforcement of international arbitral awards.

2.4 Ratification of the ICSID Convention

Iran has not joined the International Centre for Settlement of Investment Disputes (ICSID).

2.5 Other treaties relating to arbitration

Iran has not joined any arbitration treaties other than the New York Convention.

2.6 Choice of forum for intra-EU dispute settlement

Iran is not a member of the European Union. Therefore, this criterion is not applicable to Iran.

2.7 Is the municipal law governing arbitration based on UNCITRAL Model Law?

Iran’s Law on International Commercial Arbitration is based on the UNCITRAL Model Law, with some modifications. In contrast, domestic arbitration follows Chapter 7 of the Iran Civil Code, which does not align with the UNCITRAL standards.

2.8 Recent amendments or reforms in arbitration laws

No recent legislative changes have been made to Iran’s arbitration laws. However, the rules of Iran’s leading arbitration institutions have been updated to align with contemporary arbitration practices.

3.1 Presence of local arbitration institutions

Local arbitration institutions include:

• Tehran Regional Arbitration Centre (TRAC). Founded in 2004 under the Asian-African Legal Consultative Organization (AALCO), TRAC administers both international and domestic arbitrations. Its rules were updated in March 2018.
• Arbitration Centre of Iran Chamber (ACIC). Established in 2002 and affiliated with the Iranian Chamber of Commerce, ACIC administers both international and domestic arbitrations, and updated its rules in November 2022.

3.2 Does the London Court of International Arbitration (LCIA) have a local office?

No.

3.3 Does the Permanent Court of Arbitration (PCA) have a local office?

No.

3.4 Does the ICC International Court of Arbitration have a local office?

No.

3.5 Does the International Centre for Dispute Resolution (ICDR) have a local office?

No.

3.6 Agreement entered into with local offices of international arbitration institutions

No agreements have been entered into with local offices of international arbitration institutions in Iran.

4.1 Requirements as to content and form

In Iran, the requirement for arbitration agreements to be in writing varies by the nature of the arbitration. Domestic arbitrations under the CPC do not mandate a written form, adhering to broader principles of contract law. However, international arbitrations under the LICA require that agreements be in writing and signed by the parties. The LICA recognizes various forms of written communication such as letters, telex, and telegrams as valid records of an agreement. Additionally, a reference in a written contract to a document containing an arbitration clause constitutes an agreement to arbitrate.

4.2 Validity of arbitration agreements

The validity of arbitration agreements depends on the parties’ legal capacity and mutual consent, and may exist as separate agreements or clauses within broader contracts. Under the LICA, parties’ conduct, such as exchange of pleadings, can confirm an arbitration agreement’s existence without a written document.

4.3 Special formalities

For agreements involving state or public entities, Principle 139 of the Iranian Constitution mandates administrative approval, ensuring transparency in disputes involving public assets. This reflects a protective measure for national interests.

4.4 Governing law

In Iran arbitration, it depends on the nature of the arbitration. For domestic arbitrations, the lex loci contractus typically applies. In international arbitrations under the LICA, Article 27 allows parties to select their governing law. If no specific law is chosen, the arbitrator will apply conflict of law rules to determine the applicable law, mirroring the approach used by Iranian judges in similar situations.

5.1 Applicable restrictions

In Iran, not all disputes can be arbitrated due to specific legal restrictions. Under Article 496 of the CPC, bankruptcy and marriage-related issues such as annulment, divorce, and filiation are excluded from arbitration. Additionally, Principle 139 of the Iranian Constitution mandates that any arbitration involving public or governmental assets requires prior approval from the Council of Ministers and notification to the Parliament. This applies especially to disputes with foreign entities or significant national importance, ensuring higher governmental oversight to safeguard public interests. 

6.1 Stay of proceedings

As a general rule under both the CPC and the LICA, when a dispute involving an arbitration agreement is referred to court, that court shall issue a stay order and direct the dispute to arbitration unless it finds the arbitration agreement to be null, void, or inoperative. Additionally, in domestic arbitration, if any question arises regarding the validity of the main contract or arbitration agreement, Article 461 of the CPC mandates the court to decide this matter before referring the case to arbitration. Furthermore, under Article 478 of the CPC, arbitration must be suspended if issues inseparable from criminal acts or family law matters arise, ensuring these matters receive judicial resolution.

6.2 Anti-suit injunctions

Iranian law does not recognize anti-suit injunctions to prevent parties from pursuing litigation abroad. However, Iranian courts can refuse to recognize foreign judgments that contravene a valid arbitration agreement, ensuring respect for the arbitration process.

7.1 Restrictions on the parties’ freedom to choose arbitrators

Iranian laws, particularly Article 456 of the CPC and Article 11 of the LICA, restrict the freedom to select arbitrators in transactions involving Iranian and foreign parties. These laws prevent Iranian parties from agreeing to arbitrate with arbitrators of the same nationality as the foreign party involved prior to any dispute. Agreements violating this rule are considered null and void, ensuring impartiality in arbitrations involving foreign interests. In addition, according to Article 466 of the CPC, parties cannot select individuals who lack legal capacity or those barred from serving as arbitrators by a court of law, even if there is mutual agreement.

7.2 Requirement of arbitrator independence and impartiality

Under the LICA, Article 12 insists on the independence and impartiality of arbitrators. Arbitrators must disclose any potential conflicts of interest both at the time of their appointment and throughout the arbitration process. The LICA also allows for arbitrators to be challenged and replaced if new information arises that could compromise their impartiality or independence. Although the CPC does not explicitly detail these standards, the principles of impartiality and independence are assumed as fundamental to any arbitration.

7.3 Mandatory rules applicable to the appointment process

Both the LICA and the CPC specify rules for appointing arbitrators. The LICA’s Article 10 allows parties to freely decide the number of arbitrators, defaulting to three if unspecified. If parties fail to appoint arbitrators, or if appointed arbitrators cannot agree on a chairperson, a competent authority designated under Article 6 is tasked with making the necessary appointments. The CPC outlines restrictions on who can be an arbitrator to safeguard the impartiality of the process, such as age requirements and conflict of interest rules.

7.4 Appointment mechanism in the absence of party agreement or applicable institutional rules

When parties do not agree on the appointment of arbitrators, the LICA stipulates a default procedure to ensure the arbitration proceeds efficiently. Each party appoints one arbitrator, and these arbitrators then select a third to act as the chairperson. If the appointed arbitrators cannot agree on a third or if a party fails to appoint an arbitrator, an authority defined under Article 6 is called upon to resolve the impasse by appointing the necessary arbitrator(s).

For domestic arbitration under the CPC, if there is no consensus on arbitrator selection, the courts are authorized to appoint arbitrators. This mechanism prevents delays in the arbitration process by ensuring that disagreements over arbitrator appointments do not hinder the progress of dispute resolution, thereby reinforcing the arbitration framework’s efficiency and effectiveness.

7.5 Mandatory rules applicable to the replacement process

The replacement of arbitrators is thoroughly addressed under both the LICA and the CPC. Under the LICA, a structured process is in place for replacing arbitrators who are unable to perform their duties, with decisions on termination being made by the parties or designated authorities (Article 14, LICA). The CPC facilitates the continuation of arbitration by allowing court intervention to appoint replacements if the parties or initial arbitrators fail to resolve the appointment (Article 459 and 463, CPC).

7.6 Mandatory disclosure obligations

Article 12 of the LICA underscores the necessity for arbitrators to disclose any circumstances that might give rise to doubts about their impartiality or independence. Although the CPC does not specifically address these disclosures, the principles of impartiality and independence are fundamental to all arbitration proceedings, ensuring arbitrators maintain the integrity of the process.

7.7 Grounds for challenge

In Iran, the reasons for challenging arbitrators are designed to uphold high standards of fairness and objectivity. Under both the LICA and the CPC, arbitrators may be challenged for conflicts of interest, lack of legal capacity, or existing bans from serving as arbitrators, which helps ensure that arbitrations are conducted impartially and without bias (Article 33, LICA; Article 466, CPC).

7.8 Mandatory rules governing the challenge of arbitrators

The LICA details the procedures for challenging arbitrators in Article 13, including requirements for a written statement of reasons and a specified timeframe for submitting challenges. If unresolved, challenges may be escalated to a designated authority for a decision, allowing arbitration to continue while the challenge is processed.

7.9 Removal

Article 14 of the LICA discusses the removal of arbitrators due to incapacity or failure to act promptly. This enables either party to request the termination of an arbitrator’s mandate from the relevant authority if there is a dispute over these grounds, facilitating the efficient progression of the arbitration process.

7.10 Liability and immunity of arbitrators

Arbitrators in Iran are not granted any immunity and are liable under general legal principles for actions causing financial damage due to deceit, fraud, or negligence (Article 501, CPC). This accountability ensures arbitrators uphold stringent ethical standards. Arbitrators can minimize their liability risk by including disclaimers in the arbitration agreement, thus providing a conditional protection against potential claims.

8.1 Interim measures

8.1.1 Overview of interim measures

In both domestic and international arbitration, courts can play a crucial role in granting interim measures, which are essential for preserving assets, maintaining the status quo, or preventing irreparable harm before the arbitration tribunal can make a final decision.

• Domestic arbitration. Under the CPC, courts have the authority to grant interim measures since domestic arbitrators do not have this power.
• International arbitration (LICA). According to Article 17 of the LICA, arbitrators can issue interim measures for urgent matters related to the dispute. However, parties often still seek court assistance for enforcing these measures or when immediate action is required before the tribunal is fully constituted.

8.1.2 Relevance of availability of emergency arbitrator mechanism

The concept of emergency arbitrators is not formally recognized under the LICA or the CPC. However, in its 2018 Rules, TRAC introduced provisions for emergency arbitrators for the first time, reflecting a modern approach to arbitration that accommodates the need for immediate temporary relief. This development is significant as it provides a quicker alternative to traditional court-ordered interim measures. Gradually, Iranian courts are beginning to accept these measures since there is no direct legal opposition to them, illustrating a shift towards greater acceptance of contemporary arbitration practices.

8.2 Taking of evidence

In both domestic and international arbitrations, Iranian courts assist in gathering evidence. This is particularly crucial when one of the parties is a governmental entity, as the courts have the authority to compel such entities to provide the required documents, ensuring comprehensive access to necessary evidence for the arbitration process.

8.3 Appointment or challenge of arbitrators

In settings without a specified institutional framework, courts may step in to appoint arbitrators or resolve challenges against them if the parties cannot agree on an appointment method or if internal arbitration challenge procedures are inadequate. For instance, Article 6 of the LICA mandates that in the absence of party agreement on an arbitrator, the court located at the province capital where the arbitration is seated will appoint the arbitrator. If no seat is designated, the Tehran General Court will assume this role.

8.4 Other available assistance

Courts are also instrumental in enforcing arbitration agreements and awards. According to the LICA, if a dispute subject to an arbitration agreement is brought before a court, it must refer the parties to arbitration, unless the agreement is deemed null, void, inoperative, or incapable of being performed. After an award is issued, courts may be involved in its enforcement or in addressing challenges against the award, such as setting aside the award if it contradicts Iranian legal principles or public policy.

9.1 Domestic scope of sovereign immunity from jurisdiction

In Iran, broad sovereign immunity in arbitration does not typically apply. However, Principle 139 of the Iranian Constitution strictly regulates arbitration involving state entities. This principle necessitates explicit approval from the Council of Ministers and notification to Parliament for disputes involving state or public properties, ensuring that specific sovereign protections are upheld, as outlined above in Section 5.

9.2 Immunity from execution

Iranian law does not generally grant sovereign immunity from execution against state assets in arbitration contexts. This absence of immunity aligns with the limited scope of sovereign immunity provided under Iranian arbitration regulations.

In Iranian arbitration, the procedural framework is flexible and allows parties to decide on various aspects of the procedure. The arbitration may be conducted in Persian, or any mutually agreed upon language, and the procedures can be tailored or adhere to the rules of the selected arbitral institution, encompassing evidence and hearing protocols.

Arbitration hearings may be held at the designated seat of arbitration, either in-person or virtually, depending on what is agreed in the arbitration agreement or allowed by the arbitral institution. This flexibility is crucial for accommodating international participants or when in-person meetings are impractical.

If a party fails to participate without a valid reason, the arbitration can proceed in their absence. However, it is crucial that the tribunal ensures those parties are properly notified and given a fair opportunity to present their case, thus safeguarding the fairness and integrity of the proceedings.

While arbitrators in Iran can decide on the case based on the submitted documents if all parties consent, typically, a hearing is required unless explicitly waived by all involved parties. This ensures that all parties can fully engage in the arbitration process.

In Iranian arbitration, confidentiality is not explicitly mandated by law; it is typically determined by the parties’ agreement or by institutional rules. If confidentiality is not stipulated, the tribunal may choose to maintain confidentiality. Third-party involvement is permissible under Article 26 of the LICA, with all parties’ consent, without breaching confidentiality. Arbitrators are legally bound to keep disclosed information confidential, with breaches subject to penalties under Article 648 of the Islamic Penal Code. Institutional rules often reinforce confidentiality, crucial for protecting sensitive commercial interests.

12.1 Requirements as to content and form

Under Article 482 of the CPC, arbitration awards must be reasoned and compliant with substantive law.

Article 485 of the CPC mandates that if the arbitration agreement does not specify notification methods, the award should be filed at the relevant court, which then notifies the parties.

Article 30 of the LICA requires awards to be written and signed by the arbitrators, detailing the reasons unless otherwise agreed, and including the date and place of arbitration.

12.2 Time limit

Article 484 of the CPC sets a default three-month period to issue an award if no time frame is specified, extendable by agreement.

For international arbitration under Iranian rules, no time limit exists; time frames should be agreed upon in the terms of reference, allowing flexibility for complex international cases.

12.3 Remedies

In Iran, arbitral tribunals can award any remedy available in a court, such as damages, injunctions, specific performance, and declaratory relief. The range of remedies is broad, covering compensation, restitution, and contract nullification, as long as they comply with legal standards and Iranian public policy. However, tribunals cannot grant remedies for criminal matters or issues outside civil and commercial law.

13.1 Interpretation and correction of awards

Under the LICA (Article 32), arbitrators may correct any computational, clerical, or typographical errors in the award on their initiative or upon request by any party within 30 days after the award has been issued. This provision also allows parties to request an additional award on omitted claims within the same timeframe. If deemed justified, the arbitrator will issue the additional award within 60 days. The CPC also provides for the correction of awards by arbitrators directly within the arbitration term, and allows for judicial correction post-term upon party request under specific conditions outlined in Article 487.

13.2 Challenge of an award

Domestic arbitration. CPC Article 489 allows for annulment of arbitration awards under specific conditions such as contradictions with established laws, rulings on non-arbitrable matters, arbitrators exceeding their authority, late awards, conflicts with official documents, unauthorized arbitrators, or invalid arbitration agreements. Challenges must be filed within 20 days at the appropriate court.

International arbitration. Under Article 33 of the LICA, grounds for annulment include incapacity of parties, invalid arbitration agreements, procedural non-compliance, inability of a party to present their case, arbitrators exceeding their mandate, non-compliance with the arbitration agreement, influenced awards, forgery, or concealed evidence. These rules allow for the protection of legal rights and procedural fairness, offering avenues for challenging arbitration awards when necessary.

This streamlined version retains the essential legal provisions and grounds for challenging arbitration awards under both domestic and international contexts, adhering to the structure of Iranian arbitration law.

13.3 Recognition and enforcement proceedings

In Iran, the enforcement of arbitral awards is distinguished between national and foreign awards, based on the seat of arbitration, as follows:

• National arbitral awards are from the arbitrations seated in Iran:
  • Legal framework. Governed by section 7 of the CPC and Article 35 of the LICA.
  • If the losing party fails to comply voluntarily, the winning party may seek enforcement through the courts within 20 days of notification.
  • Court review. Courts conduct minimal judicial review focused on procedural compliance, without reevaluating the substantive merits.
• Foreign arbitral awards are from the arbitrations seated out of Iran and are enforced according to the New York Convention, which is described in Section 14, below.

13.4 Cost of enforcement

Enforcing arbitration awards in Iran is regarded as non-financial claims and is subject to minimum costs (i.e., less than EUR 50).

13.5 Enforcement of orders of emergency arbitrators

Emergency arbitration, recently introduced in Iran through the TRAC Rules of Arbitration, is a novel aspect of Iran’s arbitration practice. Despite its recent adoption, the decisions rendered under these rules have been effectively enforced without significant difficulties, demonstrating the system’s capacity to adapt and implement these modern procedural enhancements effectively.

14.1 Process for enforcing New York Convention awards

Iran applies the Convention based on reciprocity and restricts its application to commercial disputes as defined by Iranian law.

To enforce a New York Convention award in Iran, the applicant must provide:

• A duly authenticated original award or a certified copy.
• The original arbitration agreement or a certified copy.
• If the documents are not in Persian, a certified translation is required.

Enforcement is subject to the principle that foreign awards should not face more onerous conditions or higher fees than domestic awards, ensuring equitable treatment.

14.2 Grounds for resisting enforcement of New York Convention awards

Iran recognizes the typical grounds for refusing enforcement under the New York Convention, such as:

• Invalidity of the arbitration agreement under the law to which the parties have subjected it.
• Inability of a party to present their case.
• Awards that deal with a difference not contemplated by or not falling within the terms of the submission to arbitration.
• Non-arbitrability of the dispute under Iranian law.
• Awards that are in conflict with the public policy of Iran.

Additionally, Iran’s adherence to the Convention includes a reservation that it will only enforce awards from other contracting states and only for disputes considered commercial under Iranian law.

14.3 Enforcing non-Convention awards

Enforcement of awards from non-Convention states or non-commercial disputes involves stringent judicial scrutiny and depends on bilateral relations between Iran and the award’s country of origin. These awards require additional steps for recognition and enforcement, reflecting Iran’s adherence to both international norms and national legal stipulations.

15.1 Applicable to counsel

Iran lacks specific ethical codes tailored exclusively for counsel in arbitration.

15.2 Applicable to arbitrators

No particular ethical codes uniformly apply to arbitrators in Iran. Instead, arbitrators are expected to adhere to general principles such as professionalism, time dedication, and fair treatment of all parties involved in the arbitration process.

16.1 Applicable regulatory requirements

Iran does not have specific regulations for third-party funding (TPF) in arbitration or litigation. TPF arrangements are generally governed by Iran’s contract law principles such as freedom of contract, good faith, and mutual consent, allowing parties to freely enter funding agreements within the broad legal framework for contracts.

16.2 Overview of the third-party funding market

TPF is relatively unfamiliar and undeveloped in Iran, with limited awareness among local investors and legal practitioners. While the domestic market for TPF remains nascent, Iranian parties are increasingly considering TPF in international arbitrations held outside Iran to manage arbitration costs and financial risks effectively.

Privatization arbitration. Governed by Article 20 of the Third Economic, Social, and Cultural Development Plan of the Islamic Republic of Iran, which mandates arbitration for disputes arising from the privatization of state-owned enterprises.

Securities market arbitration. Focuses on disputes related to market transactions and regulatory compliance.

Construction arbitration. Typically involves construction and contracting disputes related to government and public properties.

17.2 Key legal principles

Key legal principles in specialist arbitration include mandatory arbitration, where specific disputes, such as those arising from privatization, are required by law to be resolved through arbitration. These arbitrations are outlined in precise legal texts that detail handling disputes within particular sectors. Equitable treatment is a foundational principle, ensuring fairness in arbitration regardless of the parties involved. Additionally, these arbitrations are specialized, and the arbitrators involved are typically well-acquainted with the structure and complexities of the disputes in their respective sectors.

17.3 Types of claim and defenses typically brought in that area

Privatization arbitration. Common claims include breaches in the privatization contracts and disputes over asset valuation, cession and assignment.

Securities market arbitration. Claims might involve allegations of fraud, misrepresentation, or non-compliance with financial regulations.

Contracting arbitration. Disputes often revolve around breach of contract terms, delays, quality of work, and so on.

17.4 Issues and strategic considerations to take note of

Strategic considerations in specialist arbitrations include understanding the detailed legal frameworks specific to each sector, acknowledging the implications of mandatory arbitration clauses, and recognizing the importance of arbitrators’ expertise in these fields. Parties must also be aware of procedural specifics that could impact arbitration outcomes, which is crucial for navigating the process effectively and securing a favorable result.

There is ongoing discussion at high levels in Iran about joining the ICSID, signaling Iran’s increased acknowledgment of arbitration’s role in international trade and investment. Recent court decisions have shown a more favorable attitude towards arbitration, with a trend towards minimizing judicial interference in arbitration processes. These changes indicate that Iranian courts are progressively embracing arbitration as a key method for resolving commercial and investment disputes.