International arbitration law and rules in Iran

According to Iranian Civil Law and the Law on International Commercial Arbitration, Iranian nationals (legal and natural persons) are prohibited from entering into arbitration agreements that require them to be bound, prior to any dispute arising, to arbitration by arbitrator/s who have the same nationality as the non-Iranian party to the agreement. Such an agreement would be null and void.

1.1.1 In Iran, the main law applicable to international arbitrations is the 1997 Law on International Commercial Arbitration (LICA). LICA is, to a considerable extent, modelled on the UNCITRAL Model Law. At the same time, LICA contains principles and provisions that have been incorporated into it to make it conform to domestic laws and regulations, which do not necessarily follow the UNCITRAL Model Law. 

1.1.2 LICA is considered a major step for Iran in modernising its international commercial arbitration laws. The contemporary legal framework for arbitration in Iran dates back over 100 years when arbitration was mentioned for the first time in the Provisional Civil Procedure Code (1906) and subsequently in the Civil Procedure Code (1939), which remained in force until the current Civil Procedure Code was enacted in 2000 (CPC).

1.1.3 Chapter 7 of the CPC is dedicated to arbitration and includes rules which were, at the time, considered to be supportive of efforts to use arbitration to resolve disputes rather than court procedures although it does not appear that those arbitration rules had a significant practical impact. For instance, Chapter 7 sets out the independence of arbitrators and the freedom of the parties to choose the governing law of the arbitration. Over time, it became evident that the CPC had various shortcomings which made it unsuitable for international arbitration. LICA was therefore enacted to address those shortcomings and to deliver a modernised arbitration infrastructure which reflected international best practice. 

1.1.4 With the enactment of LICA, the CPC’s application has been limited to domestic arbitration only. Therefore, the focus of this chapter remains mainly on the LICA. 

1.2.1 The Arbitration Centre of the Iran Chamber (ACIC) was the first independent arbitration institution, established in 2002 for the settlement of disputes in both domestic and international matters through arbitration or conciliation. ACIC rules, to a large extent, mirror LICA and UNCITRAL Model Law. 

1.2.2 The Tehran Regional Arbitration Centre (TRAC) was established after the Iranian government and the Asian-African Legal Consultative Organisation (AALCO) entered into an agreement on 3 May 1997 (Agreement). The Agreement came into force in 2004. In 2005, TRAC started its activities by publishing its Rules of Arbitration. The objectives of TRAC include assisting with the enforcement of international arbitral awards and the conduct of arbitral proceedings in Tehran.

1.2.3 The TRAC Rules of Arbitration are based on the UNCITRAL Model Law which grants freedom to the parties over the selection of the place of arbitration, the procedural rules, the law that should be applied by the arbitrators, the number of arbitrators and the procedure for their appointment. The TRAC will only intervene to the extent that is required to assist the arbitration process. 

1.2.4 The TRAC has two different boards for international and domestic arbitration each consisting of a chair, a vice chair and up to 12 members who are appointed by TRAC’s director. Up to two-thirds of the members of the arbitration board may be appointed from nationalities other than the AALCO member states.

1.2.5 Given that Iran is a member of the New York Convention, TRAC arbitral awards are enforceable in almost 159 countries. 

2.1.1 Considering the fact that LICA is most likely to apply only to arbitrations seated in Iran, the award must adhere to rules of Iranian public order and Iranian law. The laws of Iran are based on Sharia law and therefore adhere to certain principles of public order. Departure from those principles would be considered contrary to Iranian law. Therefore, in general, arbitrations seated in Iran have to comply with Iranian public order rules. As a consequence, for instance, arbitrators cannot award interest, or the court would nullify the award (see section 7.4).

2.1.2 LICA applies to arbitration as a mechanism for the resolution of disputes in international commercial relations. 1 LICA, art 2(1).  However, LICA does not define international commercial relations and only provides a non-exhaustive list of activities which include “the 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.” 2 ibid  

2.1.3 Under LICA, whether or not arbitration has an international character is determined with reference to the parties’ nationalities and not to the character of the arbitration. This is discussed at 2.2 below. 3 ibid, art 1(b).  

2.2.1 According to Article 1(b) of LICA, the nationality of the parties determines whether an arbitration is an “international arbitration” under LICA. Arbitration will be considered to have an international character where one of the parties to the dispute is a foreign (non-Iranian) national. This approach seems to deviate from the approach adopted by the UNCITRAL Model law. 4 ibid  Pursuant to Article 1, section 3 of UNCITRAL, an arbitration is international if:

• the parties to an arbitration agreement have, at the time of the conclusion of the agreement, their places of business in different States; or 
• one of the following places is situated outside the State in which the parties have their places of business:
  • the place of arbitration if determined in, or pursuant to, the arbitration agreement;
  • any places where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject matter of the dispute is most closely connected; or
• the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.  

2.2.2 Defining “international arbitration” merely based on the nationality of the parties may limit the scope of LICA’s application to a significant extent even in cases where there are other international components involved, such as the place of business of the parties.

2.2.3 It should be noted that Iran does not recognise dual nationality. 5 Iranian Civil Code, art 989.  

2.2.4 It is also worth noting that pursuant to the Iranian Commercial Code, foreign companies wishing to operate in Iran must be registered with the Companies Registry. Once registered, a company will be considered an Iranian legal entity; therefore, any potential dispute between the company registered in Iran and other Iranian natural or legal persons will not be governed by the LICA as both parties will be considered Iranian nationals. 

2.2.5 Branches of foreign companies, however, keep the nationality of their parent company even after registration with the Companies Registry. Thus, LICA could apply to a dispute between the branch of a foreign company and an Iranian party, or a branch of another foreign entity in Iran.

3.1.1 LICA defines an arbitration agreement as follows: “An Arbitration agreement is an agreement between the parties under which any or all of the differences that may arise in relation with one or more contractual or non-contractual legal matters, will be referred to arbitration. An Arbitration agreement can be in the form of an arbitration clause in the contract or in the form of a separate agreement.” 6 LICA, art 1(c).  

3.2.1 Unlike the UNCITRAL Model Law, LICA does not expressly require the arbitration agreement to be in writing. LICA provides that the agreement shall be signed by both parties either by way of signature or through exchange of letter, telex, telegram or similar ways, by which the acceptance of arbitration could be evidenced. However, it emphasises that it is possible for one party to establish the existence of an arbitration agreement through an application or notice that is practically accepted by the other party. 7 ibid, art 7

3.2.2 According to LICA “if one party claims the existence of an agreement concerning arbitration by way of application or notice and the other party practically accepts it, the existence of the arbitration agreement is established.” 8 ibid, art 7.

3.3.1 The issue of arbitrability may be influenced either by the nature of the dispute or by the capacity of entities to become parties to arbitration.

3.3.2 As set out in paragraph 2.1.2, LICA does not provide a definition of the term “commercial” but provides a list of various activities as examples of commercial activities. 9 ibid, art 2(1).  Consequently, one should refer to other Iranian laws in order to ascertain whether the relationship between the parties would be considered a commercial relationship.

3.3.3 The Iranian Commercial Code provides that all transactions carried out by commercial companies and sole traders should be viewed as commercial transactions. 10 Iranian Commercial Code, art 2(1).  

3.3.4 As a general rule, Iranian law provides that transactions concerning immovable property are not commercial transactions. However, pursuant to Article 3 of the Commercial Code, any transaction carried out by a commercial company listed in the Commercial Code will be considered a commercial transaction. It is not clear whether this article would apply to transactions concerning immovable properties. 

3.3.5 The CPC also places restrictions on the arbitrability of disputes. Based on the CPC, all disputes in general can be settled through arbitration except those in connection with family issues such as marriage and divorce. It further prohibits the submission of cases concerning insolvency and criminal matters to arbitration. 11 CPC, art 496.  

3.3.6 Another important restriction with respect to arbitrability is indicated in Article 139 of the Iranian Constitution (Constitution): “The conciliation 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 Islamic Consultative Assembly (Parliament) must be informed of these matters. In cases where one part to the dispute is a foreigner, as well as in important cases that are purely domestic, the approval of the Parliament must also be obtained. Law will specify the important cases intended here.” This restriction applies to disputes over public and state properties (including energy sources such as water, electricity, oil etc.), hence this article only protects state properties and imposes no restriction in other cases. 

3.3.7 During the past decades, Article 139 of the Constitution was relied on in several cases between Iranian state-owned entities and foreign companies. For instance, in ICC Arbitration Case No. 4381, an Iranian state-owned company attempted to invalidate an arbitration agreement it made with a foreign company on the grounds that appropriate state approvals under Article 139 of the Constitution were not obtained. The tribunal rejected this application concluding that “the defect which affected the arbitration agreement had not been brought to the knowledge of the claimant (ie the foreign company) at the time the agreement was entered into” and that the Iranian state company could not “avail itself from the nullity of its own commitment”. 12 T. CHENG, “State Incapacity and Sovereign Immunity in International Arbitration”, Singapore Academy of Law Journal (26 SAclJ, 2014) p 954.

3.4.1 LICA recognises the concept of separability in Article 7 where it states that “An arbitration clause in a contract providing for arbitration shall be considered an independent arbitration agreement.” This means that the nullity of the main contract which contains the arbitration clause does not affect the validity of the arbitration clause.

3.5.1 According to LICA, if a contract contains an arbitration clause and a dispute arising under the contract is referred to a court, the court must refer the parties to arbitration, if so requested by any one of the parties by the end of the first court session unless the court holds that the arbitration agreement is null and void or otherwise frustrated under the law. 

4.1.1 Generally, the parties decide the number of arbitrators. LICA states that in the absence of an agreement among the parties on appointing the arbitrator(s), the arbitral panel will be established with three members. 13 ibid, art 11(3), 11(4).  The parties are also free to agree on the procedure for appointing arbitrators. 14 ibid, art 11(1).  

4.1.2 Where the arbitration agreement is silent on the process for the selection of the arbitrators, LICA provides the rules for their selection. 

4.1.3 First, each party will choose an arbitrator. The elected arbitrators then shall appoint a third presiding arbitrator. If these steps are not achieved within 30 days from the date of commencement of arbitration or from the date of appointment of the second arbitrator the appointment shall be made, upon request of a party either by the related public court or the arbitration institution. Previously, the CPC did not confer powers on institutions to perform functions such as appointing an arbitrator. 

4.2.1 In line with the approach taken by Article 11(2) of the UNCITRAL Model Law, LICA does not require the prospective arbitrators to possess any specific qualifications. This does not limit the power of the parties to agree to impose their own specified requirements on the appointment of arbitrators. Any such requirements will be binding. 

4.2.2 Under Article 11(1) of LICA, the arbitrators must not be of the same nationality as one of the parties to the dispute. 

4.2.3 More specifically, LICA prohibits Iranian parties from entering into an arbitration agreement which requires them to be bound, prior to any dispute arising, to arbitration by one or more arbitrators or by a board of arbitrators, who have the same nationality as the non-Iranian party to the dispute. Under LICA, such an arbitration agreement would be null and void.

4.2.4 There is a debate as to whether this prohibition would apply to an arbitration agreement if the seat of arbitration were a country of which one of the parties to the dispute is a national. Arguably, the article only forbids the appointment of an “arbitrator or a board of arbitrators” which shares the nationality with a non-Iranian party, meaning that the arbitration institution is excluded from the application of this rule.

4.3.1 The grounds for challenging arbitrators, according to LICA, are limited to a lack of either impartiality and independence, or qualifications or requirements for the arbitrators, upon which the parties agreed to. There must be justifiable doubts in the existence of said requirements in order for a challenge to be made. 

4.3.2 A party would be able to challenge an arbitrator appointed by that party or an arbitrator appointed by an independent process, only if the party became aware of the ground for challenge after the appointment of the arbitrator.

4.3.3 The principle of party autonomy and the priority of the parties' agreement would also be of special importance in challenging an arbitrator. The procedure for challenging an arbitrator is primarily governed by the parties' agreement. If the parties did not make such arrangements, the party who intends to challenge an arbitrator must, within 15 days after becoming aware of either the constitution of the arbitral tribunal or a ground for challenging the appointed arbitrator, inform the arbitrator through a written statement of the reasons for the challenge. Unless the challenged arbitrator withdraws from his office or the other party agrees to the challenge, the arbitral tribunal must decide the merits of the challenge. 15 ibid, art 13(2).  

4.3.4 If the challenge is unsuccessful, the challenging party may request the relevant arbitral institution or the court (whichever is applicable), within 30 days after having received the notice of the rejection of the challenge, to consider the challenge and make a decision. While such a request is pending, the arbitral tribunal may continue the arbitral proceedings and render an award. 16 ibid, art 13(3).  

4.3.5 The mandate of an arbitrator is terminated once the arbitrator becomes de jure or de facto unable to perform his duties or, based on other reasons, fails to act without undue delay. When these circumstances are disputed, each party may request the responsible authority – the relevant arbitral institution or the court – to terminate the arbitrator's mandate. 17 ibid, art 14(1).  

4.4.1 A prospective arbitrator has the duty to disclose any circumstances that may give rise to justifiable doubts as to his or her impartiality or independence. The arbitrator must disclose such circumstances to the parties without delay from the time of his appointment and throughout the arbitral proceedings, unless the arbitrator already informed the parties of their appointment. 18 ibid, art 12(2).

4.5.1 LICA does not contain rules governing the arrangement of arbitration fees and expenses. As a result, the parties can make arrangements in their agreement, failing which the matter will be dealt with in accordance with the general rules of the Iranian Civil Code.

4.5.2 For institutional arbitrations in Iran, such as those under the TRAC Rules, the procedural rules of the institution stipulate that the costs of arbitration must, in principle, be borne by the unsuccessful party. However, the arbitral tribunal may apportion such costs between the parties if it determines that is reasonable, taking into account the circumstances of the case. 19 TRAC rules, art 35(2). Those costs and expenses include arbitrators’ fees and administrative costs fixed by the TRAC. 20 TRAC rules, art 35(3).  

4.6.1 LICA is silent on the liability and immunity of arbitrators. The CPC contains provisions governing the liability of arbitrators. For instance, the CPC provides that an unjustifiable absence by the arbitrator after accepting his or her nomination can preclude the arbitrator from being appointed as an arbitrator for a certain period of time. 21 CPC, art 466.  However, generally the civil liability of arbitrators is governed by the general rules of the law of civil liability.

5.1.1 LICA introduced the well-established principle of “competence-competence” into Iranian arbitration law. Article 16 of LICA stipulates that the arbitral tribunal may decide on its own jurisdiction as well as on the existence and validity of the arbitration agreement. Previously, under the CPC, the authority to determine the competence of the arbitral tribunal was reserved for the courts.

5.1.2 In line with the introduction of “competence-competence”, LICA adds that the arbitration clause which forms part of a contract must be treated as an independent agreement (separability). Therefore, the arbitral tribunal's decision that the contract is null and void will not entail ipso jure the invalidity of the arbitration clause. 22 LICA, art 16(1).  This approach is in line with the approach taken by the UNCITRAL Model Law.

5.1.3 Any objections to the jurisdiction of the arbitral tribunal must be raised no later than the time of the submission of the statement of defence. The fact that a party has appointed an arbitrator or participated in the procedure will not preclude that party from raising an objection. 23  ibid, art 16(2).

5.1.4 Here, LICA departs from the UNCITRAL Model Law in that, under LICA, unless otherwise agreed by the parties, the arbitral tribunal must treat challenges to the jurisdiction of the arbitral tribunal and to the existence and validity of the arbitration agreement as a preliminary question, making a preliminary ruling on these issues mandatory if they are raised. However, any challenge pertaining to an arbitrator exceeding the limits of his or her capacity which occurs during the arbitral investigation process, may be determined as part of the final award of arbitration. If the arbitral tribunal gives a preliminary ruling on its jurisdiction, the parties may bring the matter before the authorised court within 30 days of being notified of the ruling. While such an appeal is pending, the arbitral tribunal may continue the arbitral proceedings and render an award. 24 ibid, art 16(3).

5.2.1 LICA provides that, unless the parties have agreed otherwise, the arbitral tribunal may order interim measures at the request of either party. The arbitral tribunal may order any party to take such provisional measures as the arbitral tribunal finds necessary. 25 ibid, art. 17.  This is a novel feature of LICA, since the CPC did not grant any such powers to arbitrators.  

5.2.2 Similar to the UNCITRAL Model Law, LICA allows the parties to request the competent court to issue an interim or provisional measure before or during the arbitral proceedings.

6.1.1 To a large extent LICA recognises the principle of party autonomy, which is a notable improvement compared with the arbitration laws that existed before LICA. The parties may agree on any arbitration rules as long as such rules are not at odds with the mandatory provisions of Iranian law – ie provisions that are not optional. 26 LICA, art 19(1).  The principle of party autonomy or the priority of the parties' agreement is also reflected in other provisions of LICA, for instance the parties are free to choose the place of arbitration 27 ibid, art 20(1).  and the language of the arbitral proceedings including all written and oral statements, hearings and pleadings. 28 ibid, art 21.  

6.1.2 Failing an agreement between the parties, the arbitral tribunal may itself determine the applicable procedural rules. This autonomy encompasses areas including the determination of the seat and language of the arbitral proceedings, relevance and weight of any evidence before the arbitral tribunal, determination of the rules governing the conduct of hearings, and documents which are to be submitted in the arbitration. 29 ibid, art 19(2).  

6.2.1 LICA deviates from the UNCITRAL Model Law in some respects when it comes to procedural rules. For instance, LICA is silent on court assistance in taking evidence, which is stipulated by Article 27 of UNCITRAL Model Law. 30 “The arbitral tribunal or a party with the approval of the arbitral tribunal may request from a competent court of this State assistance in taking evidence. The court may execute the request within its competence and according to its rules on taking evidence.”  This article provides that court assistance may be obtained for taking evidence, by either the arbitral tribunal or a party with the permission of the tribunal. This is a practical provision as some jurisdictions impose different procedures regarding the handling of evidence such as examination and cross-examination on oath of witnesses, which are normally performed before an officer of the court and therefore it may be challenging for an arbitral tribunal to gain access to the evidence it needs. 

6.2.2 The arbitral tribunal's power in taking evidence does not extend to evidence beyond the private nature of arbitration, such as evidence which is in the possession of public authorities or third parties. The existing arbitration provisions in the Iranian legal system do not restrict the hearing of witnesses before an arbitral tribunal. The CPC provides that the parties shall submit the relevant papers and documents to the arbitrator and the arbitrator may ask for necessary explanations. 31 CPC, art 476. The general civil procedure provisions adopt a similar position. 32 ibid, art 236. However, it is unclear whether or not testimony given in an arbitral tribunal would be regarded as equivalent to testimony before a court.

6.3.1 In accordance with the principle of party autonomy, the parties are free to agree on the venue and the language of the arbitral proceedings. If the parties fail to agree, the venue and/or the language of arbitration will be determined by the arbitral tribunal, which must consider the circumstances of the case and the convenience of the parties. 33 LICA, art 20(1).  

6.4.1 A claimant shall, within the time period agreed between the parties or determined by the arbitrators, provide details of the defendant’s obligations, which have allegedly been breached by the defendant, and other factual circumstances based on which the claimant considers itself entitled to initiate the arbitral proceedings. The claimant must also describe the subject of the dispute, as well as the loss it claims to have sustained. 34 ibid, art 22(1)  In the same way, the respondent shall provide its response within the agreed time or such time frame prescribed by the arbitrators. 

6.4.2 The arbitral tribunal decides whether to hold oral hearings for the presentation of evidence and arguments. However, unless agreed otherwise, the tribunal will hold oral hearings if it has been asked by a party within the appropriate time. 35 ibid, art 23(1).  

6.5.1 LICA includes provisions governing the failure by the claimant or respondent to submit their statements of case. If the claimant, without justified cause, fails to submit its statement, the arbitral tribunal will nullify the arbitration request. 36 ibid, art 24(1).  

6.5.2 Similar to court proceedings, the arbitral tribunal will continue the arbitral proceedings even if the respondent defaults in submitting his statement of defence. This action taken by the arbitral tribunal will not in any way be deemed as an admission of the claimant's allegations. 37 ibid, art 24(2).  

6.6.1 Unless otherwise agreed by the parties, the arbitral tribunal, when it deems necessary, may order the procurement of an expert opinion and require the parties to provide any relevant information or to provide access to any relevant documents, goods or other property for the arbitrator’s investigation. 38 ibid, art 25.  

6.7.1 LICA is silent on the confidentiality of arbitration. Nevertheless, there is no legal basis to prevent the parties from including a confidentiality clause in their agreement, especially given the fact that the purpose of an arbitration agreement is to give effect to the will of the parties by allowing them to select the arbitrators, venue, language of arbitration and other matters. Therefore, a confidentiality clause in an arbitration agreement would undoubtedly be binding on the parties as well as the arbitrators. Furthermore, it is arguable that even when there is no explicit confidentiality clause in an arbitration agreement, a confidentiality clause could be implicit in the agreement.  

6.7.2 Article 4 of the TRAC rules provides that arbitrations conducted under the TRAC Rules are confidential. This means that the parties, including counsel and experts appointed by them, arbitrators and experts appointed by arbitral tribunals and secretaries, as well as the TRAC, undertake not to disclose any documents, facts or other information relating to the dispute or the arbitral proceedings to third parties. These parties must also refrain from publishing the awards or causing others to publish them, unless the parties consent to such publication.

6.8.1 Third party intervention is a concept introduced by LICA. Under LICA, a third party may join the arbitral proceedings before the proceedings come to an end if he has an independent right in the subject of the arbitration and/or considers himself a beneficiary of a right of one of the parties. The third party must accept the arbitration agreement and the rules governing the arbitral proceedings if they wish to join the proceedings. The third party may only join the proceedings if there is no objection to the addition of the third party by either of the existing parties to the proceedings. 39 LICA, art 26.  

6.8.2 Given that the concept of third party intervention has been a matter of debate among international commercial arbitration law experts, the third party intervention provision introduced by LICA is subject to two strict conditions: First the third party must accept the arbitration agreement as well as the jurisdiction of the arbitrators and second, the third party’s joinder must not be objected to by either one of the existing parties. Once these conditions are fulfilled, the final result is similar to the well-accepted multi-party arbitration and can therefore be viewed as a development of Iranian arbitration law.

7.1.1 According to LICA, the arbitral tribunal must decide the dispute based on the governing law that is chosen by the parties to be applicable to the substance of the dispute. Unless otherwise agreed by the parties, the selection of the law of a given state as the governing law shall be considered as directly referring to that State's substantive law and not to its conflict of laws rules. 40 ibid, art 27(1).  

7.1.2 Although LICA recognises the freedom of the parties in determining the applicable law and the extent of this freedom seems to be full and unlimited, the limitations imposed by Iranian public order rules must always be considered. The extent and effect of this limitation varies depending on the facts of the dispute. Public order considerations become particularly significant when Iranian law is the governing law of the arbitration agreement. Where Iranian law is chosen by the parties as the governing law of the arbitration agreement, the parties’ freedom to select non-Iranian law to govern the arbitration proceedings and rules will be determined under Iranian law. Iranian law in this respect is uncertain, which may lead to practical difficulties. This issue is dealt with under Article 968 of the Iranian Civil Code which, in effect, limits the freedom of Iranian nationals to make their contracts subject to non-Iranian laws. 41 Iranian Civil Code, art 968: “Obligations arising out of contracts are governed by the law of the place of conclusion of the contract, unless the parties are foreign nationals and have expressly or implicitly subjected their contract to another law.” There is an ongoing debate over whether or not this article is mandatory. 42 J Seifi, “Towards Harmony with the UNCITRAL Model Law”, Journal of International Arbitration (Volume 15, Issue 2, 1998), pp. 5-35.  For those who favour the mandatory character of the Civil Code provision, when a contract is concluded in Iran, the contract will always be subject to Iranian laws regardless of the choice of law provisions of said contract. This position, if accepted, would be in contrast to the intention of LICA regarding the autonomy of the parties.

7.1.3 The other element to consider is the extent to which Iranian laws would influence the decision of the arbitral tribunal as a matter of public order. Non-compliance with the public order rules of the seat would threaten the enforceability of awards rendered by the arbitral tribunal.

7.1.4 If the parties fail to choose the governing law of the arbitration agreement, the arbitral tribunal will make a decision based on the law which it considers appropriate by virtue of the conflict of laws rules. 43 LICA, art 27(2).  Prima facie, this provision may seem similar to the UNCITRAL Model Law provision stating that the arbitral tribunal in such cases shall apply the law determined by the conflict of laws rules which it considers applicable. 44 UNCITRAL Model Rules, art 28(2).  Unlike the wording of the UNCITRAL provision which seems to suggest that the arbitral tribunal has the power to choose any conflict of laws rules which it deems appropriate, there is a possible interpretation of the Iranian provision which provides that it refers to a fixed set of conflict of laws rules under Iranian law. However, it has also been argued that if LICA intended to impose a fixed set of conflict of laws rules, which presumably would be Iranian rules, it would have expressly indicated such intention. 45 J Seifi, ibid   

7.1.5 If expressly authorised by the parties, the arbitral tribunal may decide ex aequo et bono. 46 LICA, art 27(3).  Finally, LICA also provides that the arbitral tribunal shall in all cases decide in accordance with the terms of the contract and shall take into account the commercial practice of the relevant subject. 47 ibid, art 27(4).

7.2.1 Per LICA, the award must be in writing and be signed by the arbitrator or the panel of arbitrators. In arbitrations with more than one arbitrator, it is sufficient for the majority of arbitrators to sign the award, provided that the reason/s for non-signature by other arbitrators are set out. 48 ibid, art 30(1).   

7.2.2 Should the case be decided by more than one arbitrator, every decision of the arbitral tribunal shall be made, unless otherwise agreed by the parties, by a majority of all of the arbitrators.  

7.2.3 The presiding arbitrator cannot make decisions alone. Since the main principle in arbitration is that the award must be based on the decisions of the majority of arbitrators, the position that a decision may be made solely by the presiding arbitrator is only arguable in relation to procedural decisions. 

7.2.4 LICA differs from the UNCITRAL Model Law regarding the place the award is made. The UNCITRAL Model Law indicates that the award shall state the place of arbitration as agreed by the parties. It adds that the award shall be deemed to have been made at that place. 50 UNCITRAL Model Law, art 31(3).  LICA does not contain an equivalent provision and leaves the question open as to whether the place where the award has been signed is different to the one opted for by the parties as the place of arbitration. 51 LICA, art 30(2).  

7.2.5 An award rendered in line with the provisions of LICA is final and binding, unless it is set aside under Article 33 or Article 34 of LICA. 52 LICA, art 35(1).

7.3.1 If, during the course of arbitral proceedings, the parties decide to settle the dispute, the arbitral tribunal will terminate the arbitral proceedings. Upon the request of a party, to which there is no objection by the other party, the arbitral tribunal will record the settlement in the form of an award on agreed terms, which enjoys the same status as an arbitral award. 53 ibid, art 28.  In this way, the settlement agreement would also entitle the parties to enjoy the same rights that they would have enjoyed under an ordinary arbitral award. 

7.4.1 Generally, arbitral tribunals can award interest in line with and to the extent that the applicable substantive law permits them. As discussed in section 2.1.1 of this chapter, however, LICA must adhere to public order and Iranian law and consequently arbitrators cannot award interest, or the court would nullify the award. Seeking to enforce foreign arbitration awards that include provisions of interest, or to have them recognised under the New York Convention would be difficult in Iran as Iranian courts would most likely consider the interest provisions to be contrary to Iranian law and public order. However, a late payment penalty can be awarded by the courts as it is not at odds with Islamic principles.

7.4.2 The costs of arbitration and relating arrangements are stipulated in the arbitration agreement. LICA does not set out any rules dealing with arbitration costs. The TRAC rules of arbitration require the award to include a decision as to the costs of the arbitration and the proportions in which the costs shall be borne by the parties. 54 TRAC, art 35.1.  

7.5.1 Ordinarily the arbitral proceedings come to an end once the arbitral tribunal issues its final award. 55 LICA, art 31.  Otherwise, the proceedings may be terminated by an order of the arbitral tribunal. LICA provides for three circumstances that may result in the termination of the proceedings.

7.5.2 Firstly, proceedings may be terminated where the claimant withdraws its claim. However, the respondent may object to the withdrawal of the claim by the claimant. The arbitral tribunal will consider whether there is a legitimate interest for the respondent in obtaining a final settlement of the dispute and decide whether to terminate or continue the proceedings. 56 ibid, art 31(1).   

7.5.3 Secondly, the proceedings may also be terminated where the arbitral tribunal deems that continuing the proceedings is either impossible or unnecessary. 57 ibid, art 31(2).   

7.5.4 Thirdly, the parties may terminate the proceedings by mutual agreement. 58 ibid, art 31(3).   

7.6.1 An award rendered in line with the provisions of LICA is final and binding, unless it is set aside under Article 33 or Article 34 of LICA. 

7.7.1 The arbitral tribunal may, at a party’s request or at its own discretion, correct or clarify any errors in the award, including, but not limited to, calculation and typography. Where the correction or clarification is to be carried out at the request of the parties, they may submit their request within 30 days from the receipt of the notice of the award. Moreover, the arbitral tribunal may also clarify the terms of the award, if the terms are vague or obscure. The parties may request an additional award for the parts the award has remained silent on. 59 ibid, art 32.  In such cases, the arbitral tribunal may issue a complementary award within 60 days, which can be extended.

8.1.1 LICA does not expressly preclude national courts from intervening in arbitral proceedings. 

8.1.2 LICA provides for certain activities that have to or may be carried out by competent courts: 60 LICA, art 6.  

• issuing orders for protective interim measures prior to or during the arbitral proceedings at a party’s request; 61 ibid, art 9.  
• appointing an arbitrator, where the parties fail to appoint one; 62 ibid, art 11(3)-11(4).
• dealing with a challenge to an arbitrator’s appointment; 63 ibid, art 13(3).  
• deciding on the termination of an arbitrator’s mandate; 64 ibid, art 14(1).  
• deciding on the arbitral tribunal’s determination regarding its competence in a preliminary ruling; 65 ibid, art 16.  
• invalidating the arbitral award in accordance with Article 33 of LICA; 66 ibid, art 33.  
• deciding a request by the parties to recognise and/or enforce an arbitral award; 67 ibid, art 35.  and
• arranging for the enforcement of arbitral awards. 68 ibid.  

8.2.1 According to LICA, “court” is defined as “one of the courts of justice in the Islamic Republic of Iran”. 

8.2.2 LICA stipulates that the public court in the capital of each province, in which the seat of arbitration is located, has the supervisory authority in terms of the functions of arbitral assistance and supervisory measures. In the absence of seat determination, the public court of Tehran would have the requisite authority. However, LICA has taken steps towards minimising court intervention, 69 ibid, art 6. for example by:

• recognising institutional arbitration which led to the establishment of the Iranian Arbitration Institute (part 2 of Article 6 of LICA); 
• allowing arbitration institutions to appoint arbitrators, a power which was previously conferred on the courts under the CPC (parts 2 and 3 of Article 11 of LICA); 
• governing the termination of an arbitrator’s appointment, a power which was previously reserved for the courts under the CPC (part 1 of Article 14 of LICA); and
• reducing court intervention in actions to challenge arbitrators (part 3 of Article 13 of LICA).   

9.1.1 LICA acknowledges that the arbitral awards rendered within the scope of LICA’s rules are binding and enforceable. However, LICA contains grounds, upon which the awards may be set aside or the enforcement of the award refused. It should be noted that the grounds for both setting aside the award and its refusal are the same. 70 ibid, art 33.  

9.1.2 Once an arbitral award has been challenged, the competent court will set aside the award and annul it, if the grounds for invalidity have been satisfied. 71 ibid, art 33.  There are circumstances under which the aggrieved party can refer to the arbitrators at first instance and ask for a revision of the award before he applies to the court to invalidate it. For example, where the arbitral award was based on a document, which has been proven to be falsified by a final court decision, 72 ibid, art 33(1) (h).  or where documents have been found, the existence of which during the arbitral proceedings would have confirmed the position of the appellant but were concealed by the other party during the proceedings. 73 ibid, art 33(1) (i).   

9.2.1 Judgments of the public courts of Iran can be appealed to the courts of appeal if they meet certain requirements. For example, a decision of a Court of First Instance invalidating an arbitral award may be appealed to the Court of Appeal.

9.3.1 The parties who wish to challenge the award before the competent court must submit their request within three months from the official receipt of the arbitral award.

9.3.2 The arbitral award may be invalidated by the authorised court at the request of each party based on the following grounds:

• lack of capacity of a party to the arbitration; 74 ibid, art 33(1) (a).  
• the arbitration agreement is not valid under the law to which the parties have subjected it, or if no law is specified, under Iranian law; 75 ibid, art 33(1) (b).  
• the provisions of LICA concerning the proper notice of the appointment of an arbitrator or arbitration request are not observed; 76  ibid, art 33(1) (c).
• the party seeking annulment of the award was unable to present his case due to reasons beyond his control; 77 ibid, art 33(1) (d).  
• the arbitrator rendered an award beyond the scope of his authority. If the matters submitted to arbitration are separate from those not so submitted, only the part of the award which contains matters not submitted to arbitration will be nullified; 78 ibid, art 33(1) (e).
• the composition of the arbitral tribunal or the arbitral procedure was not in line with the agreement of the parties or in the silence of or lack of such agreement, was not in accordance with the LICA; 79 ibid, art 33(1) (f).  
• the arbitration award consists of the affirmative and effective view of the arbitrator, whose challenge has been accepted by the authorised court; 80 ibid, art 33(1) (g).  
• the arbitration award is reliant on a document which, according to a final judgment, was falsified; 81 ibid, art 33(1) (h).  or
• a document is found, after issuance of the arbitral award, proving the rightfulness of the party objecting to the award and which is proven to have been or caused to have been concealed by the other party. 82 ibid, art 33(1) (i).

9.3.3 It is noteworthy that some of the grounds listed above are not contained in the UNCITRAL Model Law. These include:

• where the award contains the affirmative view of a successfully challenged arbitrator; 83 ibid, art 33(1) (g).  
• where the award relies on a falsified document; 84 ibid, art 33(1) (h). or
  where a document proving the rightfulness of the party seeking annulment of the award is found, which has been concealed by the other party during the arbitral proceedings. 85 ibid, art 33(1) (i). 86 ibid, art 34(2).    

9.4.1 LICA has indicated additional grounds, based on which the arbitral award is essentially null and void. The following grounds may be raised ex officio by the court:

• the subject matter of the dispute is not capable of settlement by arbitration under Iranian law; 87 ibid, art 34(1).  
• the award is in conflict with Iranian public order, good morals or the mandatory provisions of LICA; 88 ibid, art 34(2). or
• the arbitral award deals with immovable property located in Iran and is therefore inconsistent with Iranian law or valid notarial documents, unless the arbitral tribunal has been authorised to make a settlement in the case of the latter. 89 ibid, art 34(3).      

10.1.1 In Iran, arbitral awards can be enforced upon a written request of a party to the court which is authorised in accordance with LICA. The competent court will be the public court of the capital of the province, in which the seat of arbitration is located and failing such designation, the public court of Tehran. An arbitral award issued in Iran within the scope of LICA, which is in compliance with Articles 33 and 34 of the LICA, will be declared enforceable. 

10.1.2 Arbitral awards which do not fall within the scope of LICA for reasons such as the limited definition of nationality under LICA, will be recognised as domestic arbitral awards and must meet the requirements of the CPC for enforcement. 

10.1.3 Since LICA is modelled on UNCITRAL Model Law, it may appear that it would also be applicable to arbitrations outside Iran as well as to the enforcement of foreign arbitral awards. However, it is arguable that LICA is only applicable to arbitrations in Iran and does not apply to the enforcement of foreign arbitral awards. 

10.2.1 In 2001, by enacting the Law on Accession (Act Ratifying the Convention), Iran acceded to the New York Convention with commerciality and reciprocity reservations. 

10.2.2 As a result, enforcement of a foreign arbitration award in the Iranian courts is governed by the Act Ratifying the Convention. Thus, according to the current practice in Iranian courts, neither the CPC nor LICA will apply to the enforcement procedure of a foreign arbitral award. 

10.2.3 This also means that if an Iranian party seeks a domestic court award to avoid the arbitration agreement (in order to avoid its enforcement), he must ground his application on the Convention’s regulations instead of the CPC and/or LICA. The Act Ratifying the Convention sets out the grounds based on which an Iranian court may refuse to recognise an arbitral award. For instance, by claiming that the recognition and enforcement of the arbitral award would be contrary to the public order of Iran or the agreement is not valid under the express or implied governing law of the agreement. 

10.2.4 The two reservations made by Iran are unlikely to lead to any complications, as “commerciality” has been defined in a very broad manner under LICA and since the Convention has been ratified by a large number of States, reciprocity would not undermine its implementation. A complicated issue on this matter is the reservation made to Article 139 of the Iranian Constitution which states that 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 that the Assembly must be informed of these matters. In cases where one party to the dispute is a foreign party, as well as in “important cases” (as defined under Iranian law) that are purely domestic, the approval of the Assembly must also be obtained.