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The Enforcement of the International Arbitral Awards in the Legal System of the Islamic Republic of Iran – Part I

Guiding Principle

In the case of dispute under private law, the Iranian arbitration law permits the dispute be filed before Iranian or international arbitration forums instead of public courts. In 2001, Iran became a member of the New York UN Convention of 10 June 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Therefore, foreign arbitral awards can also be enforced in Iran as far as they pertain to commercial matters. A few particularities must continue to be taken into account, however, meaning that ultimately even a foreign arbitral award may not be enforceable in Iran. It should always be kept in mind that in accordance with Article 139 of the Iranian Constitution, arbitral decisions of a foreign party with the Iranian government or a public company (governmental company) always require the explicit consent of the parliament.

A. Introduction

The traditional method of resolving business disputes is through litigation. This is a process whereby one or more of the parties to the dispute initiate legal proceedings in a court of law against the other party to the dispute. The parties are bound by the rules of civil procedure. Litigation is considered the least efficient and most expensive way to solve business disputes.

Although litigation is still a common method of dispute resolution, other methods of a non-judicial nature are gaining favor in the business world today. These are generally referred to as Alternative Dispute Resolution or by their acronym, ADR. The term is used to describe any means of resolving a dispute without a court trial. The boundaries of ADR are fixed only by the imagination of creative managers and their counsel, but six methods are said to have gained widespread acceptance: arbitration, negotiation, mediation, use of neutral expert fact finders, minitrials, and hybrids of these methods.

In view of the fact that there are several methods of dispute resolution, the parties to a dispute shall consider and select the method, which is the most appropriate for their particular dispute. In most business agreements, parties specify their chosen method upon entering the contract, well before the dispute has arisen.

B. Arbitration

Arbitration is by far the oldest and the most popular alternative method of business dispute resolution. The parties agree to submit any dispute arising out of their contract to one or more impartial parties for a binding decision. Arbitration is favored because of its claim to speed, privacy and lower costs. The UNCITRAL Arbitration Rules, promulgated in 1976, have achieved great authority and influence and became acceptable to countries with different economic, social and legal backgrounds. It is particularly favored in international commercial disputes because arbitral awards are generally more readily enforced in foreign countries compared to court judgments.

One major advantage of arbitration is that, unlike litigation where the adjudicatory system is prescribed and imposed by the state, the arbitration system to be followed in the particular case is the one settled by the parties themselves. Arbitration is always a creature of contract. There can be no arbitration without an arbitration agreement concluded before or after the dispute arises. The other major advantage of arbitration is that the parties have the right to choose their own judge or judges. This right includes the right to reject the judges that one party does not want. Furthermore, it is possible for the parties to choose different types of judges for different types of disputes that may arise under one and the same contract. Thus, the disputes that may arise under the contract may be classified as technical, financial, and legal to be decided by engineers or technical experts, accountants and financial experts, and legal experts respectively.

C. The International Arbitration Act in Iran

Iran joined the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards- done at New York, 10 June 1958; Entered into force, 7 June 1959, (New York Convention), on October 15, 2001 with the commercial and reciprocity reservations, and subject to Article 139 of the Constitution of Iran – the Iranian Government had cautiously received prior authorization from competent Iranian legislative authorities for doing so.

Iran was thus right to restore international arbitration, which is deeply rooted in the Iranian culture and legal system, back to its agenda. In doing so, it does not only encourage foreign investment in Iran and international trade with Iranian companies but also facilitates Iran’s possible progressive emergence as a significant regional arbitration forum.

I. Iranian Law on International Commercial Arbitration

1. International Commercial Arbitration Act of Iran

Iran adopted the legislation on international arbitration in 1997 entitled International Commercial Arbitration Act of Iran (abbrev. “IR-ICAAI”). Under the IR-ICAAI, the conditions of application of ICAAI are as follows:

  • when one of the parties is a foreign national;
  • when dispute is related to an international commercial relations;
  • when the provisions of IR-ICAAI would be applicable.[1]

The ICAAI is to a large extent based on the UNCITRAL Model Law. The IR-ICAAI recognizes the validity of both (i) the arbitration clause and the submission agreement and ad hoc and institutional arbitration, and (ii) incorporates internationally accepted arbitration principles contained in the Model Law such as the (i) autonomy of the parties to organize the arbitral proceedings and select the rules governing the substance of the dispute; (ii) separability of the arbitration clause; (iii) competence of the arbitral tribunal to rule on its jurisdiction; (iv) power of the arbitral tribunal to order interim measures; (v) assistance of local courts in the arbitral process (e.g. for the constitution of the arbitral tribunal); (vi) equal treatment of the parties; and (vii) exclusivity of the setting aside recourse against the award.

The IR-ICAAI goes even a step further than the Model Law by providing modern and comprehensive provisions on multiparty arbitrations and joinder of third parties.

The IR-ICAAI, however, contains a number of shortcomings, the most important one being its inapplicability to arbitrations held outside Iran or to foreign arbitral awards. Awards rendered outside Iran therefore had to be enforced in Iran as foreign judgments under the burdensome and extensive control imposed by Article 169 of the Enforcement Civil Judgments Act of 1977 (abbrev. “IR-ECJC”).

2. Tehran Regional Arbitration Centre (“TRAC”)

TRAC is reliable to some extent but cannot be compared with International Commercial Arbitration Centres.

If an arbitration agreement is governed by the IR-ICAAI, it cannot freely provide for the application of UNCITRAL of ICC rules and for the seat of arbitration. But, if an arbitration agreement has to be governed by rules of the Tehran Regional Arbitration Centre, the seat of arbitration could be chosen freely. Inversely, arbitration under the ICC rules or the UNCITRAL rules and Tehran would be an arbitration complying with the Internationals Arbitration Act.

II. Iran’s Accession to the New York Convention

Upon accession of Iran to the New York Convention, awards rendered outside Iran are enforceable in Iran pursuant to the Convention. Similarly, awards rendered in Iran are enforceable in all New York Convention countries that have ratified the Convention with the reciprocity reservation.

Iran, however, should move a step further, and adopt measures to ensure a proper application of the IR-ICAAI and the New York Convention. Adopting a law is one thing, but applying it correctly is another.

The requirements which should be fulfilled in order to enforce an arbitral award made in a foreign seat depend on the following cases:

a) Under the provisions of Article IV[2] and V[3] of the New York Convention;

b) Under Article 35 of IR-ICAAI:

“The awards of arbitration issued in accordance with the provisions of this Act are final and come into force after service, except the matter mentioned in articles (33)[4] and (34)[5] and the arrangements of enforcement of the courts judgments shall be applied in case of written application from the court mentioned in article (6). …”

It is understood that in case the arbitral award is not issued in accordance with the provision of IR-ICAAI, the enforcements of an arbitral award will be subject to the general rules governing the enforcement of foreign judgments and documents as set forth in IR-ECJC. Under Article 169 of IR-ECJC:

“Civil Judgments issued by foreign courts, as long as they satisfy the following requirements, will be enforceable in Iran, unless otherwise stipulated by law:

  1. The judgment is issued in a country, in which according to its laws judgments issued by Iranian Courts are also mutually enforceable of in relation to enforcements of judgments applies the principle of reciprocity.
  2. Whole of parts at the judgment is not contrary to public policy or morality.
  3. The enforcement of the judgment is not contrary to the international commitments of the Government of Iran or special laws.
  4. The judgment is issued in a country in which it is final and binding and it is still legally valid.
  5. The foreign judgment is not contrary to any judgment issued by Iranian courts.
  6. The proceedings, in accordance with the laws of Iran, are not related to Iranian courts.
  7. The judgment is not in relation to any immovable property in Iran and the rights or interests in the property.
  8. The verdict for the enforcement and the judgment is issued by the competent authority in the foreign country.”

Although the provisions of Article 169 of IR-ECJC concern the civil judgments issued from the foreign courts, nevertheless Article 177 of the same Act provides that:

The Regulated documents, which are binding in foreign countries, will be enforceable in accordance with the rules specified for enforcement of foreign judgments in Iran.

In addition, the diplomatic of consular mission of Iran, in the country in which the document has been issued, must certify the veracity of the document with local laws.

Furthermore, Article 178 of IR-ECJC adds that:

Foreign judgments and documents will be enforced in accordance with Regulations for Enforcement of Civil Judgments.

At some point, Iran will inevitably face the problem of proper application of the IR-ICAAI and the New York Convention, not necessarily because of its possible unwillingness to apply these norms according to the international practice but due to the fact that most judges in Iran today are, to say the very least, unfamiliar with international arbitration, let alone its proper interaction with the judiciary. Moreover, Iranian courts are overwhelmed with their caseloads and improperly staffed. As it is the case in many other countries, a present-day litigant in Iran might, if deprived of support, have to wait more than a decade to obtain a judgment, sometimes questionable, from an Iranian court. Iran could thus perhaps heed the call previously made for the creation of a court composed exclusively of judges specialized in international arbitration to hear international arbitration matters in order to reduce the possibility of erroneous and inconsistent decisions often reached in complex arbitration cases by national courts, including those of industrialized nations.

April, 2013 Zahra Tahsili
Meyer-Reumann & Partners, Tehran Office

[1]     Article 2 of IR-ICAA:

  1. The arbitrations of disputes in international commercial relations, whether purchase and sale of goods and services, transportation, insurance, financial affairs, services, investment, technical assistances, agency, commission agency, contract work and similar activities, shall be done under the provisions of this Act.
  2. All persons who have competence to lodge a complaint, may refer their international commercial disputes to arbitration under the provisions of this Act, whether it is raised before legal authorities or not, and in case of reference at any stages, by mutual agreement.

[2]     Article IV:

  1. To obtain the recognition and enforcement mentioned in the preceding article, the party applying for recognition and enforcement shall, at the time of the application, supply:
    (a) The duly authenticated original award or a duly certified copy thereof;
    (b) The original agreement referred to in article II or a duly certified copy thereof.
  2. If the said award or agreement is not made in an official language of the country in which the award is relied upon, the party applying for recognition and enforcement of the award shall produce a translation of these documents into such language. The translation shall be certified by an official or sworn translator or by a diplomatic or consular agent.

[3]     Article V:

  1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:
    • The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
    • The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
    • The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or
    • The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
    • The award has not yet become binding, on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
  2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:
    • The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
    • The recognition or enforcement of the award would be contrary to the public policy of that country.

[4]     Article 33:

  1. The award shall be nullified upon the request of one of the parties by the parties by the court mentioned in article (6) in following instances:
    1. If one of the parties lacks competency.
    2. If the arbitration agreement shall not be valid under the applicable law and in case of the silence of applicable law it shall be explicitly contrary to the Iranian laws.
    3. If the provisions of this Act have not been observed for serving the notice of the appointment of the arbitrator or request for arbitration.
    4. If applicant for nullifications has not been successful to submit his evidences and documents under any reason which has been beyond his control.
    5. If the arbitrator has rendered an award beyond his power (ultra vires). If the matters referred to arbitration are separable, that part of the award is only voidable which is beyond the scope of arbitrator’s powers.
    6. If the composition of the panel of arbitration or arbitral procedure is not in accordance with the arbitration agreement and it is contrary to the rules mentioned in this Act and or in case of silence or non-existence in the arbitration agreement.
    7. If the award of arbitration consists of concurring and effective opinion of the arbitrator that his challenge is accepted by the authority mentioned in article (6).
    8. If the award of arbitration is based on document which is approved to be forged by a final judgment.
    9. If after issuing the award, documents are found which were evidence to the entitlement of the objector and it is approved that such documents are withheld by the adverse party or he has caused them to be hidden.
  2. In case of the matter mentioned in clauses (h) and (i) of this article, the party who incurred loss from the forged or withheld document, before he proceeds to the request for nullification of the award, he may apply the arbitrator to consider again the case, unless the parties have agreed otherwise.
  3. Request for nullification of the award mentioned in clause (1) of this article should be submitted to the court mentioned in article (6) within a period of three months from the date of service of the award whether corrective, supplementary or interpretative award to objector, otherwise it shall not be heard.

[5]     Article 34:

The arbitrator award is basically void and unenforceable in following cases:

  1. If the main subject of the dispute shall not be settled through the arbitration under the law of the Islamic Republic of Iran.
  2. If the provisions of award is contrary to public order or good morals of the state or imperative rules of this Act.
  3. If the award of arbitration issued in respect of immovable properties located in Iran or it is contrary to the provisions of valid official documents, unless the arbitrator has a right to conciliate in the latter.
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