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Commercial Agencies and Distributorships in the Islamic Republic of Iran

Guiding Principle

There is no specific law that regulates commercial agencies or distributorships in Iran. Nevertheless, a considerable amount of commercial transactions are conducted by agencies and distributors in Iran and the general rules on representation and the terms of the agreement, concluded between the principal and the agent/distributor, are governed.

A. Introduction

There is no specific law that regulates commercial agencies or distributorships in Iran. General stipulations can be found in the Commercial Law of Iran (abbrev. “IR-CL”) and Civil Code of Iran (abbrev. “IR-CC”). Nevertheless, a considerable amount of commercial transactions are conducted by agencies and distributors in Iran and the general rules on representation and the terms of the agreement, concluded between the principal and the agent/distributor, are governed. General regulations concerning commercial broker, commission agent and commercial agent can partly be found in the Commercial Law of Iran.

On the other hand, Iranian Civil Code defines the Agency as a contract whereby one of the parties appoints the other as his representative for the accomplishment of some matter.

In Iran the principle of freedom to contract is applied and the contracts are governed by will, consent and intention of contracting parties. Therefore, the parties are authorized to stipulate the duties of the agent and principal in the contract, which is binding, based on Art. 10 IR-CC as follow:

“Private contracts shall be binding on those who have signed them, providing they are not contrary to the explicit provisions of the law.”

Based on Iranian law, after the conclusion of the contract the contracting parties are bound by the obligations created thereunder, and a court cannot free any party from its obligations undertaken in the contract, on the pretext of exercising equity and justice. Art. 219 IR-CC provides:

“Contracts made according to law are binding on the parties or their substitutes, unless they have been cancelled by mutual agreement or for some legal reason.”

As far as international commercial contracts are concerned, the governing rules are the same as for national contracts unless they are in contradiction with public policy or good morals.

B. Basic Definitions

In case based on the concluded agreement, the Iranian distributor/agent imports and sells products in his own name, the rules on representation will not be applied and the distributor/agent is regarded as commission agent. According to Commercial Code, the commission agent acts under his own name but in account of the principal, for a commission. In case of missing any provisions with regard to commission agent, the general regulations of agency of the Civil Code are valid complementarily. The commission agent in Iran can be compared to the commercial agent in other countries.

A “Commercial Surrogate” is appointed according to Art. 395 IR-CL as representative of the principal for commercial matters. His signature is binding for the principal’s limitations to his Power of Attorney, which are not valid towards third parties who are acting in good faith and without knowledge of the limitations of the Power of Attorney of the agent.

A “Broker”, according to Art. 335 IR-CL is a person that arranges contracts or appropriate business partners against a fee. He neither enters into a direct agreement, nor does he import any goods in his own name. The Broker has to inform both parties of the details of a deal, even though he has only been appointed by one of the parties.

There are “distributors” in Iran, even though the Iranian law does not cover distributorship. Since the distributor imports and sells goods under his own name, the general rules and regulation on representation do not apply.

C. Formal Requirements

In Iran, it is neither required by law to register an agent/distributor, nor does a central register for agents/distributors exist. However, in case a trade registration office is available, registration of the agent is advisable. In practice some Ministries do require registration. If a trade registration office is not available, registration can be done with the respective Ministry.

D. Duties of the Agent/Distributor

According to principle of freedom to contract, the parties may stipulate the duties of the agent/distributor in the contract. In addition to his contractual duties, the agent/distributor has to supply his principal with proper information. Contrary to the broker, who has to give both parties information, the agent only acts in the interest of the principal. In case of breach of trust the agent may not only lose his commission, he may also be held liable. However, the agent cannot be held liable for the creditworthiness of either party, unless he has given a guarantee to the contrary.

E. Duties of the Principal

As mentioned above, due to the freedom of contract the parties may agree on the responsibilities of the principal in the contract. One of the primary obligations of the principal according to the law is the obligation to execute all legal transactions that have been entered into by the agent within the limits of his authority.

The principal has to compensate the agent for his services and his efforts. In addition, he has to indemnify the agent for all expenses or losses incurred which were not due to the agent’s fault, and if the agent was acting within his authority.

F. Termination of Agency Agreement

According to Iranian Law, the commercial-agency-work is a contract revocable at any time; that is why the principal as well as the agent have the following termination options:

  • As per the contractual stipulations, unilaterally or upon mutual agreement: Especially according to Civil Code, the principal has this right to terminate without giving additional legal reasons, except it was stipulated differently in the commercial agency contract.
  • Termination of the contract because of death or legal disability of the principal or the agent;
  • Termination ordered by law, e.g. because of insolvency of the principal, gross negligence or because of impossibility of fulfillment of the contractual purpose.

Iranian law does not expressly refer to the requirement of payment a commission upon termination of the agency contract. Nevertheless, compensation upon termination is common practice in case the agreement has been terminated prematurely. Only in case the termination of the contract is at the result of the agent’s action, remuneration does not have to be paid. Thus the exact arrangement should be part of the contract between principal and agent.

July, 2016 Zahra Tahsili
Meyer-Reumann & Partners, Tehran Office
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