Arbitration Law in Iran: Resolving International Disputes

Arbitration law in Iran is split between two regimes: the International Commercial Arbitration Act of 1997 for international disputes, and the Code of Civil Procedure for domestic ones. Iran has also been a party to the New York Convention since 2001, so foreign awards can in principle be recognised there, subject to the declarations Iran made.

This guide explains how the two regimes work, what a well-drafted Iran-related arbitration clause should say, the main limits on arbitrability and enforcement, and how to approach a dispute with an Iranian party. It is general information, and the position on enforcement in practice should be checked with Iranian counsel before you rely on it. Whichever route you take, a clear and enforceable clause agreed at the outset costs far less than a dispute about the clause later.

The legal framework for arbitration law in Iran

The International Commercial Arbitration Act was adopted on 1 December 1997 according to the WIPO Lex database, and UNCITRAL lists Iran among the states with legislation based on the Model Law (1997 entry). A 2021 commentary on JURIST describes the Act as largely adapted from the 1985 UNCITRAL Model Law. It is therefore recognisable to practitioners from other Model Law countries, although it is not identical to the Model Law.

Domestic arbitration, mainly between Iranian nationals, falls under a chapter of the Iranian Code of Civil Procedure. The dividing line is nationality: under Article 1 of the Act, arbitration is international if one party is not an Iranian national under Iranian law when the arbitration agreement is concluded.

What the Act says about the arbitration process

The English text of the Act published on WIPO Lex gives the following core rules:

• Party autonomy. The parties choose the number of arbitrators (three if they do not), the venue and the language of the proceedings (Articles 10, 20 and 21).
• Appointment. Unless agreed otherwise, each party appoints one arbitrator and those two appoint the presiding arbitrator, within 30 days. The presiding arbitrator must be a national of a third country (Article 11).
• Separability and jurisdiction. An arbitration clause is treated as an independent agreement, and the tribunal may rule on its own jurisdiction (Articles 7 and 16).
• Applicable law. The tribunal applies the rules of law the parties have chosen, and decides as amiable compositeur only if expressly authorised (Article 27).
• Interim measures. The tribunal can order them, and a party may also apply to the court (Articles 9 and 17).

The arbitration agreement must be signed by both parties or evidenced by an exchange of communications recording both parties’ acceptance (Article 7). In practice that means a clause buried in unsigned standard terms is a risk, and it is better to have it signed or clearly accepted in writing. Where the seat is in Iran, the supervising court is the public court of the provincial capital where the seat is located, or Tehran if no seat is set (Article 6).

Arbitration law in Iran: challenging and enforcing awards

An award is final and binding once notified, subject to challenge (Article 35). An application to set aside an award must be filed within three months of notification (Article 33), on grounds that include incapacity, an invalid arbitration agreement, a tribunal exceeding its powers, and irregular procedure.

Article 34 adds grounds on which an award is void and unenforceable. These include a subject matter that cannot be arbitrated under Iranian law, content contrary to public order or mandatory rules, and conflict with mandatory Iranian rules on immovable property in Iran. Enforcement of an award rendered under the Act is then pursued through the court, following the procedure for court judgments.

Foreign awards and the New York Convention

Iran acceded to the New York Convention on 15 October 2001, and it entered into force for Iran on 13 January 2002, according to the WIPO Lex treaty record. The official New York Convention website lists two declarations:

• Commercial reservation. Iran applies the Convention only to differences arising from relationships considered commercial under its national law.
• Reciprocity. Iran applies the Convention only to awards made in the territory of another contracting state.

The practical effect is that the seat of your arbitration should be in a New York Convention state, and the dispute should be clearly commercial. An award made in a state that is not a contracting state falls outside Iran’s declared reciprocity basis. How Iranian courts apply the public order exception and other defences in practice is a matter for local counsel; we do not rely on any one decision here.

State entities and arbitrability limits

Disputes involving the state need particular care. A 2021 JURIST commentary notes that Article 139 of the Iranian Constitution requires Council of Ministers approval before public or state property disputes are settled by arbitration, with parliamentary approval also needed where a foreign party is involved. The commentary describes the rule as controversial, and its application to state-owned companies acting commercially is argued about.

Certain matters, such as bankruptcy or family status, cannot be arbitrated, and the JURIST commentary refers to Article 496 of the Code of Civil Procedure for such limits. Article 34 of the 1997 Act separately makes awards on non-arbitrable subject matter void. If your counterparty is a government body or a state-linked company, check early who has authority to agree to arbitration, and whether approvals are needed. Our work on Iranian company authority review can help.

Drafting the arbitration clause

A weak clause is the most common avoidable problem under arbitration law in Iran and elsewhere. A sound clause for an Iran-related contract will:

1. Name the institution and rules, or state clearly that the arbitration is ad hoc.
2. Fix the seat, preferably in a New York Convention state, and the language.
3. State the number of arbitrators and how they are appointed.
4. Choose the law governing the contract and, separately, the arbitration agreement.
5. Avoid terms that conflict with mandatory Iranian rules or public order.

Regional institutions include the Arbitration Center of the Iran Chamber of Commerce and the Tehran Regional Arbitration Center, according to the JURIST commentary. For a comparison of leading international institutions, see our guide to international arbitration institutions. Contract-level points are covered in contract law in Iran.

What to do next

1. Identify whether your counterparty is private, state-owned or state-linked.
2. Confirm that the planned seat is in a New York Convention state and that the dispute is commercial.
3. Select the institution, rules, language and number of arbitrators.
4. Choose the governing law of the contract and the arbitration agreement.
5. Have Iranian counsel review the clause for conflict with mandatory rules.
6. Plan enforcement from the start: where are the counterparty’s assets, and which court would act?

How PAD International Group helps

PAD International Group, led by Dr Ahmadreza Moeini, advises on arbitration law in Iran, including drafting arbitration clauses, running arbitrations with an Iranian element and planning enforcement. See our arbitration services or contact us to discuss a dispute.

This article is general information, not legal advice for a specific case.

Frequently asked questions

Is Iran a party to the New York Convention?

Yes. Iran acceded on 15 October 2001 and the Convention entered into force for it on 13 January 2002. It made declarations limiting the Convention to commercial matters and to awards made in other contracting states.

Is Iran’s arbitration law based on the UNCITRAL Model Law?

UNCITRAL lists Iran’s 1997 legislation among laws based on the Model Law, and commentators describe the Act as largely adapted from the 1985 text. It differs in places, for example in the rule that the presiding arbitrator must be a third-country national.

When is an arbitration ‘international’ under Iranian law?

Under Article 1 of the 1997 Act, arbitration is international if one party is not an Iranian national under Iranian law when the arbitration agreement is concluded.

How long do I have to challenge an award made under the Act?

An application to set aside must be filed within three months of notification of the award, according to Article 33 of the Act as published on WIPO Lex.

Can a government body or state company agree to arbitration?

It depends on the entity and the circumstances. Article 139 of the Constitution requires cabinet and, in some cases, parliamentary approval for arbitration of state property disputes, so check authority and approvals before signing.

Sources

• WIPO Lex – Iran, Act Concerning International Commercial Arbitration (1997), IR014
• WIPO Lex – Iran Act record (adoption 1 December 1997)
• UNCITRAL – Status of the 1985 Model Law
• New York Convention website – Contracting States (Iran)
• WIPO Lex – Iran, New York Convention declarations
• JURIST – Reflections on the Status of International Commercial Arbitration in Iran (2021)
• IM Campus – Status quo of ADR in Iran