Contract Law in Iran

20170221_113250Extract Tehran Times:

By Rebecca Meijlink – A team at International Research Networks (IRN) organised an excellent Iran Business Symposium on Feb. 21+23, 2017, at the Renaissance Hotel in Amsterdam. The purpose of the conference was to further create a better multilateral understanding and to serve as a platform whereby the global business and investment community could discover the latest developments and opportunities within the newly opened economy of Iran following the implementation of the Joint comprehensive Plan of Action (JCPOA), commonly called the nuclear deal. The forum was also intended to provide an opportunity for open discussion.

Sam Jalaei, Attorney-at-Law, partner Magnusson Law, gave an excellent presentation on the Contract Law and the Legal System in Iran.

Contract Law:
 Principle of freedom of contract
 Article 10 Civil Code on contracts; ”Private contracts shall be binding on those who have signed them, providing they are not contrary to the explicit provisions of law”
 Contracts are as per law either oral or written. Typically short written contracts. Tendency of the recent years towards written ones; international written contracts.
 Language of the contracts to be specified and signatory according to articles of association and language of the contracts to be specified.
 Iranians tend to re-negotiate: Contract points should be clear and terms and conditions defined.

 Mandatory Iranian Principles
 Freedom to choose the law of a country outside Iran only if the contract is signed outside Iran
 Iran Government institutions may only submit to arbitration with approval from Parliament
 If such approval is given the arbitration finding is also binding on the Government institution.
 Ordre Public. Agreements against public order, morality are not enforceable.
 Note “usery” disallowing interest on loans, as opposed to fees and default damages. Elements of unjust enrichment, unethical investments e.g. gambling, alcohol, pork products and speculation or even uncertain elements of the contract (price, delivery) should be avoided.

Limitation of Liability:
 Clear worded limitations are allowed, except to avoid liability for personal injury or death.
 There is a general principle of a duty to mitigate losses.
 Standard clauses on cap on liability, no liability for indirect or consequencial damages, only liability for gross negligence
 Force Majeure
 Iran applies the principle of Force Majeure as being causes outside a persons control that could not be foreseen or avoided or overcome
 Financing and Banking
 Iran banks operate under the Shari’ah interest free lending rules
 Investments in Iran banks capital is allowed, but strictly controlled

Applicable law:

Article 968 of the Civil Code of Iran;
”Obligations arising out of contracts are subject to lex loci contractus (the laws of the place of the signing the contract) except where both of the parties to the transaction are both foreign nationals and have explicitly or implicitly declared the transaction to the laws of another country”

– Iranian courts to decide for Iranian laws, if no arbitration clause
– In case of an arbitration clause, the law of choice.
– London Arbitration and UK law

Contract Law in Iran – Slide Show Presentation

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