In the previous article, we briefly introduced the concept of arbitration and its procedural framework. In this article, we focus concisely yet accessibly on the two main forms of arbitration: domestic and international commercial arbitration.
Domestic Arbitration
Chapter 7 of the Iranian Code of Civil Procedure, from Articles 454 to 501, governs domestic arbitration. Unlike mediation and conciliation—which may, under certain legal circumstances, apply to specific criminal cases—arbitration is strictly excluded from criminal law and is solely applicable to civil and commercial disputes.
According to Article 454:
“All persons with legal standing may agree to submit their existing or potential disputes, whether or not filed with the court and at any stage of the proceedings, to one or more arbitrators.”
However, arbitration does not entirely override the jurisdiction of state courts. Article 139 of the Constitution of the Islamic Republic of Iran states:
“Compromise in disputes relating to public and state property, or referring such disputes to arbitration, in each case requires approval by the Council of Ministers and must be communicated to the Parliament. If one of the parties is foreign or the matter is of national importance, parliamentary approval is also required.”
This is echoed in Article 457 of the Civil Procedure Code:
“Referring disputes concerning public and state property to arbitration shall take place only after approval by the Council of Ministers and notification to the Islamic Consultative Assembly. In cases involving foreign parties or subjects deemed significant under the law, parliamentary ratification is additionally required.”
Therefore, for instance, the Ministry of Science or other government agencies may not submit disputes to arbitration—whether with individuals or private companies—without such approvals. If a foreign party is involved, parliamentary ratification is mandatory.
That said, civil and commercial disputes between private individuals and legal entities are very common, and arbitration centers such as the Iran Chamber of Commerce and private arbitration institutions regularly administer such proceedings.
Mr. Khademi’s Law Office, with over 20 years of experience in both representing clients and serving as an arbitrator, has a proven and effective record in commercial arbitration. His firm in the Netherlands, AdvoLink, also offers arbitration services under Dutch law.
International Commercial Arbitration
With the exponential growth of international trade, reliance on domestic legal systems—originally designed for national citizens—led to numerous conflicts, as national laws often contradicted one another. To circumvent these legal obstacles, parties in international contracts increasingly turned to arbitration. Yet, given the varying arbitration laws across jurisdictions—and the necessity of domestic courts to enforce arbitral awards—this solution remained imperfect.
Consequently, the era of globalization ushered in the development of international commercial arbitration treaties and conventions aimed at standardizing procedural norms. In line with this, Iran enacted the Law on International Commercial Arbitration (LICA) in 1997, which is a localized version of the UNCITRAL Model Law of 1985, albeit with minor modifications. This law separated international arbitration from the domestic rules found in the Civil Procedure Code, establishing a stand-alone framework specifically for cross-border commercial disputes.
The United Nations Commission on International Trade Law (UNCITRAL) publishes model laws on various subjects, and countries may voluntarily incorporate these into their domestic legal systems. Although UNCITRAL issued a revised version of the Model Law in 2006, Iran has not yet adopted it; the 1985 version remains in force.
Once an arbitral award is rendered, enforcement typically depends on judicial cooperation. To harmonize enforcement procedures globally, the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards was established. Iran became a signatory in 2001 under the domestic law titled: “Law of Accession of the Islamic Republic of Iran to the New York Convention”. According to Article 9 of Iran’s Civil Code, it carries the same legal weight as national legislation.
Due to the complex nature of international commercial law, the inclusion of governing law clauses and arbitration agreements at the contract formation stage is of paramount importance. In many cases, one party is from a country that has a bilateral investment treaty (BIT) or commercial treaty with Iran. These treaties often take precedence over domestic laws or even multilateral agreements previously ratified.
Sometimes, bilateral treaties include specific provisions about the legal regime that should prevail in case of a conflict. Thus, determining the applicable law and identifying the judiciary authorized to enforce arbitral awards requires precision and expertise.
Iran is a party to 61 BITs, including treaties with Germany and France, which often specify particular mechanisms for resolving investor-state disputes. The benefits of arbitration can only be fully realized if the arbitration clause is carefully drafted—by a specialist lawyer—with detailed attention to the applicable law, the powers and number of arbitrators, their method of appointment, the seat of arbitration, timelines, procedural rules, issuance and notification of awards, and the competent enforcement court. Otherwise, even a properly rendered award may be annulled by the court.
For this reason, entering into arbitration—whether domestic or international—without experienced legal counsel is strongly discouraged. Working with generalist or inexperienced attorneys in international commercial matters may result in loss of legal rights and waste of legal fees. The term “expertise” in this context means that the lawyer should have served both as arbitrator and counsel in arbitration proceedings, possessing firsthand experience in every phase from drafting arbitration clauses to post-award enforcement.
We strongly recommend that parties seek legal consultation before signing commercial contracts, particularly regarding arbitration clauses. Mr. Khademi, who has over two decades of experience in arbitration—as both arbitrator and legal representative—offers precisely such expertise. He holds a Class A Iranian legal license and is a member of the International Bar Association. His Dutch-based firm, AdvoLink, staffed by both international and Dutch lawyers, adheres to European legal standards and stands ready to serve Iranian and foreign businesses alike.
In the next article, we will introduce leading international arbitration institutions.