Iran: Litigation (2nd Edition)

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This country-specific Q&A provides an overview to Litigation that may occur in Iran.

This Q&A is part of the global guide to Litigation. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/litigation-second-edition/

Published June 2019

  1. What are the main methods of resolving commercial disputes in your jurisdiction?

    Commercial disputes in Iran may be resolved through litigation, arbitration, or alternative dispute resolution methods.

    Litigation

    Commercial disputes may be brought before civil courts. In general, the civil court system in Iran has three layers: courts of first instance, courts of appeal and the Supreme Court.

    Moreover, for “small disputes” which are the disputes their value of which do not exceed IRR 200 million, Dispute Settlement Councils (DSCs) are the competent authorities introduced by the Law of Dispute Settlement Councils, 2016 (DSCL).

    Arbitration

    Commercial disputes may be resolved through arbitration, which is either ad hoc or institutional. Tehran Regional Arbitration Centre (TRAC), affiliated with the Asian-African Legal Consultative Organization, and the Arbitration Centre of Iran Chamber of Commerce, Industries, and Mines (CICCI) are two principal arbitration institutions commonly chosen in commercial disputes in Iran.

    Chapter 7 (Articles 454 – 501) of the Code of Civil Procedure 2000 (CCP) (for internal disputes), the Law on International Commercial Arbitration 1997 (for international disputes), and the Law Approving the 1958 United Nations Convention (on recognition and enforcement of foreign arbitral awards) are the main legislations in relation to arbitration proceedings.

    Alternative dispute resolution methods

    Other forms of commercial dispute resolution such as mediation may also be used by the parties; unlike arbitration, however, these methods are not institutionally structured or statutorily regulated. Civil courts and DSCs may advise disputing parties to try to settle their disputes through alternative methods outside the court system, although there is no mandatory mediation mechanism for commercial disputes in Iran and the parties may decide to continue litigation nonetheless.

    Parties to a dispute can settle at any stage during the proceeding, or request from the court to provide them with time extension to negotiate a settlement. If successful, a binding settlement agreement may be entered into before a public notary office or the court.

  2. What are the main procedural rules governing commercial litigation?

    Commercial proceedings are primarily governed by the Code of Civil Procedure 2000 (CCP). In addition, the Law on Formation of Public and Revolutionary Courts 1994 contains provisions dealing with procedures in civil courts hearing commercial cases.

    The procedural system for commercial litigation in Iran is adversarial. The proceeding is commenced by a plaintiff via filing a written statement of claim with the court, along with any supporting documents. During the proceeding, service rules are of significant importance; these are mentioned in response to question 7.

  3. What is the structure and organisation of local courts dealing with commercial claims? What is the final court of appeal?

    The civil court system in Iran generally has four levels: DSCs, courts of first instance, appeal courts, and the Supreme Court. A DSC is composed of a judge and two assistants who are not judge; a court of appeal is composed of a three judges and a Supreme Court is composed of five judge. Judges of a court of appeal and a Supreme Court can hold hearing sessions by majority.

    Rulings of DSCs that hear small claims (falling below IRR 200 million) can be appealed before first instance courts, whose judgments will then be final. Other judgments handed down by courts of first instance are not final and may be appealed before the courts of appeal. A direct appeal from the ruling of courts of first instance to the Supreme Court is possible where the claim value exceeds IRR 20 million and the judgment of the court of first instance has not been appealed to the court of appeal within the statutory deadline.

  4. Are hearings held in public and are documents filed at court available to the public? Are there any exceptions?

    The hearings for commercial disputes are held in public, unless the court decides a public hearing will harm public order or good morals, or unless asked by the parties to have a private hearing. In practice, commercial hearings are almost always held in camera.

    Court documents such as statements of claim and defence, petitions, subpoenas, supplementary submissions and supporting documents as well as court ruling relating to commercial cases are not publicly available; though final judgments may be published on occasional basis usually by legal publications.

  5. What, if any, are the relevant limitation periods in your jurisdiction?

    Except in few cases, there are no limitation periods in commercial disputes. The main limitation periods in commercial matters are:

    (a) Under the Commercial Code 1932, claims against guarantors and endorsers in relation to financial instruments (eg, bill of exchange, promissory note and cheque) are subject to a five-year limit (starting from the date of certificate of non-payment for returned cheques or notice of protest to payer for bills of exchange and promissory notes and the last taken judicial measure or from the date of last judicial measure taken by the plaintiff, whichever earlier). The effect of expiration of limitation periods is that the holder of financial instrument loses recourse to guarantors and endorsers and cannot, but can still file a civil claim against the issuer claiming for settlement of debt.

    (b) Where stockholders of a company are liable under the law for transactions of the company, a five-year limitation period applies to third party claims against the stockholders (or their heirs). The limitation period starts, as the case may be, from the date of publishing the winding up notice of the company in the Official Gazette, or the date of publishing the notice of dismissal (if applicable) or exit of the relevant stockholder. Regardless of the foregoing, if the payment in dispute was due after such publication dates, the five-year period starts from due date.

    (c) Damage claims against carriers of goods may only be raised within one year from the delivery date, or one year from the expected delivery date if the goods are lost or destroyed.

  6. What, if any, are the pre-action conduct requirements in your jurisdiction and what, if any, are the consequences of non-compliance?

    There is no mandatory pre-action under Iranian law.

    Parties’ agreement on a multi-stage dispute resolution—where measures such as good faith negotiation, mediation or conciliation must be taken prior to court proceedings—will be binding, and a failure to comply will render the dispute inadmissible before court.

  7. How are commercial proceedings commenced? Is service necessary and, if so, is this done by the court (or its agent) or by the parties?

    Commercial proceedings commence upon filing a statement of claim with court (along with any supporting documents) and payment of court fees (or, alternatively, obtaining an exemption based on an insolvency judgment).

    After a claim is filed, the court clerk must initiate the serving process within two days of filing a complete statement of claim and, if applicable, payment of court fees by the plaintiff. The court clerk serves the filed documents to the defendant(s) and the date of the first hearing to the parties.

    If a defendant is an Iranian national registered in the Judiciary’s portal at www.adliran.ir, the court clerk sends the documents via the portal. When electronically sent, documents are deemed to have been served once received in the recipient’s electronic account (which means right after it is sent by the court’s clerk).

    If a defendant is an Iranian national but not registered in the portal, or if it is a foreign national domiciled in Iran, the documents will be physically served at the defendant’s address identified by the plaintiff or otherwise advised by the defendant.

    If a defendant is domiciled in a foreign jurisdiction, the court clerk must serve the documents through the Iranian consulate in such jurisdiction, and the hearing session date must not be less than two months from the service date.

    If a plaintiff does not know the address of a defendant, the notice of the statement of claim must be published in a widely circulated newspaper; and the hearing session date must not be less than one month from the publication date.

    There is no preferred method of serving documents in Iran in relation to foreign proceedings.

  8. How does the court determine whether it has jurisdiction over a claim?

    Territorial jurisdiction

    CCP sets out the rules governing jurisdiction of courts in relation to commercial domestic disputes. In principle, courts of the place of defendant’s domicile have jurisdiction over the dispute. If the defendant is not domiciled in Iran, courts of its temporary place of residence in Iran will have jurisdiction. If no such temporary residence can be identified, courts of the place where the defendant has an immovable property will have jurisdiction. Finally, if the defendant owns no immovable property in Iran, the plaintiff may bring the action in the courts of its own domicile.

    Regardless of the foregoing, if the claim is over an immovable property, courts of the place where the property is located will have jurisdiction.

    Moreover, where there is a contractual dispute, the plaintiff may also bring its claim before courts of the place where the agreement has been concluded or the place where contractual commitments must be fulfilled.

    Finally, if parties to a contract agree to refer their disputes to arbitration in commercial cases (except in bankruptcy, which is not arbitrable as it is in exclusive jurisdiction of courts), courts must decline their jurisdiction.

    Subject-matter jurisdiction

    As mentioned above, public civil courts have general jurisdiction to hear commercial disputes. In practice, however, certain branches of Tehran civil courts have emerged as specialised branches with respect to specific matters such as bankruptcy or intellectual property.

    There are also a number of other bodies established by law to hear specific disputes. For instance, disputes arising in relation to capital markets (eg, among issuers, investment advisors, investors, brokers and the regulator) must be resolved by the arbitral tribunal of the Securities Exchange Organisation.

  9. How does the court determine what law will apply to the claims?

    Under the Civil Code 1935, laws of the jurisdiction where the forum is situated will govern the question of court jurisdiction as well as civil procedure.

    With respect to substantive contractual rights and obligations, laws of the place of formation of the contract apply, except in cases where the parties to the contract are both foreign nationals and have explicitly or impliedly declared the transaction to be subject to the laws of a country other than Iran.

    Courts do not recognise a governing foreign law chosen by the parties if application of such law would, in the court’s opinion, be contrary to public order or good morals.

  10. In what circumstances, if any, can claims be disposed of without a full trial?

    Other than on procedural grounds, civil disputes may not be disposed of without a trial.

    A defendant may, in the first hearing session, raise procedural objections (eg, lack of jurisdiction, illegitimacy of the claim, res judicata, or parallel proceedings). Court must first decide on any procedural objections raised by the defendant; and only if such objections are not accepted, the court may move to consider the merits of the case.

  11. What, if any, are the main types of interim remedies available in your jurisdiction?

    In certain circumstances, a plaintiff may request the court an interim remedy either prior to or during court proceedings. Examples of such remedies include interim measures such as temporary seizure of assets or properties, or interim injunctions prohibiting certain acts or omissions by a defendant.

    To secure such interim remedies, a plaintiff must prima facie prove the grounds for its claim and must further show there is an element of urgency that warrants the requested remedy (eg, by establishing that debt recovery may be jeopardised by a defendant transferring its assets to third parties).

    An Iranian defendant being sued by a foreign plaintiff may demand that the plaintiff deposit a security for the costs which the plaintiff may be ordered to pay to the defendant including attorney fees) should the plaintiff lose the case.

    Interim remedies are “subordinate” to the judgment over the dispute itself. If the need for an interim remedy arises simultaneously with the main claim, the petition for such remedy may be included within the statement of claim.

    Iranian law does not provide for summary proceedings.

  12. After a claim has been commenced, what written documents must (or can) the parties submit and what is the usual timetable?

    Civil proceedings commence with the plaintiff filing a statement of claim, which must include names and addresses of the parties (and their attorneys); head(s) of claim; grounds for the plaintiff’s claim(s); list of evidence and supporting documents; and a brief statement of claim. The plaintiff must submit the originals of any supporting documents referred to in the statement of claim in the first hearing session and the defendant may submit its statement of defence and must submit originals of its supporting documents, if any, in the hearing session. Although statement of claim and statement of defence may be presented orally to the court during a hearing session, as a matter of practice both statements are usually filed with the court prior to or at the beginning of the hearing session.

    During the first hearing session, statement of claim may be amended by the plaintiff subject to satisfaction of certain conditions, in which case the court may allow the defendant to prepare an amended or supplementary statement of defence after the first hearing. A defendant may also request for additional time to prepare its statement of defence.

    If the defendant submits documents or evidence which cannot be refuted by the plaintiff without submitting new evidence, the plaintiff may request the court to postpone the trial to collect and submit such evidence.

  13. What, if any, are the rules for disclosure of documents? Are there any exceptions (e.g. on grounds of privilege, confidentiality or public interest)?

    Disclosure in commercial litigation is limited to those documents referred to by the parties during the proceedings. Such documents must be disclosed to the court and other disputing party(ies). Courts may order disclosure of other documents. There is no exception under Iranian law if disclosure is required during the proceeding.

    In general, obtaining disclosure prior to the proceedings is not available.

    There are no special rules or established practices in respect of electronic disclosure.

  14. How is witness evidence dealt with in commercial litigation in your jurisdiction (and in particular, do witnesses give oral and/or written evidence and what, if any, are the rules on cross-examination)? Are depositions permitted?

    In most commercial disputes, the parties support their claims or arguments by written evidence. Nevertheless, witness evidence may be presented in a standalone manner or along with documentary evidence. There are specific rules in CCP applied to witness evidence. For instance, testimony by witnesses who have an interest in the dispute is not acceptable. In addition, testimony of witnesses under the age of 15 is categorised as “presumptive” evidence, which can be prevailed by “persuasive” counterevidence.

    Iranian law discriminates between witnesses based on their gender, and specific numbers of male or female witnesses may be required under CCP and the Civil Code in different disputes. In general, and in the absence of prevailing counterevidence, commercial litigation with financial implications can be proved by testimony of two male witnesses,or two female witnesses together with one male witness.

    Witnesses are invited to a hearing session where oral or written witness statement will be obtained. Typically, it is the judge who asks questions from the witness; yet each party may challenge the credibility of the opponent’s witness, in which case the court must decide on credibility or qualification of the witness.

    Depositions are mostly available in insolvency proceedings.

  15. Is expert evidence permitted and how is it dealt with? Is the expert appointed by the court or the parties and what duties do they owe?

    Expert opinions are permitted but such evidence, along with field investigation or Judge’s knowledge, are categorised as “presumptive” evidence—in contrast to documentary evidence, witness testimonies, statements under the oath or confession, which are “persuasive” evidence.

    In disputes with technical issues where the court requires expert opinion, or where an expert opinion is requested by one of the parties, the judge may refer the questions to an odd number of qualified judicial expert(s). The judge would appoint the expert(s) and communicate the mandate and the scope of investigations to them. The judge would also set the timeline within which the expert(s) must render the requested opinion. The timeline may be extended by the judge if requested by the expert(s). Experts owe their duties to the court, must follow the judge’s instructions and meet the timeline imposed by the court, and must follow statuary rules of professionalism (such as those incorporated in Article 262 of CCP and Article 19 of the Law on Official Judicial Experts Association).

    The judge would also fix the expert(s) fee based on applicable fee regulations and depending on the complexity of the matter(s). The fee for the first opinion must be paid by the plaintiff and any fee for additional opinions must be paid by the party who has requested such additional opinion. If the judge requests for an expert opinion, the plaintiff pays the expert(s) fees.

    If a party has an objection to an expert(s) opinion, the party must submit its objection within seven days of the official service of the opinion. If the court accepts the objection, the matter will be referred to a panel where additional experts will be engaged. For instance, if objection to an opinion rendered by one expert is accepted, the court will refer the matter to a panel of three experts, and if the opinion by such panel is rejected too, the court will mandate a panel of five experts and then panels with higher number of experts. There is no cap under the law with respect to the maximum number of experts but a panel of more than seven experts is extremely rare.

    Once an expert opinion is ready, the court usually schedules a hearing session to receive the opinion and arrange for officially serving the opinion on the parties.

    Prior to commencement of the proceedings, a party considering a lawsuit may request DSCs to engage a judicial expert to opine on the need for, and the scope of, such party’s application for preservation order.

  16. Can final and interim decisions be appealed? If so, to which court(s) and within what timescale?

    Judgements

    Judgments issued by DSCs may be appealed before the courts of first instance, whose decisions will be final.

    Judgments handed down by civil courts of first instance on claims exceeding IRR 30 million may be appealed before the courts of appeal, whose decisions will be final.

    An appellant must submit an appeal petition to the court of first instance that has issued the judgment or to courts of appeal within 20 days of judgement service (for Iranian nationals) or within two months of judgement service (for foreign nationals, unless they are represented by an Iranian attorney, or have an Iranian branch office for service purposes, in which cases foreign nationals are also subject to the 20-day deadline). The appeal petition must clearly set out the grounds for the appeal and the defects in the judgment of the lower court.

    The court will then send a copy of the petition to the other party(ies), who may respond within ten days of receipt of the petition. Thereafter, the appeal process begins by referring the case to one of the courts of appeal by the referral authority in the courts of appeal. The court will examine the parties’ submissions to both the lower court and the courts of appeal, and will review the proceedings of the lower court to decide whether a hearing session would be required.

    Upon concluding its deliberations, a court of appeal may uphold the lower court’s decision or reject the decision in whole or in part, in which case the court of appeal will hand down a new judgment with respect to the rejected portion of the lower court’s decision.

    In commercial disputes, there is a narrow possibility to appeal directly to the Supreme Court where the claim value exceeds IRR 20 million and the judgment of the court of first instance has not been appealed to the court of appeal within the statutory deadline.

    Final orders and interim injunctions

    Final procedural orders such as dismissal of a petition, dismissal of a claim, and discontinuation of the proceedings due to incapacity of a party may be appealed only when the judgement on the merits is appealable.

    Similarly, interim injunctions (discussed under question 12) may not be appealed unless the judgment on the merits is appealable, except interim writ of attachment (tamin-e khasteh) which cannot be appealed.

     
     
     
     
     

  17. What are the rules governing enforcement of foreign judgments in your jurisdiction?

    Foreign judgements can be enforced after they are recognised by Iranian courts in accordance with the Law on Enforcement of Civil Judgments 1977 (LECJ).

    Under LECJ recognition and enforcement of foreign courts judgment is subject to the satisfaction of certain conditions, the most important of which in relation to commercial litigations are:

    • reciprocity in the country in which the judgment is handed down;
    • the judgment being final and enforceable in the country in which it has been handed down, and a writ of enforcement has been issued from the relevant foreign authorities;
    • content of the judgment not being contrary to the Iranian public order or good morals; and
    • absence of a judgment in Iran contrary to the judgment enforcement of which has been sought.
  18. Can the costs of litigation (e.g. court costs, as well as the parties’ costs of instructing lawyers, experts and other professionals) be recovered from the other side?

    If requested by the plaintiff, the court will rule on damages, contractual or legal interest as well as costs of litigation. Litigation costs include court fees, expert fees, costs of conducting any field investigations as well as attorney fees.

     
     
     
     

  19. What, if any, are the collective redress (e.g. class action) mechanisms in your jurisdiction?

    There is no regulated provision on collective redress under CCP, although there are specific cases in which Iranian law appears to have accepted the concept. Article 48 of the Law on Electronic Commerce and its implementing regulations allow legal and civil organisations in charge of protecting consumers’ rights to file lawsuit on behalf of aggrieved consumers who have made online transactions without any necessity to take their permission.

  20. What, if any, are the mechanism for joining third parties to ongoing proceedings and/or consolidating two sets of proceedings in your jurisdiction?

    Joinder

    A third party directly affected by the proceedings, or a third party whose interests are affected upon prevailing of one of the disputing parties may join the proceedings either at the first instance or appeal stages by filing a joinder petition with the court prior to the conclusion of the proceedings. Usually, joinder petitions are submitted prior to the end of the last hearing session in the Court of First Instance or conclusion of the court’s review in the appeal stage.

    Consolidation

    If two claims are considered sufficiently related to each other, the proceedings may be consolidated by judicial authority in the relevant courthouse in charge of referring cases to court branches.

    In addition, in the event of a counterclaim, a joinder or summoning of third parties to the proceedings, a consolidation occurs by default since these claims are related to the main claim or have the same cause of action.

  21. Are third parties allowed to fund litigation? If so, are there any restrictions on this and can third party funders be made liable for the costs incurred by the other side?

    There is nothing in the law that prevents financing litigation by a non-party; and litigation may be funded based on contractual arrangements between a third party and a disputing party. There is no statutory requirement that such third party must reimburse the other disputing party if the funded party loses the trial. However, litigation financing agreements typically oblige the third-party financier to cover all the disputing party’s litigation costs that may be imposed by the court.

  22. What is the main advantage and the main disadvantage of litigating international commercial disputes in your jurisdiction?

    The main advantages of a commercial litigation in Iran are (i) relatively low court costs and tactics to defer payment of such costs; and (ii) no disclosure procedure.

    The main disadvantages are (i) unavailability of witness cross-examination; (ii) unavailability of English language in proceedings; (iii) no strict timetable for proceedings, which will result in prolongation of proceeding; and (iv) limited number of countries with which Iran has reciprocal treatment for enforcement of judgments.

  23. What is the most likely growth area for disputes in your jurisdiction for the next 5 years?

    There has been an increasing number of disputes for termination of contracts including joint venture agreements as well as claiming damages and seeking specific performance due to difficulties in procuring foreign goods (including equipment and machinery) and impossibility of transferring funds to Iran, resulted from sanctions imposed by the US. We believe these disputes will increase further during the next five years if the difficulties remain in place.

  24. Will be the impact of technology on commercial litigation in your jurisdiction in the next 5 years?

    Use of information technology in commercial litigation would increase over the next five years. The Judiciary is already using electronic platforms for filing the claims and servicing the documents. Access to information is also expanding and will likely affect the practice and processes of commercial litigation. For instance, list of persons prohibited under the law to make transactions (for various reasons such as bankruptcy) is now available to the public through the portal of Title and Deed Registration Organisation’s subsidiaries.