Commercial Agency Contracts in Iran

There is no specific definition of the agency agreement in the Commercial Law and Civil Law of Iran. In order to design an agency relationship between a commercial entity, company or business actor and its agent, we need to refer to the general concepts that are accepted in the practice and custom of the Commercial Law.

In this light, an agent is considered as an independent natural or legal entity who is acting as businessman and is responsible for promoting, marketing, and negotiating contracts on behalf of the principal. The agent operates based on the terms established in an agency contract, which is generally based on the rules of independency of the parties and trust.

The agency agreements are mainly conducted under Article 10 of the Civil Code of Iran that grants the freedom to parties to agree on the terms of the cooperation as far as it would not be against the laws. The agency agreements normally are divided into exclusive and non-exclusive agreements based on the parties’ agreement.

Since the basis of the agency agreement is trust between two parties, recognition of capabilities for good performance and knowing the agent personally are fundamental. It is understood that access to local market is normally possible through meeting of the companies and market leaders in international forums, exhibitions or through contact with the mutual and local chambers of commerce. After initial evaluation or even conduct of a due diligence, the agent can be appointed. A written contract is required to establish the agency relationship and also to define terms of agreement.

There are no regulated provisions for exclusivity of the agent’s rights under the laws of Iran and it depends on the term of contractual agreement. The agency agreements can be concluded under exclusive or non-exclusive agency relationship. In the law no specific provision are ratified for protection of the rights of exclusive agent and the general provisions of liability under Civil Law apply in case of breach of a contract.

The contracts that are concluded in Iran with the scope of performance in the territory of Iran, are subject to the laws of Iran. If the scope of performance of a contract is outside of Iran and the place of conclusion of the contract is also outside of Iran, it is possible for the parties to agree on application of a foreign jurisdiction in the contract.

According to the principle of freedom of contracts subject to Article 10 of the Civil Code of Iran, parties are allowed to agree on dispute settlement clause. The general rule provides for jurisdiction of the courts of Iran for dispute settlement. However, the parties can agree on arbitration or mediation for dispute settlement in the contract. Arbitration is recognised under the laws of Iran as enforceable, valid and final dispute settlement tool. The parties are allowed to agree on different procedures for arbitration including referral to ad-hoc and institutional arbitration centres inside or outside of Iran.

Under the laws of Iran, recognition of a judicial award is subject to the provisions of the Civil Procedure Code of Iran. Different conditions are required to be met for recognition of a foreign award such as existence of bilateral treaty between two countries, reciprocal treatment and no conflict with the laws and public policy of Iran.

Iran has joined the 1958 New York Convention on recognition and enforcement of foreign arbitral awards in 2002 and therefore, enforcement and recognition of foreign arbitral awards are also possible under the laws of Iran.

Termination of an agency contract is subject to the provisions of the contract and the parties’ agreement. The right of cancellation of the contract is granted to parties under certain conditions such as breach of the contract provisions, obligations and commitments by either party.

In case that a term is specified for an agency agreement, the contract shall be terminated by the end of the contract’s term, unless it is extended. If the agent or principal is a natural person, the agency agreement can also be terminated by death or incapacity of the party. If the agent or principal is legal entity, cancellation may happen through dissolution of the legal entity.

Although consequences of cancellation or termination of a contract are present in the Civil Code of Iran, the law does not foresee an indeminity for termination in favour of the agent.

That said, it remains possible for the parties to demand compensation of damages in case of breach of contractual obligations by the other party and also to apply for damages for late payment. In case of non agreement of the parties on damages in the contract, compensation of damages shall be subject to general rules under Civil Code of Iran and would be determined by the judicial or arbitral distinction. Nevertheless, consideration of damages for loss of benefits or profits under a contract subject to law of Iran, is still a challenging matter.