Governing Law in Iran Civil Code
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When an Iranian national cannot determine a foreign law to govern to a contract?

  • Fact Summary

    1. An Iranian national concluded a charter party with a British citizen.

    2. Iranian party filed a petition against British party for Demurrage.

    3. Governing law in their contract was British legal system.

  • Rule of law

    1. According to Article No 968 of Iran Civil Code: obligations of a contract are in governance of the law of the place where the contract was made (Lex Loci Contractus) except in case those parties are foreign nationals and determined a foreign law to govern to the contract.

  • Facts

    1. The contract concluded in Iran and one of the parties was an Iranian national.

    2. Iranian party files his petition in Iran.

    3. The court decided about dispute base on Iran Law.

  • Holding and Decision

    1. According to Iran Civil Code, only foreign parties of a contract can determine a foreign law to govern to contract. When one or more of the parties are Iran national, and the contract was made in Iran, the governing law cannot be a foreign law.

  • Conclusion and Analysis

    1. Court’s decision is according to Iran Civil code.

    2. Three elements in this case led the court to disregard the parties agreement about governing law:

      1. Lex Loci Contractus. The place of conclusion of contract was Iran. As the primary law in Lex Loci Contractus, if contract was not made in Iran, agreement of the parties about governing law was applicable.

      2. An Iranian national. If both parties of a contract are foreign nationals they can determine a foreign law even if “the place where contract has been made” is Iran.

      3. Petition to a court. If the contract stipulates that disputes will be settle by arbitration, the agreement of the parties about governing law is applicable. see How to file a petition in Iranian courts?

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