Reasoned Arbitral Awards: An Iranian Perspective

Author: Sima Ghaffari*

Drafting an enforceable and well-reasoned arbitral award is an art. The reasons requirement has rarely been analyzed in the arbitral realm and the elements of reasoning in court decisions should not be adopted wholesale into the arbitral context. There exist various approaches to the reasons requirement in different jurisdictions, especially when it comes to the judicial review of arbitral awards. Iranian legislation does not articulate what satisfies the requirement of a reasoned award. This leaves room for uncertainty as to what qualifies as a well-reasoned award and what the practical consequences are in terms of enforcement when an award lacks the minimum standard of reasoning.

This blog post will explore the Iranian approach to the reasons requirement of arbitral awards, at both the domestic and international levels. In doing so, this blog post will briefly analyze this requirement through existing Iranian arbitration legislation and relevant case law in the domestic arbitration context. Lastly, it highlights key considerations that need to be factored by arbitrators when drafting an enforceable arbitral award in Iran.

Overview of Reasoning Standard in Iranian Arbitration Legislation

Iran has adopted a dualist arbitration regime and has distinct legislation for domestic and international arbitration. Iranian domestic arbitration is governed by Chapter 7 of the 2000 Iranian Civil Procedural Code (“CPC”)[1] and international arbitration[2] is governed by the 1997 Iranian Law on International Commercial Arbitration (“LICA”),[3] which is largely inspired by the UNCITRAL Model Law.[4]

Article 482 of the CPC requires an arbitral award “to be justified and reasoned” without any further explanation as to what constitutes a reasoned award. Article 482 is a reproduction of the previous version of the CPC relating to 1939 (Article 698) reinforcing the importance of reasons requirement.

In terms of international arbitration, the LICA contains a reasons standard mirroring the UNCITRAL Model Law. Article 30.2 of LICA provides that “[t]he award shall state all reasons upon which it is based, unless the parties have agreed that no reasons are to be stated therein.” Hence, the parties can include a waiver of reasons requirement in international arbitration. This also aligns with best practices as most arbitration legislation in different jurisdictions contain a reasons requirement with which the parties can dispense.

In domestic arbitration, however, Article 482 CPC has not stated that the parties can agree otherwise. Accordingly, one can argue that dispensing with the reasons requirement is not allowed in domestic arbitration. In the author’s view, given the consensual nature of arbitration, parties have the ability to dispense with the reasons requirement. As regards institutional arbitration, Article 52.3 of the arbitration rules of the Arbitration Center of Iran Chamber (“ACIC“)[5] provides that parties can agree and waive reasoning requirements. This would be inconsistent with Article 482 when it comes to the importance of reasoning standard in domestic arbitration.

While there are Articles that have attempted to present a relevant discussion as to the definition of reasoning in judicial context, there is a dearth of scholarly publications examining the topic in depth within the arbitration context.[6] Article 166 of the Iranian Constitution and Article 296 of the CPC require the courts to state all reasons and laws upon which the decision is based. While the same amount of detail and reasoning contained in a court judgment is not required for arbitral awards, reasoning standards in arbitral awards can be examined by analogy to litigation.

A reasoned award has been described[7] as one in as one in which the Tribunal briefly sets out its “findings of fact and conclusions of law” such as to show the integrity of the arbitral endeavor—this “requires something more than a line or two of unexplained conclusions.”[8] In fact, awards must be sufficiently intelligible and explain why conclusions were reached by arbitrators.[9] As put by S.I Strong, reasoned awards “enhance the legitimacy of the arbitral process in the eyes of the arbitrators, the parties and the public, including national courts […] and provide key assurances regarding the nature and quality of justice.” [10]

Recently, the Iranian Judiciary has drafted an Arbitration Bill merging domestic and international arbitration to establish a uniform regime in Iran.[11] Although the Parliament is currently working on the Bill and to date, it has not yet been ratified, it can be analyzed here in order to better understand the approach of the Iranian legislator. Article 71 of the Arbitration Bill sets forth some conditions for arbitral awards and provides that: “arbitral awards shall be reasoned and contain the following: precise information of the parties and arbitrator; name of the institution (in institutional arbitration); date of issuance of award; seat of arbitration; summary of the arbitral proceeding including the arguments of the parties and evidence and all reasons upon which the award is based.”[12]

Producing adequately-reasoned awards requires both time and diligence. A careful assessment of factual findings and legal conclusions and combination of facts and laws are required when drafting final awards. The extent of reasoning varies considerably in different cases and there is no detailed guidance on the discursive and operative parts of a reasoned award. Therefore, drafting a well-reasoned award can be tricky for some arbitrators. Given the confidential nature of arbitration, which prevents the awards from being widely available, arbitrators are not able to check different models of recently published awards in their jurisdictions.

In the context of institutionalized arbitration, at the Arbitration Center of Iran Chamber of Commerce (ACIC) and Tehran Regional Arbitration Center (“TRAC”), most arbitrators are aware of the particularities of arbitration. TRAC does not provide guidance on award writing and in its Article 35 merely emphasizes the reasoning requirement and the parties’ right to waive such requirement.[13] Article 52 of the arbitration rules of ACIC dedicated to “the form and content of the award” introduces different elements of an award: an introduction, a summary of the proceedings, the award, and the operative part of the award. Further, this Article provides guidance on the mentioned elements for arbitrators and notes that:

 “1. The ‘introduction’ includes the case number, the date and number of award and the place of proceedings, the specifications and address of the parties, the name of arbitrator and the relief sought.

2. The “summary of proceeding” includes a short statement of the parties’ positions and arguments, the hearing, and also measures taken for establishment of the facts and assessment of evidence.

3. The “award” shall state a statement on the subject-matter of the claim or claims, the relief sought and also state all reasons upon which the award is based, unless the parties have agreed that the reasons for the award should not be mentioned or that the award is made on agreed terms under Article 50 above or it is made ex aequo et bono.

4. The “operative part” of the award contains the specific finding of the arbitrator concerning the relief sought and concerning the parties’ presentations and also an order concerning the actions and the obligations that the relevant parties must execute in compliance with the operative part of the award”.

It seems that the ACIC’s arbitration rules are the only existing rules in Iran that shed some light on what constitutes a reasoned award. In addition, one of the practical advantages of institutional arbitration is that once arbitrators draft the awards, the arbitration centers review the form of the awards and lay down modifications regarding form.[14] If necessary and without affecting the arbitrators’ liberty of decision, the centers draw the tribunal’s attention to the points of substance. Therefore, by providing an additional layer of protection, the scrutiny process makes the awards less susceptible to being set aside in the domestic courts. Nonetheless, ad hoc arbitration drafting a reasoned award, as an “award accompanied by written opinions based on law,”[15] is more challenging.

Novice arbitrators or non-lawyer arbitrators lacking the necessary skillset might not know how persuasive an award must be to be enforceable at the end of the day. Sole arbitrators might fail to interpret and apply the appropriate legal standards into the award. Also, where multiple arbitrators are engaged, reaching consensus on all the key issues of a case is harder. As it remains uncertain what qualifies a reasoned award in the Iranian arbitration landscape, it is recommended for arbitral institutions and the Arbitration Center of the Iranian Bar Association to design effective training programs on arbitration award writing. This would minimize the risks in set-aside proceedings and also in recognition and enforcement proceedings under the New York Convention in the future.

Reasoning Standard in Iranian Case Law

A close look at the Iranian arbitration legislation demonstrates that existing laws actually dictate the reasons requirement. However, the laws are silent on how an award should be drawn up to meet this standard. The absence of statutory requirements for reasoned awards is an important issue raising key questions: Can enforcing judges rely on the lack of adequate reasoning to set aside the award or resist the enforcement for want of reasons? Should “unreasoned” awards be differentiated from the ones containing “insufficient” reasoning? Iranian courts have dealt with the topic of award drafting; however, there are divergent judicial standards as to what constitutes a well-reasoned arbitral award.

Here, the blog post explores the judicial review of domestic arbitral awards by providing some court decisions.[16] First, three decisions interpreting the CPC reasons requirement rendered by Branch 36 of the Civil Court of Tehran will be discussed. All three decisions relate to domestic arbitral awards.

• Decision 94/00060, 2015: The court resisted enforcement of the award on the basis that the reasons given therein were deficient. The court referred to the judicial intervention at the enforcement stage. As per Articles 3, 4 and 482 of the CPC, awards shall be reasoned and state the laws upon which they are based. Further, the court stated that “[h]owever, in the present case, the arbitral award merely contains some descriptive sentences and does not meet the minimum procedural standards of an award. In fact, the award lacks explanation and legal justification and does not refer to any legal principle”.
• Decision 93/00973, 2015: When it came to enforcement of award, the court held that “[a]ccording to Articles 3 and 482 of the CPC, an arbitral award shall be reasoned and based on laws and this is not merely simple procedural formalities. In fact, these requirements intend to introduce what constitutes a valid and enforceable award. In the present case, however, there is no reference to laws. Thus, the award is not reasoned. Fundamentally, the award merely contains some recommendations.” As such, the court refused to enforce such an award.

• Decision 9409982160100883, 2016: The same court in another case set aside the arbitral award since the arbitrator had neither stated the reasons of the award nor provided the legal justifications. The court stated that the issues highlighted in the award had been generalized in the award.

Furthermore, there has been a long-term controversy over setting aside of unreasoned awards. Prevailing scholarly opinion argues that the seven grounds for setting aside arbitral awards set out in Article 489 of the CPC are exhaustive. They have sharply criticized the wide interpretation and extension of the grounds to lack of reasoning of awards. There is a fair amount of case law on this issue and courts have repeatedly stated that the grounds for setting aside are limited to those listed in Article 489.[17]

More importantly, Branch 27 of the Civil Court of Tehran in Decision 89/00361 clearly noted that a finding of an unreasoned award in domestic arbitration does not amount to setting aside. Likewise, Branch 4 of the Civil Court of Ghazvin in decision 93/1017 also stated that “[a] mere lack of reasoning does not amount to setting aside of awards. The grounds and reasons reflected in the award might be the summary of what the arbitrators took into consideration during the arbitral proceeding”. Hence, the award as a whole should be taken into consideration when assessing its reasons adequacy. It can be understood that lack of reasoning cannot be considered a stand-alone ground for setting aside the awards.

On the contrary, some notable Iranian scholars are of the view that the grounds on which awards might be set aside are not exhaustive. This is evidenced in decision number 94/00163, delivered by Branch 25 of Tabriz, where the court set aside the award stating that “after a short introduction of the case, the award contains the decision of the tribunal and lacks elaboration on the dispute and reasoning of the tribunal.” Further, the court noted that the reasons requirement is part of “public policy of the Iranian legal system.” Accordingly, the court considers want of reasons as a violation of procedural public policy.

Additionally, some commentators focus on the purpose of reasons requirement and suggest that unreasoned awards would breach the right to be heard, due process and natural justice rights. To this effect, unreasoned awards can trigger paragraph 1 of Article 489 of the CPC (being contrary to the fundamental rules of law) and might be set aside. Thus, the analysis reveals that there is controversy among the Iranian courts over the legal remedies of unreasoned arbitral awards.

Concluding Remarks

The current position on reasons requirements of arbitral awards under Iranian law remains unsettled. The Iranian Supreme Court has not yet issued a unifying judicial precedent describing the minimum standards of a reasoned award and the practical consequences of failing this requirement. It seems that one should differentiate between unreasoned awards and insufficiently reasoned awards.

Until a clear standard is devised and in order to have an enforceable award, it is suggested that arbitrators be mindful of the reasons requirement and briefly address the roadmap of the process of their decision making in their awards. It remains substantively important for drafters of arbitral awards to ensure that the award is drafted in a well-structured, timely, and concise manner. A reasoned award normally starts with an overview of the arbitration procedure and the arguments of the parties and ends with analysis of the tribunal. Reviewing the above-mentioned cases reveals that the Iranian courts, even in small and lower value cases, make an assessment whether the arbitrators have weighed up the evidence and arguments and referred to legal relevant principles and jurisprudence or not.

Ultimately, there is a strong need for more rigorous analysis regarding whether courts are competent to set aside the award when they determine non-adherence to certain standards related to reasoning of awards. It is recommended that courts provide guidance on this point both in domestic and international arbitration in order to avoid any judicial misunderstandings at the enforcement stage.

*Sima Ghaffari is a member of the Tehran Central Bar Association and presently serves as an ICC YAF Representative for the North Africa, Middle East and Turkey. Sima’s practice focuses on dispute resolution and international trade law. She frequently publishes articles pertaining to ADR, in particular international arbitration and mediation. Sima can be reached at: sima.ghaffari6@gmail.com.

[1] Aini Dadrassii Madani [Civil Procedure Code] 1379 [2000] (Iran), Chapter 7, available at https://oveisrezvanian.com/civil-procedure-code-of-iran-chapter-seven-on-arbitration/ (last visited March 24, 2022).

[2] The distinction in question is based upon the parties’ nationalities. Domestic arbitration is when both parties are Iranians and the seat is Iran and international arbitration is when at least, one of the parties is non-Iranian at the time of concluding the arbitration agreement and the seat is Iran.

[3] See LICA provisions, available at https://oveisrezvanian.com/wp-content/uploads/2019/02/Iran-Law-on-International-Commercial-Arbitration-LICA.pdf (last visited March 24, 2022).

[4] 2006 amendments of the UNCITRAL Model Law on International Commercial Arbitration (effective 7 July 2006), https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/19-09955_e_ebook.pdf.

[5] ACIC is the first arbitral institution established in Iran in 2002. See the ACIC’s arbitration rules at: https://arbitration.ir/rules/arbitration-rules/ (last visited March 24, 2022).

[6] On this topic, there is only one article in Persian. See Eisa Amini & Abbas Mansouri, Reasoning of domestic Iranian arbitral award with focus on case law, J. of Private Law Researches (2017), https://jplr.atu.ac.ir/Article_8349_e5ca9e7cb59b8bcf4d6142dd039091cd.pdf.

[7] S. I. Strong, Reasoned Awards in International Commercial Arbitration: Reasoned Awards in International Commercial Arbitration: Embracing and Exceeding the Common Law-Civil Law Dichotomy, 37 Mich. J. Int’l L. 1 (2015).

[8] S.I. Strong, What Qualifies as a Reasoned Award?, American Bar Association (July 29, 2019), https://www.americanbar.org/groups/litigation/committees/alternative-dispute-resolution/practice/2019/what-qualifies-as-a-reasoned-award/.

[9] Sean Stephenson & Benjamin Jarvis, Reasoning in International Arbitration: The Emergent Approach in Canada, 1(2) Can. J. Comm. Arb. 85, 143 (2021).

[10] See S.I. Strong, Reasoned Awards in International Commercial Arbitration, Kluwer Arb. Blog (February 19, 2016), http://arbitrationblog.kluwerarbitration.com/2016/02/19/reasoned-awards-in-international-commercial-arbitration/.

[11] The original text of the Bill can be found at https://www.ekhtebar.com/%D8%B7%D8%B1%D8%AD-%D8%AC%D8%A7%D9%85%D8%B9-%D8%AF%D8%A7%D9%88%D8%B1%DB%8C/.

[12] Further, Article 71 of the Arbitration Bill states that in case an award does not specify the names of the parties, arbitrators, the date of issuance of the award or  the subject of the award is not clear, if this cannot be modified by the arbitrator, then the award in question will not be effective and enforceable and the courts will be competent to hear the case.

[13]  Article 35 of TRAC Arbitration Rules: “The arbitral tribunal shall state the reasons upon which the award is based, unless the parties have agreed that no reasons are to be given”.

[14] See Article 53.1 of the ACIC Arbitration Rules and Article 35.4 TRAC Arbitration Rules.

[15]  Thomas E. Carbonneau, Rendering Arbitral Awards with Reasons: The Elaboration of Common Law of International Transactions, 23 Colum. J. Transnat’l L. 579, 581 (1985).

[16] All Iranian court decisions are not public and accessible and few decisions are available online at: https://ara.jri.ac.ir/.

[17] Civil Court of Tehran, Decision 152 of branch 89 and Decision 94/0007 of branch 26, Decision 9109970221001863 of the Appeal Court of Tehran. The original Persian version of the decisions can be found at: https://ara.jri.ac.ir/.