General aspects
European economic operators who decide to expand their commercial network in Iran may choose to establish an agency relationship with an Iranian importer, which represents one of the most effective ways to approach the local market.
Art. 656 of the Civil Code of the Islamic Republic defines agency as that contract by which one party entrusts the other party to undertake certain actions as its representative.
There are three types of agents classified by the Iranian legal system: the broker, that is, one who acts as an intermediary between the parties in a transaction; the commission agent, namely one who acts in their own name on behalf of the principal; and finally, the commercial agent.
Given that Iranian law does not provide specific requirements for the agent, it is important to clarify that the license to import goods from abroad is granted only to natural or legal persons of Iranian nationality. Consequently, unless the European operator decides to establish its own company under Iranian law, under its control and acting as agent, it is necessarily required to engage an Iranian commercial agent.
Forms of the agency agreement
Agency agreements can be categorized into four main forms:
- special, when the agent is assigned the task of acting only for the performance of a specific act;
- general, when the agent can act within the limits of the power assigned to him by the contract;
- universal, when the agent's powers are unlimited;
The duties of the agent, governed by Art. 666 et seq., derive mainly from the agreements between the contracting parties.
The representative must always act in the interests of the principal and may be held liable for any financial losses resulting from a failure to do so. In any case, the agent is liable for any obligations undertaken with a third party that fall outside the scope of the mandate. Furthermore, pursuant to Art. 668, the representative is bound by obligations of disclosure towards the principal.
Duration and dissolution
The duration and termination of the agency contract are subject to the free determination of the contractual will.
The parties may withdraw from the agency contract at any time without giving reasons, unless otherwise provided for in the contract. The contract may also be terminated in the event of the death or incapacity of one of the contracting parties (Art. 678 of the Civil Code).
Pursuant to Art. 672, sub-agency is not permitted, unless this possibility has been expressly or implicitly provided for by the parties.
Form and content
Iranian law does not impose specific formal requirements for the conclusion of a contract, which may therefore be concluded verbally or by conclusive acts. However, it is certainly preferable to draw up a written contract that regulates the obligations of the parties, especially with regard to the use of import licenses, which are issued by the Chamber of Commerce, Industry, and Mines upon approval by the Ministry of Commerce.
The contract that a company is about to enter into should explicitly clarify certain aspects:
- the agent's commission, which is otherwise determined according to local customs;
- the agent is required to take out insurance, given that there is no obligation to furnish a guarantee for the goods being traded;
- whether or not the agent is exclusive.
It is important to note that Iranian law protects the principal more than the agent, and this aspect must always be taken into account given that, for example, the laws of European Union member states and other countries, on the contrary, favor and protect the agent more than the principal.
In particular, this refers to the terms of notice, the causes for termination of the agency contract, and the obligation to pay severance pay.
Certainly, at present, Iranian law does not provide for this whole series of rights in favor of the agent, so it is advisable to assess, on a case-by-case basis, whether to subject the agency relationship to Iranian law or to the law of the principal's country of origin or to the law of a third country.
Jurisdiction and applicable law
Another very important aspect to consider concerns the provision for the choice of the competent court, where this is included in the agency contract. In fact, the Islamic Republic of Iran does not have agreements with many countries on judicial cooperation and assistance, which could pose some problems in terms of the recognition of decisions taken by foreign judicial authorities (although, in practice, there is a tendency to accept judgments issued by foreign courts, provided that they do not conflict with internal public policy rules).
It is therefore preferable to provide for any disputes that may arise between the principal and the agent to be submitted to arbitration, as Iran has ratified the 1958 New York Convention on the Recognition of Foreign Arbitral Awards. It is essential to predetermine the seat of arbitration, which may be located in the principal’s country or in a third country.