The recovery of a debt in Iran

Premise

Iran has always maintained excellent trade relations with Italy, so much so that it n’ve become Europe’s second largest trading partner over the past decades, after Germany. Although Iranian companies must generally consider themselves good payers, commercial disputes aimed at recovering a debt, in the context of trade between Italy and Iran, are part of reality. It should also be considered that the reintroduction of economic sanctions toward Iran by the United States D’America – although not by the European Union – has resulted in the emergence of new disputes between Iranian traders and those Italian companies that, being linked to the financial or economic system of the U.S., have had to leave the local market, leaving substantial receivables uncollected.

The Civil Code

In the Islamic Republic of Iran, relations between private parties are governed primarily by the Civil Code, a legal instrument of Napoleonic inspiration but based on the sources of Islamic law and the principles of the Shiite Imamite legal school. The codification of Iranian civil law began in 1928 and was subject to numerous amendments until the advent of the modern Civil Code, consisting of 1335 articles. The Code è is divided according to the tripartition of European codes, into THINGS (governed by Book I), PEOPLE (governed by Book II) and ACTIONS ( governed by Book III). As will be seen below, it is not a given that the contract that is the subject of the business relationship with the Iranian party is governed by local law. However, should litigation be instituted before the Iranian Judicial Authority for the recovery of the debt, the law applied by the court in the proceedings can only be the local law, as the application of a foreign law in an ordinary judgment is not allowed in Iran.

The preliminary steps

Let us now see what are the preliminaries to be put in place in case the Iranian debtor has not settled her trade debt.

Preliminarily, it is necessary to correctly identify what the debtor's actual business name is. It often happens, in fact, that Iranian companies operating with foreign countries maintain two names: an official one designated at the Company Registry (in Farsi) and an international one (in Latin characters), used only for commercial and marketing purposes.

Preme emphasize that only the official name will be the one valid for the purposes of the law and the only one that should be used to carry out any kind of legal activity, including that of recovering a debt.

Secondly, in the case of a contract for the supply of goods, it will be necessary to make sure that the person who appears in the customs documents as the consignee of the goods is actually the debtor. Often, in fact, when the customer does not have the necessary import licenses to bring foreign goods into the country, he relies on the figure of the importer, to whom the customs documents, including invoices, are made out. In such cases, from a formal point of view, the importer is not the owner of the contractual relationship and therefore cannot be the recipient of credit recovery activities. Be careful, therefore, not to confuse the importer with the customer: only the latter is to be considered the actual obligor.

Identified correctly the debtor, it will be necessary to send it a legal notice, intimating the payment of the amount due within a peremptory term, generally 15 days.

The legal notice can be put in place directly from Italy or from Iran.

Taking into consideration that there is no certified mail in Iran and that international couriers (such as DHL) do not operate to the country due to the U.S. embargo, in case the notice is sent from Italy by international registered mail, the time of receipt will be particularly long. Therefore, it is suggested that the debtor be anticipated to receive the notice by e-mail and fax as well.

If the notice is sent from Iran, on the other hand, è it is possible to avail of the institution of the so-called “judicial notice”, which allows the creditor to enjoin the debtor to fulfillment through the Iranian Judicial Authority, although he has not yet instituted a court case. This type of notice will be’served by the same Judicial Authority.

The judicial proceedings

In the event that the notice sent has no effect and thus the debtor continues to remain in default, the option of instituting judicial proceedings aimed at recovering the debt will have to be considered.

If a written contract has been concluded between the parties, è it is necessary to check preliminarily whether a forum for dispute resolution has been provided in it, which may be a judicial forum (e.g. Tehran Court or Milan Court), or an arbitration forum (e.g. Lugano Chamber of Commerce). In that case, it will necessarily be necessary to institute the proceedings at the indicated forum, under penalty of a declaration of lack of jurisdiction by the court otherwise seized. If, on the other hand, there is no written contract, it will be necessary to consider where to institute the proceedings, whether in Italy or Iran, depending on the type of service envisaged between the parties.

All foreign natural and legal persons have the right to access local Justice: it should be noted that access to the courts, unlike in the vast majority of states, can also be done independently, i.e., without the aid of a lawyer, but this practice is now almost abandoned and in any case not recommended.

The Iranian judiciary is exercised by the Courts of Justice under both domestic law and Islamic principles and è is characterized by three degrees of judgment. The first degree è represented by the Common Courts of First Instance, which are responsible for all disputes in civil and criminal matters. The second degree of judgment is up to the Common Courts of Appeal, one for each of Iran's 30 provinces, which are responsible for ruling on judgments rendered by the courts of first instance. Last instance, which operates only in cases provided for by law, è that of the Supreme Court, which has three different branches (one in Tehran, one in Qom and one in Mashhad), which is responsible for reviewing the legitimacy of judgments issued by the lower courts. Cases worth more than Rial 20,000,000.00 (approximately Euro 400.00) can be submitted to the Supreme Court's review in civil matters.

Claims secured by Iranian checks

In Italy, the delivery to the creditor by the debtor of a check to secure a debt è contrary to mandatory rules, and in view of this; the guarantee agreement underlying the delivery of the check è illegitimate and void.

In Iran, on the other hand, the issuance of a check by the debtor, to be returned only if the latter properly fulfills its obligation 'remaining in the creditor's possession in the meantime as an enforceable title to be enforced in case of non-performance or defective performance' è a fully legitimate and frequent practice, especially when dealing with contracts of significant amounts. Obviously, the check will be drawn on an Iranian bank and the expected amount will be in Rial currency.

If the Italian creditor had received an Iranian check as collateral and the intimation for payment remained unfulfilled, he or she, independently or through an attorney, may take it to a local bank for collection. Under Iranian law, the lack of funds in the drawer's account can result in very serious consequences, both civilly and criminally.

Specifically, it è provides for the blocking of all current accounts in the debtor’s name in the country and the debtor’s loss of the right to receive bank loans. The outstanding check, moreover, constitutes an enforceable title for the creditor, which can be enforced immediately before the Judicial Authority. From a criminal standpoint, the’issuance of an unpaid check can result in the debtor being imprisoned for up to two years and banned from leaving the country.

Practical Tips

In Iran there is no statute of limitations, so that it is possible to collect a debt at any time. However, in the event that it has been secured by a check, the latter must be cashed within the period of 5 years from the date affixed to the title. Criminal liability for the outstanding check, on the other hand, may be exercised within 6 months from the date affixed to it. In any case, regardless of whether the claim is secured by a check, è it is crucial to act as soon as possible in view of the frequent fluctuations of the Iranian currency, which è is often subject to devaluation phenomena.