In the Iranian legal system, due to certain difficulties in establishing extra-contractual civil liability—especially regarding the burden of proving damages and causation—there is a strong tendency to include "liquidated damages" clauses in contracts. This practice is generally accepted as long as it remains within the scope of the principle of freedom of contract and is kept within reasonable limits.
However, the fundamental question remains: Can these clauses be determined devoid of any criteria or standard? Can one stipulate a condition in a contract—where the total value of the consideration is one unit—that condemns a breaching party to pay 10, 100, or even 1000 times that amount?
As an arbitrator, I have recently issued an award in which I conducted a profound analysis of the jurisprudential (Fiqh) and legal foundations for limiting liquidated damages. In this ruling, relying on the principle of "non-harm" (La Darar) and legal standards, I have defined the legitimate ceiling for such clauses.
If you are interested in reading my legal analysis on this matter, you may download the full text of the arbitral award via the link below: