The Court of Justice of the EU (CJEU) ruled on Tuesday 21 December that obligations under the EU’s blocking statute can be taken into account in civil proceedings.
In Case C-124/20 involving the Iranian bank Bank Melli Iran (BMI) and the German company Telekom, the CJEU considers that the early termination of a contract between the two firms by Telekom may have been motivated by US extraterritorial sanctions. De facto, the Court ruled that the European blocking statute can be invoked to cancel this termination, under certain conditions.
In 2018, Washington imposed sanctions prohibiting trade with certain Iranian entities, including BMI.
In response, the European blocking statute (see EUROPE 12077/7) prohibited European actors from complying with the US sanctions and therefore from ceasing their business with Iran. It also provides for compensation for damages resulting from sanctions.
German company Telekom, which generates half of its sales in the US, has decided to terminate its contract with BMI ahead of schedule. The Iranian bank therefore turned to the German Courts, citing the EU blocking statute.
Under this law, European companies can request authorisation from the European Commission to cease their activities with Iran, when their economic interests are seriously threatened. Telekom has not submitted such a request.
First, the CJEU rules that a person may terminate a contract with a company subject to US sanctions without having to obtain the Commission’s authorisation, as provided for in the blocking statute. However, the person concerned can be sued in civil court for this and will have to show that they have not stopped their activities because of the US sanctions.
Balance between economic harm to the company and the interest of the Union
The CJEU accepts that the blocking statute and its consequences may infringe on Telekom’s freedom of enterprise. It adds, however, that this limitation of freedom is “necessary in order to counteract the effects of the laws specified in the annex (here extraterritorial sanctions), thereby protecting the established legal order and the interests of the European Union”.
This is partly consistent with the Opinion of the Advocate General Gerard Hogan of the CJEU, published on 12 May 2021 on this case (see EUROPE 12719/16).
The CJEU judgment does not specify whether the German company Telekom can finally cancel the termination of its contract with BMI or not. On the other hand, it provides a framework for the Hamburg Higher Regional Court’s judgment. The CJEU concludes that the Court hearing the case must “balance” the pursuit of the objectives of the blocking statute against the likelihood that the targeted company “would be exposed to economic losses and the extent of those losses if it were unable to terminate its commercial relationship with BMI”.
See the judgment: https://bit.ly/32qPZ8P (Original version in French by Léa Marchal)