On 12 May 2021, Advocate General Hogan issued his opinion in the first case by the Court of Justice of the European Union (CJEU) considering the Blocking Regulation. The Opinion, in Case C-123/20 Bank Melli Iran v Telekom Deutschland GmBH [2018], sets out proposals for how the CJEU should respond to a reference from the Regional Court of Hamburg as to the interpretation of Council Regulation (EC) No 2271/96 (known as the Blocking Regulation) (see original request) regarding a dispute between a German telecoms company and its services contract with an Iranian Bank.
The Opinion from the Advocate General will be considered by the CJEU, and in practice such opinions are often followed by the Court, although they are not binding.
Background
Following the US’ re-imposition of sanctions on Iran in 2018, Deutsche Telekom (Telekom) terminated its contract with Tehran-based Bank Melli Iran (the Bank). The Bank argued that the termination was in breach of Article 5 of the Blocking Regulation, which the Bank alleges prohibits Telekom from complying with certain US secondary sanctions. The Blocking Regulation prohibits EU operators from complying with certain “requirements or prohibitions” set out in its Annex, including US secondary sanctions re-imposed on Iran, unless they are exceptionally authorised to do so. It also enables EU persons to recover damages from those EU operators.
The Opinion
The Opinion responded to a number of questions, including the scope of activities covered by the Blocking Regulation, rationale for contract termination, and the consequences of breaching the Blocking Regulation. The key takeaways from the Opinion are as follows:
- There will be a “requirement or prohibition” within the meaning of Article 5 of the Blocking Regulation where an EU operator complies with certain secondary sanctions, even where a foreign authority has not compelled them to do so.
- The Blocking Regulation imposes an obligation on Telekom to prove that its termination was made based on an objective reason other than compliance with US sanctions. For example, Telekom could argue that it has actively engaged in a coherent and systemic corporate social-responsibility policy, requiring it to refuse to deal with anyone with links to the Iranian regime. It will be for the Regional Court of Hamburg to determine the veracity of such reason.
- Where it is found that an EU operator has breached the Blocking Regulation, then the relevant national court would be required to order the operator to maintain the contractual relationship terminated in breach of the Blocking Regulation. A payment of damages would not be sufficient, because it would allow continued compliance with US sanctions upon paying the damages.
- The above conclusions are not contrary to the freedom to conduct business guaranteed by Article 16 of the Charter of Fundamental Rights of the EU, and in any case parties are entitled to seek authorisation to derogate from the Blocking Regulation and may challenge an unjustified refusal by the European Commission to grant an exemption.
- Given the nature of these cases and the lack of clarity on the application of the law in this area, a review of the Blocking Regulation is a matter for the EU legislature and is recommended by the Advocate General.
While the Opinion appears to be largely in line with the current Commission Guidance Note on adopting the Blocking Regulation, if adopted by the CJEU, it is likely to only increase the challenges faced by companies balancing the risks of compliance with EU and US secondary sanctions. The actions of EU operators seeking to comply with these competing priorities, and the basis of decisions will continue to be under scrutiny. The Opinion recognised that EU operators face “an impossible dilemma brought by the application of two different and directly opposing legal regimes”.
The case is currently being considered by the CJEU, and a judgment is expected in the coming months.
Following Brexit, the Blocking Regulation was retained under UK law in the Protecting against the Effects of Extraterritorial Application of Third Country Legislation (Amendment) (EU Exit) Regulations 2020. In considering the correct interpretation or application of retained EU law, UK courts must have due regard to relevant CJEU case law after 1 January 2021.
Many thanks to Oliver Thompson and Fran Garvey, trainees, for their assistance in putting together this post.
