May 17, 2021

Advocate General of the ECJ interprets EU blocking statute vis-à-vis US sanctions on Iran

On May 12, 2021, the Advocate General before the European Court of Justice issued an opinion regarding  four questions referred to the court by the Hanseatisches Oberlandesgericht Hamburg (the Hanseatic Higher Regional Court of Hamburg, Germany).  The case, Bank Melli Iran, Aktiengesellschaft nach iranischem Recht v. Telekom Deutschland GmbH, centers on a framework contract that allows Bank Melli, an Iranian bank with a branch in Hamburg, to group all of its company connections throughout Germany into one contract with Telekom Deutschland, a subsidiary of Deutsche Telekom, which, as a major global telecommunications provider, employs 50,000 people in the United States.  Following the US withdrawal from the Joint Comprehensive Plan of Action in 2018, US sanctions on Iranian entities —  including Bank Melli — were reimposed.  In order not to run afoul of US sanctions, Telekom Deutschland notified Bank Melli of the immediate termination of all contracts between them.

Bank Melli initiated proceedings against Telekom Deutschland, claiming that the latter had infringed the EU blocking statute by terminating the contracts.  The Landgericht Hamburg, the court of first instance, granted an interim injunction ordering Telekom Deutschland to perform its obligations under the contracts until the period of notice for ordinary termination had been satisfied (this ranged from January 2019 to January 2021 pursuant to Paragraph 620(2) of the Bürgerliches Gesetzbuch (German Civil Code, or BGB).   The bank appealed the ruling to the regional court, claiming that termination under the ordinary termination provisions of the BGB infringed Article 5 of Council Regulation (EC) No 2271/96 (November 22, 1996), which shields parties against the application of legislation adopted by a third country (the EU blocking statute), and the statute’s implementing regulation, because the terminations were motivated by compliance with US sanctions. 

The Hamburg regional court certified four questions to the European Court of Justice:

  1. Does article 5 of the EU blocking statute apply only in the event that a court order is issued by the US?  Or does it suffice that the action of the EU entity is predicated on compliance with secondary sanctions?
  2. If a court order is not needed to trigger the application of the blocking statute, then does the blocking statute preclude interpretation of national law that allows the terminating party not to state a reason for the termination?
  3. If the blocking statute does not allow for such an interpretation, must ordinary termination in breach of the blocking statute be deemed ineffective, or can the purpose of the blocking statute be satisfied through other penalties, such as monetary fines? 
  4. If ordinary termination is ineffective, and taking into account both the Charter of Fundamental Rights of the European Union and the possibility of an exemption being authorized under the blocking statute, does that apply even where failure to terminate would expose the EU operator to considerable economic losses?

In a non-binding opinion,  an Advocate General of the court answered the first question in the negative – no court order is necessary to trigger application of the blocking statute.  In response to the second question, the court stated that the first paragraph of Article 5 of the EU blocking statute must be interpreted as precluding an interpretation of national law under which a person referred to in Article 11 of the blocking statute may terminate a continuing contractual obligation without having to justify its decision to terminate the contracts.  The third and fourth questions, as noted by the court, ask essentially whether a court must order a party to maintain a contractual relationship despite potential hardship, and could the party claim that its fundamental rights would be violated by the requirement to maintain the contractual relationship.  The court concluded that the words of the blocking statute compelled an affirmative answer – that the court must require the contracting party to perform its obligations under the contract – and that such an injunction is liable to infringe Article 16 of the Charter of Fundamental Rights of the European Union.

In reaching this decision, the Advocate General expressed a degree of dissatisfaction with application of the EU blocking statute, which it termed “a very blunt instrument, designed…to sterilise the intrusive extraterritorial effects of US sanctions within the Union.  This sterilisation method will inevitably bring casualties in its wake…”

Advocate General opinion