Iranian companies may not benefit from a court opinion on EU blocking law
In May, an Advocate General of the Court of Justice of the EU (CJEU) issued a notice who concluded that a decision by an EU entity to end a contractual relationship with an Iranian party subject to US primary sanctions should be considered invalid if it cannot be justified on any ground other than desire to comply with US secondary sanctions which fall under the EU Blocking Statute. In such a case, the national court of the EU should order the maintenance of the contractual relationship.
Advocate General Gerard Hogan said the EU’s blocking status should be understood – as a matter of public policy – as imposing an obligation on an EU entity in this scenario to give reasons for the end of the relationship and convince the competent court that he did so. not terminate a valid contract because of a desire to comply with relevant US secondary sanctions.
The case was referred to the CJEU by a German court, seeking clarification on the scope of the EU blocking law. The statute protects against the effects of the extraterritorial application of laws adopted by a third country. It was amended in June 2018 in response to then-US President Donald Trump’s decision to reimpose sanctions on Iranian companies that were originally suspended in 2015.
Bank Melli Iran has filed a lawsuit in German courts against Telekom Deutschland, claiming it broke the blocking law after terminating a contract. The bank said the advice given by Telekom Deutschland was invalid because it was solely motivated by Telekom Deutschland’s desire to comply with US law prohibiting non-US companies from doing business with Iranian companies subject to US primary sanctions, and providing for secondary sanctions against such non-US commitments in the event of default.
Telekom Deutschland argued that the EU blocking law does not change its ordinary right to terminate a contract without giving reasons. He said the EU’s blocking status left it free to end its business relationship with Bank Melli Iran at any time, and its motives for doing so were unimportant.
The opinion of the Advocate General does not bind the CJEU, which will rule later.
While this looks positive for Iranian businesses, the practical application is likely to be limited.
If the CJEU took the same approach, it would help Iranian companies that were the target of US sanctions, where an existing relationship had been severed and the only factor that changed from a risk perspective was the imposition of US Iranian secondary sanctions. .
Many trade relations between the EU and Iranian entities ended when the United States reinstated its Iranian secondary sanctions and, in some cases, before the blocking law was updated to deal with those sanctions. Iranian companies may be reluctant to sue the layoffs.
The opinion is also unlikely to be useful when an EU entity refuses to enter into a contract with an Iranian company, given that there are many risks associated with doing business in or related to this country that can be highlighted.
The EU maintains a sanctions regime against Iran with regard to the non-proliferation of weapons of mass destruction and serious human rights violations. Iran is also considered to be at high risk from a money laundering and terrorist financing perspective, and Advocate General Hogan stressed that an EU entity can refuse to deal with any company that has ties with the Iranian regime on the basis of its policy of corporate social responsibility.
Iranian and European companies will look forward to the judgment of the CJEU to assess the final impact of its decision.