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Insights / News
On 28th November 2018, after US secondary sanctions on Iran came back into force earlier that month, the Hamburg District Court granted an interim injunction in Bank Melli Iran v Telekom Deutschland GmBH 319 O 265/18 on the basis of the EU Blocking Regulation (Council Regulation (EC) No 2271/96).
The court ordered Deutsche Telekom, the defendant, to reinstate internet and telephone services to the claimant, Bank Melli Iran, after it had stopped services pursuant to renewed US sanctions. The court rejected Deutsche Telekom’s reasons given for terminating services without notice.
Deutsche Telekom appealed to the Hamburg Regional Court (11 Senate) (6th June 2019, 11 U 257/18). The Regional Court ordered the defendant to perform the contracts pending expiry of the period of notice for ordinary termination and dismissed the action as to the remainder. It held that ordinary termination of the contested contracts by the defendant was effective and, in particular, that it does not infringe Article 5 of the Blocking Regulation.
The applicant lodged an appeal against the part of the judgment dismissing the remainder of the action. It abided by its contention that the notice of ordinary termination given by the defendant infringes Article 5 of the Blocking Regulation and is, therefore, ineffective.
On 5 March 2020, the Hanseatic Higher Regional Court (11th Civil Chamber) in Germany made a request to the European Court of Justice for preliminary ruling on the meaning of the EU Blocking Regulation (Bank Melli Iran v Telekom Deutschland GmBH (C-124/20)). The court asked the ECJ a number of questions about the proper interpretation of Article 5 of the Blocking Regulation to enable it to decide the case.
The following questions were referred to the ECJ for a preliminary ruling for the purposes of interpretation of the first paragraph of Article 5 of the Blocking Regulation.
Generally speaking, a blocking statute shields companies in its jurisdiction against sanctions by prohibiting them from respecting those sanctions, and not recognising foreign court rulings enforcing them.
Regulation (EC) 2271/96, referred to as the Blocking Regulation or Blocking Statute, was first adopted on 22nd November 1996 to protect EU businesses against the effects of the extraterritorial application of legislation adopted by a third country.
The context was the Cuba situation. In early 1996, US Congress enacted a law that strengthened the US embargo against Cuba. The act extended the territorial application of the initial embargo (in place since the late 1950s) to apply to foreign companies trading with Cuba. The EU introduced the Blocking Regulation in response to the US’s extra-territorial sanctions legislations concerning Cuba, and also concerning Iran and Libya. The EU’s argument was that the sanctions benefited US foreign policy interests at the expense of the sovereignty of EU Member States.
The Blocking Regulation applies with regard to the extra-territorial legislation referred to in its Annex. In other words, the Annex sets out the measures the Blocking Regulation seeks to ‘block’. The text of the Annex is short, and only covers US acts and regulations in relation to Cuba, Iran and Libya.
The European Commission launched the process in May 2018 to activate the Blocking Regulation by updating the list of non-EU laws listed in the Annex by adding the re-imposed US sanctions on Iran. This all started when the US pulled out of the Joint Comprehensive Plan of Action (JCPOA or Iran nuclear deal). The Blocking Regulation was updated on 7 August 2018.
The Blocking Regulation has rarely been tested and there is a dearth of jurisprudence at EU level. In 2007, Austria brought charges for breach of the Blocking Regulation against a large national Bank (BAWAG) that had closed the accounts of 100 Cuban nationals, but matters were resolved when US authorities agreed to grant the bank an exemption and so the investigation of the breach of the Blocking Regulation was discontinued, The ECJ’s pending answers in the Bank Melli case won’t resolve all the uncertainties, but they ought to clarify some of the issues around the obligation of non-compliance allowing the German court to decide its case.
John McKendrick QC practises in all areas of commercial and public law, and has a significant international practice as a former Caribbean Attorney General. He is a fluent Spanish speaker.
Alex Haines, dual national and fluent in French and Spanish, is a specialist in international law, with particular expertise in international organisations. He is admitted to both the English and New York Bars, and is on the Attorney General’s London B Panel. Alex is also a member of the Association of Certified Sanctions Specialists (ACSS).
Alex’s practice areas include:
Legal Blogs 3 Jun, 2020