JUDGMENT OF THE COURT of JUSTICE ON CASE C-124/20, Bank Melli Iran v Telekom Deutschland GmbH

SUMMARY

The national court considers that the risk of economic loss is not sufficiently compensated either by the right to compensation provided for in Article 6 of such regulation or by the possible granting of authorisation to comply with the penalties referred to in the second paragraph of Article 5 thereof. In light of the objective pursued by that regulation, which is to avoid the application of secondary penalties to economic operators in the European Union, such authorisation is granted in a rather restrictive manner. Consequently, the mere risk of economic loss is not sufficient to obtain such authorisation.

In those circumstances, the national court doubts whether, where there is a risk of substantial economic losses in the United States market, the general prohibition laid down by Regulation No 2271/96 on disassociation from a trading partner is compatible with the freedom to conduct a business as protected by Article 16 of the Charter of Fundamental Rights of the European Union (‘the Charter’) and with the principle of proportionality enshrined in Article 52 of the Charter.

The Higher Regional Court for Civil and Criminal Matters in Hamburg, Germany decided to stay proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

 

FIRST QUESTION REFERRED FOR A PRELIMINARY RULING

  1. Is the first paragraph of Article 5 of Regulation No 2271/96 applicable only where the [Union] traders referred to in Article 11 of that regulation have been given direct or indirect administrative or judicial orders by the United States […], or is it sufficient for its application that the action of the [Union] traders is intended to comply with secondary sanctions, even where they have not received such orders?

The court makes the following clarifications:

  1. When interpreting a provision of European Union law, account must be taken not only of its wording but also of its context and the objectives pursued by the legislation of which it forms part (judgment of 12 May 2021, Bundesrepublik Deutschland (Interpol Red Notice).
  2. With regard to the wording of the first paragraph of Article 5 of Regulation No. 2271/96, it should be recalled that “it is clear from the expression ‘requirements or prohibitions […] based on’ and the words ‘including’ that this provision, which is formulated in a broad sense, applies even in the absence of a request or instruction from an administrative or judicial authority.
  3. As regards the objective of Regulation No. 2271/96, the Court considers that the laws in the Annex may produce their effects by the mere threat of legal consequences capable of being applied in the event of non-compliance with those laws by the persons referred to in Article 11 of that regulation.

Conclusion: In the light of the foregoing, the answer to the first question referred for a preliminary ruling must be that the first paragraph of Article 5 of Regulation No. 2271/96 must be interpreted as prohibiting the persons referred to in Article 11 of that regulation from complying with the conditions or prohibitions laid down by the laws in the Annex, even in the absence of instructions to that effect from the administrative or judicial authorities of the non-member countries which have adopted those laws.

 

SECOND QUESTION REFERRED FOR A PRELIMINARY RULING

  1. If the Court answers the first question referred for a preliminary ruling in the second alternative: is it contrary to the first paragraph of Article 5 of Regulation No. 2271/96 for an interpretation of national law under which the party terminating the contract may terminate any successive contract concluded with a co-contractor which has been included by the [Foreign Assets Control Office] […] in the [list] […] […] (SDN) – including termination of the contract for the purpose of complying with sanctions imposed by the United States – without a cause for termination being required for that purpose and without that party having to plead and prove in a civil proceeding that the cause for termination of the contract is not, in any event, compliance with sanctions imposed by the United States?

Context: This question arises in civil proceedings in which BMI contests before the national court the exercise by Telekom of its right of ordinary termination of the contracts concluded between them, without having to give reasons for it.

The court makes the following clarifications:

  1. It is for the national courts to apply, within the framework of their jurisdiction, provisions of European Union law such as those contained in Regulation No. 2271/96.
  2. Pursuant to the second paragraph of Article 288 TFEU, the Regulation is of general application and directly applicable in each Member State.
  3. The first paragraph of Article 5 of Regulation No 2271/96 stipulates that no person referred to in Article 11 thereof shall comply directly or through a subsidiary or intermediary, whether actively or by deliberate omission, with the requirements or prohibitions based directly or indirectly on the laws of the Annex. The only exception to this prohibition is provided for in the second paragraph of Article 5.
  4. It should be noted that neither the first paragraph of Article 5 of Regulation No. 2271/96 nor any other provision of the Regulation implies that a person referred to in Article 11 of the Regulation must give a reason for the termination of a commercial contract with a person on the BDS List.

Conclusion: The first paragraph of Article 5 of Regulation No. 2271/96 must be interpreted as not precluding a person referred to in Article 11 of that regulation, who does not have the authorisation referred to in the second paragraph of Article 5 thereof, from terminating, without giving reasons, contracts concluded with a person on the BDS list.

However, the first paragraph of Article 5 of that regulation requires that, where, in civil proceedings concerning an alleged infringement of the prohibition laid down in that provision, all the evidence before the national court tends to indicate prima facie that a person referred to in Article 11 of Regulation No. 2271/96 has complied with the laws in the Annex, without being authorised to do so, it is for that person to prove to the requisite legal standard that his conduct was not intended to comply with those laws.

 

THIRD AND FOURTH QUESTIONS REFERRED FOR A PRELIMINARY RULING

  1. If the answer to the second question is in the affirmative: must an ordinary termination of a contract contrary to the first paragraph of Article 5 of Regulation No. 2271/96 necessarily be regarded as ineffective, or is another type of penalty, such as a fine, also sufficient to achieve the purpose of the regulation?
  2. If the answer to the third question is in the first alternative: in the light of Articles 16 and 52 of the [Charter], on the one hand, and having regard to the possibility of exceptionally granting authorisations pursuant to the second paragraph of Article 5 of Regulation No. 2271/96, on the other hand, is the ordinary termination of the contract to be regarded as ineffective even where the [Union] operator who chooses to continue the commercial relationship with a co-contractor on the list of those who are threatened with substantial financial loss in the US market (in this case 50% of the turnover of the group of undertakings)?

The court makes the following clarifications:

  1. In the absence of harmonisation of Union legislation in the area of applicable penalties, Member States remain competent to lay down the penalties they consider appropriate. However, they are obliged to exercise this competence in compliance with Union law and the general principles of Union law.
  2. It should be recalled that the right to freedom to conduct a business includes, in particular, the right of every enterprise to be able to dispose freely, within the limits of the responsibility it assumes for its own actions, of the economic, technical, and financial resources at its disposal.
  3. The protection conferred by Article 16 of the Charter implies the freedom to carry out economic or commercial activity, freedom of contract and free competition and concerns, in particular, the free choice of customers and suppliers and the freedom to determine the price of services. However, the freedom to conduct a business as enshrined in Article 16 of the Charter is not an absolute prerogative.
  4. Any limitation on the exercise of the rights and freedoms enshrined in the Charter must be laid down by law, must respect the essential content of those rights and freedoms and, in accordance with the principle of proportionality, must be necessary and genuinely meet objectives of general interest recognised by the Union or the need to protect rights and freedoms. It follows that the limitation on the freedom to conduct a business entailing the need to comply with the first paragraph of Article 5 of Regulation No. 2271/96 is laid down by law.
  5. As regards the administrative fine provided for by German law, it must be held that the national court cannot take it into account, since the amount of that fine, which itself should be proportionate under Article 9 of Regulation No. 2271/96, must be determined taking into consideration the individual situation of the offender and, therefore, to the penalty imposed.

Conclusion: Regulation No. 2271/96, in particular Articles 5 and 9 thereof, must be interpreted, in the light of Articles 16 and 52(1) of the Charter of Fundamental Rights of the European Union, as not precluding the annulment of a contractual termination effected by a person referred to in Article 11 of that regulation, in order to comply with the requirements or prohibitions based on the laws listed in the Annex to that regulation, even though he does not have the authorisation referred to in the second paragraph of Article 5 of that regulation, provided that such annulment does not have disproportionate effects for that person in light of the objectives of Regulation No. 2271/96, as amended, which is to protect the established legal order and the interests of the European Union in general.

In that proportionality test, the achievement of those objectives, pursued by the avoidance of a contractual termination contrary to the prohibition laid down in the first paragraph of Article 5 of that regulation, as amended, must be weighed against the likelihood that the person in question would be exposed to economic loss, and the extent of that economic loss, if he were unable to terminate his business relations with a person on the list of persons subject to the secondary sanctions at issue under the laws listed in the annex to that regulation, as amended.

 

NEWS ARTICLES:

https://www.abc.com.py/internacionales/2021/12/21/tjue-permite-invocar-en-un-juicio-ley-ue-que-limita-sanciones-de-eeuu-a-iran/

https://es.investing.com/news/stock-market-news/las-empresas-de-la-ue-pueden-rescindir-acuerdos-con-iran-por-coste-de-sanciones-tjue-2195951

https://www.lto.de/recht/kanzleien-unternehmen/k/eugh-urteil-blocking-verordnung-eu-sanktionen-usa-iran-telekom-bank-melli-iran/

 

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Departamento de Comercio Internacional y Sanciones

Lupicinio International Law Firm

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