ECJ Rules on How to Comply With EU Blocking Regulation
A European Union law holding that entities cannot comply with the requirements in the laws of a third country applies even in the absence of an order to comply with the third country's laws, the European Court of Justice said in a December 2021 judgment. However, an EU company can terminate contracts with a person or entity subject to U.S. sanctions without giving reasons for such termination or without authorization from the European Commission, a summary of the judgment said. But, the European high court said the burden of proof is on the party terminating the contract to show it nixed the contract for a reason other than compliance with the third country laws.
The decision comes in a case where the Higher Regional Court of Hamburg, Germany, asked the ECJ for help in a dispute between an Iranian bank, Bank Melli Iran, and a German telecommunication company, Telekom Deutschland. The German court asked the ECJ to interpret parts of the EU Blocking Regulation, prohibiting compliance with third country laws. Telekom Deutschland dropped its contracts with Bank Melli after the U.S. sanctioned the bank, prompting litigation in which the bank argued that this move violated the Blocking Regulation.
Article 5 of the regulation says that "No person referred to in Article 11 shall comply, whether directly or through a subsidiary or other intermediary person, actively or by deliberate omission, with any requirement or prohibition, including requests of foreign courts, based on or resulting, directly or indirectly, from the laws specified in the Annex or from actions based thereon or resulting therefrom."
The European high court said that even if a contract has been terminated in violation of the Blocking Regulation, such action will be annulled only if the reversal of the termination doesn't entail "disproportionate effects" for the EU individual or entity. Sending the case back to its starting point, the ECJ held that this assessment is for the German court to determine.