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German Court Makes First Reference to ECJ on Interpretation of EU Blocking Regulation

  • Market Insight 11 June 2020 11 June 2020
  • UK & Europe

  • Sanctions

The European Court of Justice has been asked, for the first time, to interpret the EU Blocking Regulation. In this blog post, we provide an overview of the referral and our initial thoughts on the issues it raises.

German Court Makes First Reference to ECJ on Interpretation of EU Blocking Regulation

The Higher Regional Court of Hamburg (Hanseatisches Oberlandesgericht Hamburg) (Hamburg Court) has made a reference to the European Court of Justice (ECJ) seeking a preliminary ruling on the interpretation of Article 5 the EU Blocking Regulation (Council Regulation (EC) No 2271/96, as amended).

By way of summary, Article 5 prohibits EU operators from complying with certain sanctions imposed by the US on Cuba and Iran which are listed in the Annex to the EU Blocking Regulation.1

Background to the Referral

The US re-imposed sanctions on Iran in November 2018 after withdrawing from the Joint Comprehensive Plan of Action.2 This prompted Telekom Deutschland GmbH (Telekom) to cancel telephone and internet services contracts with ten companies which had links to Iran. According to the referral, the Telekom Deutschland group generates 50 percent of its turnover in the US market.

Bank Melli Iran disputed Telekom’s termination of its telephone and internet services and commenced proceedings in the Hamburg courts. One of the arguments made by Bank Melli was that Telekom’s termination was in contravention of Article 5 of the EU Blocking Regulation and was therefore ineffective.

The relevant part of Article 5 provides 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 Hamburg Court subsequently sought a preliminary ruling from the ECJ on the proper interpretation of Article 5 to allow it to decide the case.

What Questions Have Been Asked?

The various questions referred to the ECJ can be summarised as follows.

1. What is required, as a matter of US law, to show that an EU operator has acted in prohibited compliance with the specified US sanctions?

Bank Melli Iran argued that Telekom's sole motivation in terminating the contracts was to comply with US secondary sanctions. This gives rise to a question of how Bank Melli Iran could practically show that Telekom had acted in prohibited compliance with US secondary sanctions.

The Hamburg Court referred to a decision of the Higher Regional Court in Cologne (Cologne Court) delivered on 7 February 2020 that the first paragraph of Article 5 does not apply if an action is not preceded by "a direct or indirect official or court order from the USA".

The Hamburg Court disagreed. It was of the view that Article 5 applied where the actions of an EU operator were predicated on compliance with US secondary sanctions without any such order. The Hamburg Court's view was that "the mere existence of secondary sanctions suffices, as only then can [Article 5] be implemented effectively."


The ECJ's ultimate interpretation of Article 5 will be critical for EU operators seeking to comply with the EU Blocking Regulation.

At this stage, the readings advanced by the Hamburg and Cologne courts, at least as is described in the referral, give rise to a number of unanswered questions and practical difficulties.

The Hamburg Court's reading of Article 5 seems to be broader than that of the Cologne Court. The Hamburg Court's reading suggests that Article 5 will apply where the actions of an EU operator are "predicated" on compliance with US secondary sanctions; an "official or court order from the USA" is not required. However, what is the standard of proof for showing that a decision is not "predicated" on prohibited compliance with US secondary sanctions, and what evidence might be probative for such a purpose?

On the other hand, the interpretation of the Cologne Court poses its own practical difficulties for parties seeking to rely on Article 5. This is because the US executive and judicial branches typically do not issue to non-US persons "direct or indirect official or court order[s]" in respect of sanctions compliance.

2. Can the termination of a contract which has been effected through contractual provisions be challenged under Article 5 in the absence of any other reasons given? 

In this case, one of the contracts with Bank Melli Iran was brought to an end by "ordinary termination", which does not require grounds for termination to be provided.

Telekom argued that it was free to end its business relationship with Bank Melli Iran in this manner; its contractual right to do so was not affected by Article 5 and its motives were immaterial. According to the reference, this view appears to be supported by the views of several German courts. For instance, the Cologne Court expressly held that "ordinary termination" could also "be motivated by US foreign policy".

The Hamburg Court was of the view that motive was relevant. Where there were motives that were not related to US sanctions, there would be no infringement of Article 5. However, where the "decisive" motive was compliance with certain US sanctions, there would be an infringement. On this reading, an EU operator would have to explain its motives for acting and show that their act(s) were not taken in prohibited compliance with US sanctions.


As explained in a previous post, an EU operator's appetite for Iran-related business may be influenced by a number of factors, with fear of adverse consequences in the US being only one such factor. For example, a firm might decide to terminate Iran‑related arrangements because of reputational risk of doing business with Iran; commercial considerations; or the reluctance of banks to process payments with an Iran nexus. It may be the case that a decision is reached on a balancing of these factors; there is no clearly discernable decisive or dominant factor.

Regardless of which interpretation of Article 5 is preferred by the ECJ, it remains good practice for EU operators with business involving Iran to carefully document the reasons for any alterations in their approach. This evidence could prove to be valuable in the event of a dispute with their counterparties or interactions with their sanctions regulators.

3. Whether an order restraining Telekom from terminating its contracts with Bank Melli Iran would be disproportionate in light of the economic losses to which it would be exposed if it were excluded from the US market.

The Hamburg Court was also mindful of the remedies that would be appropriate in the event that Telekom's termination was ineffective by operation of Article 5.

In particular, the Hamburg Court was concerned with the economic losses to which Telekom could be exposed if the court restrained Telekom from terminating its contracts with Bank Melli Iran. The Telekom Deutschland group generates 50 percent of its turnover in the US market, and would be exposed to economic losses if it were excluded from that market.

Thus, the Hamburg Court sought a preliminary ruling on whether such injunctive relief (as opposed to an order for damages and/or imposition of a fine under German law for breach of Article 5) would be disproportionate in the circumstances.


It was reasonable for the Hamburg Court to make this referral given the magnitude of Telekom's exposure. One important distinction, which the ECJ may bear in mind in its consideration of appropriate remedies, is the difference between restraining termination of the contract (which would allow Bank Melli Iran to make a claim for damages for non-performance) and an order for specific performance (i.e. ordering Telekom to continue providing the services).

4. Whether a restriction on the termination of business relationships by operation of Article 5 would be compatible with the freedom to conduct a business under European law.

The Hamburg Court was cognisant of the dilemmas faced by a number of EU operators when navigating the intersection of Article 5 of the EU Blocking Regulation and US sanctions:

"If they comply with EU law, they are at risk of exclusion from the US market; if they comply with the sanctions, they are in breach of EU law. In light of the clout which US sanctions have in fact, EU operators which comply with EU law may be exposed to considerable economic losses."

The referral also notes that such risk is "inadequately countervailed by the recovery claim" provided for in Article 6 of the EU Blocking Regulation.

Thus, the ECJ was asked to rule on whether the restrictions placed by Article 5 on the ability of EU operators to end their business relationships is compatible with Article 16 of the Charter of Fundamental Rights of the European Union and the principle of proportionality anchored in Article 52 of that Charter.


Whilst the acknowledgement by the Hamburg Court of the compliance difficulties faced by EU operators is heartening, it is not clear whether an interpretive ruling by the ECJ will provide EU operators with sufficient guidance or comfort in navigating the compliance challenges identified by the Hamburg Court.

In this regard, further formal guidance from the European Commission to address these compliance issues would provide such additional comfort.


The referral puts to the ECJ a number of fundamental questions which EU operators have grappled with since the EU Blocking Regulation was updated in July 2018.

Therefore, should the ECJ choose to accept the referral, any ruling by it which touches on these issues should provide some important clarification on the interpretation of Article 5 of the EU Blocking Regulation. This should help EU operators seeking to navigate sanctions compliance in an increasingly fragmented sanctions landscape.

Written by Partners Nigel Brook and Chris Hill, and Associate Qi Jiang

1 For a summary of the EU Blocking Regulation, please see our previous post here

2 see our previous blog post here


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