The Prelude

On 21 December 2021, the European Court of Justice (ECJ) delivered the first judgment on the interpretation of the EU Blocking Regulation in Case C-124/20 Bank Melli Iran. Five months earlier, the ECJ Advocate General Gerard Hogan had delivered an opinion in the case in which he held that Iranian companies can rely on EU law before the courts of the Member States against US secondary sanctions. The crucial question is whether EU companies may terminate contracts with companies subject to US secondary sanctions without giving reasons, or whether such termination violates Article 5(1) of the EU Blocking Regulation and is invalid.


Bank Melli Iran is an Iranian bank with a branch in Hamburg that had concluded contracts with a subsidiary of Deutsche Telekom for telecommunications services. The contracts were terminated in November 2018, first with immediate effect and then with due notice. Bank Melli Iran claimed before German courts that the termination was invalid. After the withdrawal of the USA from the nuclear agreement with Iran (Joint Comprehensive Plan of Action JCPOA) in 2018 under then President Donald Trump, Bank Melli Iran was put on the list (SDN list, Specially Designated Nationals and Blocked Persons-List) by the USA. Under US law, this has the effect of prohibiting all business dealings with Bank Melli Iran worldwide, so-called secondary sanctions. The sanctions affect the Iran business of companies without a direct connection to the territory of the USA. The sanctions were imposed a few days prior to the termination of the contracts. Deutsche Telekom generated about half of its turnover from operations in the USA.

International Law and Secondary Sanctions

Given their reach beyond the US territory, secondary sanctions are regarded by the EU as a violation of international law, and the EU (then EC) had countered their effects as early as 1996.

Council Regulation (EC) No 2271/96 of 22 November 1996 on protection against the effects of the extraterritorial application of legislation adopted by a third country, and of measures based thereon or resulting therefrom, stipulates that the requirements and prohibitions of the US sanctions listed in the updated annex to the EU Blocking Regulation may not be complied with in the EU.

In particular, the Article 5 of the Regulation reads in paragraph 1: 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 Annex covers sanctions imposed by the US. Persons can only be exempted from complying fully or partially with the prohibition if compliance with the prohibition would seriously damage their interests or those of the EU, and provided the European Commission has authorized them to do so.

The Interpretation of the Blocking Regulation by the ECJ

The ECJ first holds that Art. 5 (1) of the Regulation applies even if there are no rules on compliance at national level. National courts must ensure compliance with the obligations or prohibitions provided for in the Regulation in civil disputes. In the present case, the plaintiff argues that the statutory prohibition in § 134 Civil Code (BGB) applies by virtue of Article 5 of the blocking regulation, and the plaintiff bears the burden of proof that the requirements of § 134 Civil Code are met. These requirements apply even in a situation where Deutsche Telekom terminated the contract without giving reasons (which it may do under the applicable civil laws). The application of the general rule on the burden of proof may however make it practically impossible or excessively difficult for the national civil court to establish a breach of the prohibition and as a consequence possibly impair the practical effectiveness of the prohibition.

The European Court of Justice therefore considers that a shift in the burden of proof is appropriate where "all the evidence available to a national court tends to indicate prima facie that, by terminating the contracts in question, a person referred to in Article 11 of that regulation, who does not have an authorisation within the meaning of the second paragraph of Article 5 of that regulation, complied with the laws specified in the annex". It is then "for that person to establish to the requisite legal standard this his or her conduct did not seek to comply with those laws".

Next, the Court addresses in detail Deutsche Telekom's objection that the possible finding of invalidity of the termination would cause it serious damage. It must be borne in mind that there is a separate procedure for granting exceptions to the prohibition, that the European Commission decides on exceptions on application and that Deutsche Telekom has not made any application.

The Court insists (as had the Advocate General) on the observance of the blocking regulation but nevertheless opened a small loophole in holding that the referring court must examine whether the prohibition could have disproportionate effects in concreto.


The European Commission considers revising the blocking regulation, and its proposals are expected for later this year. The comments of companies concerned and business associations during the consultation for revisions of the blocking regulation as well as the opinion of Advocate General Hogan in the proceedings have made it clear that the current rules are rather crude and difficult to enforce. The Commission’s proposals on how to improve this unsatisfactory situation are therefore eagerly awaited. Until then, the Court's judgment does make clear that the law has to be observed.