Summary

The successful appeal brought by the Islamic Republic of Iran Shipping Line ("IRISL") and a number of its subsidiaries to the General Court of the European Union ( the "General Court") is the latest in a number of actions brought by Iranian companies against restrictive measures imposed on them by virtue of their listing as a designated person under the EU Iran sanctions. 

IRISL will remain subject to the EU Iran sanctions pending appeal by the European Council (which must be brought within a 2 month window). Even if there is no appeal, the Council may look to re-designate IRISL in a manner that addresses the concerns outlined by the General Court and which formed the basis of IRISL's successful appeal.

The EU, as well as the US, will be particularly concerned by the development given the long held view that IRISL's shipping capacity is central to both Iran's nuclear proliferation programme and those industries that provide funding to the Iranian regime.

Background

On 26 July 2010, the European Council placed IRISL and its subsidiaries on the list of entities involved in nuclear proliferation (Annex II of Council Decision 2010/413/CFSP) and as a result, the funds and economic resources of IRISL were frozen. The European Council designated IRISL and its subsidiaries on the basis that they form a key link in the supply chain for Iran's nuclear proliferation programme.

Prior to its designation, IRISL's operations had already been targeted through the introduction of other measures that impact its operations, including an obligation to provide enhanced customs information. These measures are unaffected by the General Court's judgment.

The Council Decision provides for the designation of persons on the basis of their involvement or provision of assistance to Iran's nuclear proliferation programme. The judgement makes clear that the Council's listing of IRISL under this head was based on intelligence regarding its involvement in the shipment of military-related cargo, including 3 specific incidents that were reported to the Security Council Iran Sanctions Committee at the United Nations. Amongst other grounds, IRISL appealed this as the basis for the listing. The appeal was upheld as the General Court did not accept the Council's assertion that IRISL had transported material linked to nuclear proliferation. The General Court found that there was no evidence or specific information to link the view that if IRISL transported military material, that the company also transported material relevant to Iran's  nuclear proliferation activities. The General Court concluded that the Council Decision to list IRISL rested on a presumption for which there was no provision for in the Council Decision.

The Council has a period of 2 months and 10 days from the date of the judgement (16 September 2013) to appeal the decision of the General Court. It is possible that the Council will appeal and/or seek to re-list IRISL and its subsidiaries is such a way that complies with the judgement of the General Court. In any event, the effect of the judgement is prospective, and so will not affect any activities undertaken by counterparties while IRISL was listed.

Practical Implications

The judgment gives rise to the following practical implications of which clients should be aware:

  • At present, IRISL and its subsidiaries are still listed as designated persons and thereby subject to the EU Iran sanctions. As such, there is no impact on the current status of IRISL and any of its subsidiaries.
  • The decision of any company to refuse to deal or to terminate contracts with IRISL or any of its subsidiaries on the basis of their prior listing is not affected by the judgment.
  • Companies are advised to exercise increased vigilance given that the judgment may embolden IRISL in its efforts to source products or services from the EU.