The CJEU rules on the interpretation of Article 5 of the EU Blocking Regulation

Course of the proceedings to date

The Hamburg branch of the Iranian Bank Melli Iran (BMI) sued Telekom Deutschland GmbH (Tele-kom) after the latter – in summary – had issued termination notices in relation to several telecom-munication contracts on which BMI depended to conduct its business. The terminations occurred after the U.S. Office of Foreign Assets Control had put BMI on the Specially Designated Nationals and Blocked Person List. As a result of the U.S. Iran secondary sanctions, also non-U.S. persons are prohibited from doing business with so-called SDNs, i.e. sanctioned entities, such as BMI. BMI claimed that the termination notices violated Art. 5 para. 1 of the EU-Blocking Regulation (EC) No. 2271/96 (EUBR) and were, therefore, invalid pursuant to sec. 134 of the German Civil Code. To protect EU operators from the extra-territorial application of third country laws, Art. 5 EUBR prohibits compliance by EU operators with certain foreign sanctions laws, such as the U.S. Iran sanctions.

In May 2019, the Regional Court Hamburg (docket no. 319 O 289/18) ruled that the ordinary termina-tion was effective and did not violate Art. 5 para. 1 EUBR. BMI appealed to the Higher Regional Court Hamburg (docket no. 11 U 116/19) which, in March 2020, suspended the proceedings and referred several questions on the interpretation of Art. 5 EUBR to the Court of Justice of the Europe-an Union (CJEU).

Questions referred to the CJEU for preliminary ruling

The CJEU had, in essence, to give preliminary rulings on the following questions:

  1. Does Art. 5 EUBR also apply when the action of the EU operator is intended to effect com-pliance with secondary sanctions, even if there is no administrative or judicial order directly or indirectly against that EU economic operator?
  2. If so, would this preclude a right under national law for a party to terminate a continuing obli-gation with a contracting party without the need to give a reason for termination (or to prove that the reason for termination was in any event not related to the compliance with U.S. sanctions)?
  3. If so, must the termination of the contract be regarded as ineffective or can the purpose of the EUBR be satisfied through other penalties, e.g. fines?
  4. If the termination is ineffective, does this apply even where maintaining the business rela-tionship would expose the EU operator to considerable economic losses on the U.S. market?
The CJEU’s decision

On 21 December 2021, the CJEU handed down its long-awaited decision (docket no. C-124/20).

On the first question, the CJEU held that Art. 5 para. 1 EUBR applies even “in the absence of an order directing compliance issued by the administrative or judicial authorities of the third countries which adopted those laws”. The Court reasoned that the wording suggests a broad interpretation, which is also compatible with the objective of the Regulation to protect the legal order and the interests of the European Union in general.

In relation to the second question, the CJEU decided that although Art. 5 para. 1 EUBR (which, ac-cording to the CJEU, contains a “clear, precise and unconditional” prohibition) does not preclude a termination of a contract with a person on the SDN list without giving reasons for such termination, the terminating party must prove in civil proceedings that the termination was not directed towards compliance with the relevant sanctions laws if there is prima facie evidence suggesting this. In the case at hand, the CJEU stated that the burden of proof for a violation of Art. 5 EUBR and sec. 134 German Civil Code would, under German law, fall on the person claiming that a legal act is null and void due to a breach of a statutory prohibition such as Art. 5 EUBR. However, the CJEU also held that placing the burden of proof on the party claiming the violation (in this case BMI) would make it difficult for the referring court to decide whether or not there was a violation, since the evidence that would show that the other party’s behaviour was motivated by its intention to comply with secondary sanctions is not normally available to that party, in particular since such evidence may be covered by business secrecy.

The CJEU answered the third and fourth questions together, stating that Art. 5 and 9 EUBR do not preclude the termination of a contract to be ineffective based on national law if this does not have disproportionate effects for the party concerned by such termination.

According to the CJEU, “annulling the termination of the contracts […] due to infringement of Article 5 of Regulation No 2271/96 would have the effect, not of depriving Telekom of the possibility of asserting its interests generally in the context of a contractual relationship, but rather of limiting that possibility”. The CJEU further stated that the limitation on entrepreneurial freedom provided for by Art. 16 Charter of Fundamental Rights, which would be the result of a possible annulment of the termination of a contract, would generally be “necessary in order to counteract the effects of the laws specified in the annex, thereby protecting the established legal order and the interests of the European Union in general”.

Nevertheless, it is for the referring court, in the present case the Higher Regional Court Hamburg, to assess proportionality and weigh the objectives of the EU-Blocking Regulation against the likelihood and extent of the economic losses of not being able to terminate the business relationship with the SDN. One relevant factor when assessing proportionality would be, in the view of the CJEU, that in the present case, Telekom did not apply for an exemption of Art. 5 EUBR to try to avoid its entrepreneurial freedom being limited.

Links to the judgment are available in German here: CURIA - Documents ( and in English here: CURIA - Documents (