On 21 December 2021, the Court of Justice of the European Union (“CJEU”) issued its judgment in Bank Melli Iran (C-124/20), which we have previously written about here.

The judgment relates to the application of the EU Blocking Regulation (Regulation (EC) No 2271/96). The Blocking Regulation prohibits EU businesses from complying with certain extraterritorial US sanctions targeting Iran and Cuba. In many Member States, breaches of the Blocking Regulation can expose you to criminal penalties, albeit that enforcement has been very minimal to-date.  It also gives EU parties a right of action where they suffer loss resulting from the blocked US sanctions. This direct conflict between the EU and US positions places businesses in a difficult position having to find a middle ground between the conflicting requirements of the EU Blocking Regulation and of US extraterritorial sanctions.

In brief, the judgment found that:

  • The prohibition in the EU Blocking Regulation applies even in the absence of a specific order or instruction directing compliance issued by an administrative or judicial authority of the United States.
  • It is possible to terminate contracts concluded with a person included in blocked US sanctions without providing reasons. However, in the context of civil proceedings, if available evidence suggests prima facie that the terminating party complied with the blocked US sanctions, that party has the burden of proving to the requisite legal standard that his or her conduct did not seek to comply with those laws.
  • The termination of contracts (which were terminated to comply with blocked US sanctions) may be annulled provided that such annulment does not entail disproportionate effects, including economic loss, for the person concerned. When assessing the proportionality of a limitation on the freedom to conduct business, it is necessary to weigh up the balance, on the one hand, the pursuit of the objectives of the Blocking Regulation and, on the other hand, the probability that the terminating party would be exposed to economic loss and the extent of those losses if it were unable to terminate its commercial relationships.

We will provide an in-depth analysis of the case on this blog in the New Year, along with an update on possible reforms of the Blocking Regulation at the EU level.