ECJ Ruling: EU Firms Can Scrap Iran Deals if Sanctions Costs Too High

European companies can end contracts with Iranian firms pressured by US sanctions if upholding the deals would lead to "disproportionate economic loss," the EU's top court said on Tuesday, Reuters reported.
The judgment from the European Court of Justice (ECJ) in Luxembourg was prompted by a lawsuit from the German branch of Iran's state-owned Bank Melli against Deutsche Telekom after the telecommunications provider terminated a contract with the bank in 2018 prior to its expiry.
The Higher Regional Court in Hamburg will have to decide whether upholding the contract with Bank Melli would expose Deutsche Telekom, which makes about half of its turnover with its US business, to such a disproportionate economic loss.
It is not clear when the Hamburg court will make its decision.
The case was brought by Bank Melli Iran back in 2018 after Germany's part state-owned telecom provider Deutsche Telekom cut off Bank Melli's Hamburg office, under the assumption that the bank was no longer capable of making payments, due to the US sanctions.

In a preliminary injunction, the Hamburg district court ordered Deutsche Telekom to reactivate the services for Bank Melli until the end of the contract, arguing that the justification was not sufficient for a termination without notice, especially as the bank has so far fulfilled its obligations and has sufficient resources. 
Later, Deutsche Telekom notified BMI again of the termination of all of those contracts ‘as of the earliest possible date’. No reasons were provided for that termination.
The Higher Regional Court of Hamburg later referred the case to the European Court of Justice to decide the EU Blocking Statute's role here.
According to the ECJ, Telekom Deutschland has so far argued in the proceedings that the blocking regulation does not affect its right to declare the ordinary termination of a contract without giving reasons.

Essential for Business

Bank Melli Iran, on the other hand, asserts in court that the termination is ineffective and argues that the services provided by Telekom Deutschland form the exclusive basis of the internal and external communication structures of the bank in Germany and are therefore essential for business activities.
In 2018, then US president Donald Trump decided to withdraw unilaterally from the Iran nuclear deal and imposed new sanctions on Iranian companies that had been suspended under the agreement struck in 2015.
To try to rescue the nuclear deal and its economic benefits for Iran, the European Union as a signatory issued a "blocking statute" that prohibited individuals and companies in the bloc from complying with the renewed US sanctions.
The court on Tuesday backed the EU blocking statute in its ruling, saying "the prohibition imposed by EU law on complying with secondary sanctions laid down by the United States against Iran may be relied on in civil proceedings".
But the judges also said the rules of the blocking statute "cannot infringe the freedom to conduct a business...by leading to disproportionate economic loss".
At the same time, the Hamburg judges must take into account that Deutsche Telekom did not apply for an exemption from the EU blocking statute's rules, the ECJ said.