CJEU Case C-124/20 / Judgment
Key facts of the case:

Request for a preliminary ruling from the Hanseatisches Oberlandesgericht Hamburg.

Reference for a preliminary ruling – Commercial policy – Regulation (EC) No 2271/96 – Protection against the effects of the extraterritorial application of legislation adopted by a third country – Restrictive measures taken by the United States of America against Iran – Secondary sanctions adopted by that third country preventing persons from engaging, outside its territory, in commercial relationships with certain Iranian undertakings – Prohibition on complying with such a law – Exercise of the right of ordinary termination.

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Outcome of the case:

On those grounds, the Court (Grand Chamber) hereby rules:

The first paragraph of Article 5 of Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom, as amended by Regulation (EU) No 37/2014 of the European Parliament and of the Council of 15 January 2014, and by Commission Delegated Regulation (EU) 2018/1100 of 6 June 2018, which amended the Annex to Regulation No 2271/96, must be interpreted as prohibiting persons referred to in Article 11 of Regulation No 2271/96, as amended, from complying with the requirements or prohibitions laid down in the laws specified in the annex to that regulation, 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 first paragraph of Article 5 of Regulation No 2271/96, as amended by Regulation No 37/2014 and Delegated Regulation 2018/1100, must be interpreted as not precluding a person referred to in Article 11 of that regulation, as amended, who does not have an authorisation within the meaning of the second paragraph of Article 5 of that regulation, as amended, from terminating contracts concluded with a person on the Specially Designated Nationals and Blocked Persons List, without providing reasons for that termination. Nevertheless, the first paragraph of Article 5 of the same regulation, as amended, requires that, in civil proceedings relating to the alleged infringement of the prohibition laid down in that provision, where all the evidence available to the national court suggests prima facie that a person referred to in Article 11 of Regulation No 2271/96, as amended, complied with the laws specified in the annex to that regulation, as amended, without having an authorisation in that respect, it is for that same person to establish to the requisite legal standard that his or her conduct was not intended to comply with those laws.

Regulation No 2271/96, as amended by Regulation No 37/2014 and Delegated Regulation 2018/1100, in particular Articles 5 and 9 thereof, read in the light of Article 16 and Article 52(1) of the Charter of Fundamental Rights of the European Union, must be interpreted as not precluding the annulment of the termination of contracts effected by a person referred to in Article 11 of that regulation, as amended, in order to comply with the requirements or prohibitions based on the laws specified in the annex to that regulation, as amended, even though that person does not have an authorisation, within the meaning of the second paragraph of Article 5 of the same regulation, as amended, provided that that annulment does not entail disproportionate effects for that person having regard to the objectives of Regulation No 2271/96, as amended, consisting in the protection of the established legal order and the interests of the European Union in general. In that assessment of proportionality, it is necessary to weigh in the balance the pursuit of those objectives served by the annulment of the termination of a contract effected in breach of the prohibition laid down in the first paragraph of Article 5 of that regulation, as amended, and the probability that the person concerned may be exposed to economic loss, as well as the extent of that loss, if that person cannot terminate his or her commercial relationship with a person included in the list of persons covered by the secondary sanctions at issue resulting from the laws specified in the annex to that regulation, as amended.
Paragraphs referring to EU Charter
33) However, it considers that neither a recovery claim provided for in Article 6 of that regulation, nor the possibility of the issue of an authorisation to comply with the sanctions provided for in the second paragraph of Article 5 of that regulation is sufficient compensation for the risk of economic loss. Having regard to the objective pursued by that regulation, which is to prevent the application of secondary sanctions to EU economic operators, that authorisation would be issued rather restrictively. Consequently, the risk of economic loss alone would not suffice to obtain such authorisation. In those circumstances, the referring court wonders whether, in circumstances where there is a risk of substantial economic loss on the United States market, the general prohibition, laid down in Regulation No 2271/96, on an undertaking separating from a trading partner is compatible with the freedom to conduct a business protected by Article 16 of the Charter of Fundamental Rights of the European Union (‘the Charter’) and the principle of proportionality enshrined in Article 52 thereof.

34) In those circumstances, the Hanseatisches Oberlandesgericht Hamburg (Higher Regional Court, Hamburg, Germany) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

'Does the first paragraph of Article 5 of Regulation No 2271/96 only apply where the United States issues an administrative or judicial order directly or indirectly against an EU economic operator, within the meaning of Article 11 of that regulation, or does it suffice for that article to apply that the action of the EU economic operator seeks to comply with secondary sanctions, even in the absence of such an order?

If the answer to the first question is that the second alternative applies, does the first paragraph of Article 5 of Regulation No 2271/96 preclude the interpretation of national law as meaning that the party giving notice of termination may terminate any continuing obligation with a contracting party included in [the SDN list] held by the US Office of Foreign Assets Control, and thus announce a termination owing to wishing to comply with sanctions [imposed by the United States …], – without having to show and prove in civil proceedings that the reason for termination was not in any event a wish to comply with those sanctions?

If the second question is answered in the affirmative, must ordinary termination in breach of the first paragraph of Article 5 of Regulation No 2271/96 necessarily be regarded as ineffective or can the purpose of the regulation be satisfied through other penalties, such as a fine?

If the answer to the third question is that the first alternative applies, having regard to Articles 16 and 52 of [the Charter], on the one hand, and the possibility of granting an exemption under the second paragraph of Article 5 of Regulation No 2271/96, on the other, does that apply even where maintaining the business relationship with the listed contracting party would expose the EU operator to considerable economic losses on the US market (in this case: 50% of group turnover)?’

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50) The interpretation of the first paragraph of Article 5 of Regulation No 2271/96 set out in paragraph 45 of this judgment is not, for the remainder, incompatible with the complementary objective of Regulation No 2271/96 consisting of protecting the interests of the persons referred to in Article 11 of the regulation, including their freedom to conduct a business which is a fundamental freedom enshrined in Article 16 of the Charter and which, according to the Court’s case-law, covers the freedom to exercise an economic or commercial activity, the freedom of contract and free competition (judgment of 16 July 2020, Adusbef and Others, C‑686/18, EU:C:2020:567, paragraph 82). It must be observed that those interests, which may be threatened by the measures to which those persons in the third countries concerned are exposed if they do not comply with the laws specified in the annex are duly protected by virtue of the second paragraph of Article 5 of that regulation, which must be interpreted in the light of that objective.

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69) By its third and fourth questions, which it is appropriate to examine together, the referring court asks, in essence, whether Regulation No 2271/96, in particular Articles 5 and 9 thereof, read in the light of Articles 16 and 52 of the Charter, must be interpreted as precluding the annulment of a termination of contracts effected by a person referred to in Article 11 of that regulation in order to comply with the requirements or prohibitions based on the laws specified in the annex, when he or she does not have an authorisation within the meaning of the second paragraph of Article 5 of that regulation, where that person risks suffering substantial economic loss as a result of that annulment.

70) At the outset, it should be recalled that the provisions of EU law, such as those of Regulation No 2271/96, must be interpreted in the light of fundamental rights which, according to established case-law, form an integral part of the general principles of law whose observance the Court ensures and which are now set out in the Charter (see, to that effect, judgment of 25 May 2016, Meroni, C‑559/14, EU:C:2016:349, paragraph 45).

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77) However, such an annulment entails a limitation on the freedom to conduct a business enshrined in Article 16 of the Charter.

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79) The protection afforded by Article 16 of the Charter covers the freedom to exercise an economic or commercial activity, freedom of contract and free competition (judgment of 16 July 2020, Adusbef and Others, C‑686/18, EU:C:2020:567, paragraph 82 and the case-law cited) and covers, in particular, the freedom to choose with whom to do business and the freedom to determine the price of a service (judgment of 15 April 2021, Federazione nazionale delle imprese elettrotecniche ed elettroniche (Anie) and Others, C‑798/18 and C‑799/18, EU:C:2021:280, paragraph 57).

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81) Having regard to the wording of Article 16 of the Charter, which provides that the freedom to conduct a business is recognised in accordance with EU law and national laws and practices and thus differs from the wording of the other fundamental freedoms laid down in Title II thereof, yet is similar to that of certain provisions of Title IV of the Charter, that freedom may therefore be subject to a broad range of interventions on the part of public authorities which may, in the public interest, limit the exercise of economic activity (see, to that effect, judgment of 22 January 2013, Sky Österreich, C‑283/11, EU:C:2013:28, paragraph 46).

82) That circumstance is reflected, in particular, in the way in which EU legislation and national legislation and practices should be assessed in the light of the principle of proportionality under Article 52(1) of the Charter (see, to that effect, judgment of 22 January 2013, Sky Österreich, C‑283/11, EU:C:2013:28, paragraph 47).

83) In accordance with Article 52(1) of the Charter, any limitation on the exercise of the rights and freedoms recognised by the Charter must be provided for by law and respect the essence of those rights and freedoms and, in compliance with the principle of proportionality, must be necessary and actually meet objectives of general interest recognised by the European Union or the need to protect the rights and freedoms of others (judgment of 22 January 2013, Sky Österreich, C‑283/11, EU:C:2013:28, paragraph 48).

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95) In the light of all the foregoing, the answer to the third and fourth questions is that Regulation No 2271/96, in particular Articles 5 and 9 thereof, read in the light of Article 16 and Article 52(1) of the Charter, must be interpreted as not precluding the annulment of termination of contracts effected by a person referred to in Article 11 of that regulation in order to comply with the requirements or prohibitions based on the laws specified in the annex, even though that person does not have an authorisation within the meaning of the second paragraph of Article 5 of that regulation, provided that that annulment does not entail disproportionate effects for that person having regard to the objectives of that regulation consisting in the protection of the established legal order and the interests of the European Union in general. In that assessment of proportionality, it is necessary to weigh in the balance the pursuit of those objectives served by the annulment of the termination of a contract effected in breach of the prohibition laid down in the first paragraph of Article 5 of Regulation No 2271/96 and the probability that the person concerned may be exposed to economic loss, as well as the extent of that loss, if he or she cannot terminate his or her commercial relationship with a person included in the list of persons covered by the secondary sanctions at issue resulting from the laws specified in the annex.