The EU Blocking Statute and Civil Law Liability

Introduction

Origin and content

The EU Blocking Statute came into force in 1996 in response to the US sanctions against Cuba. The US sanctions against Cuba were commenced by the Helms- Burton Act, which codified the existing sanctions against Cuba and allowed civil actions to be commenced against persons who used or profited from expropriated property. From the outset, the aim of the EU Blocking Statute was to protect EU economic operators from the effects of such extraterritorial sanctions. In order to achieve this aim, the EU Blocking Statute protects European economic operators from the application of the US legislation and sanctions specified in the Annex to the EU Blocking Statute. The Annex also makes it possible for a European economic operator to recover damages, including legal costs, resulting from the application of the laws specified in the Annex. However, since foreign policy pressure from the international community quickly led to a de facto non-application of the Helms Burton Act, the EU Blocking Statute was not invoked for a number of years.

Reform

This changed abruptly in 2018, when the US, under President Trump, pulled out of the Iran nuclear deal and announced it would re-impose sanctions on Iran. In this context, the EU re-considered the EU Blocking Statute, and its extra-territorial effect, as a means to counter these new sanctions.

Commission Implementing Regulation (EU) 2018/1101 allows EU companies to request an authorisation to fully or partially comply with US requirements or prohibitions in circumstances where non compliance would seriously damage their interests or the interests of the European Union. In addition, the Commission Delegated Decision (EU) 2018/1102 states that Iran has been added to the list of countries eligible for European Investment Bank financing, which is now covered by an EU guarantee.

Content of the EU Blocking Statute

The basic content of the EU Blocking Statute has remained largely unchanged following its amendment. The EU continues to address US sanctions it considers contrary to international law by two means:

• Article 5 of the Regulation contains an explicit prohibition of compliance with the extraterritorial sanction standards listed in the Annex. Violations are to be sanctioned by individual Member States in accordance with Article 9. However, there an exemption may be granted by the European Commission from the application of Article 5.
• Article 6 of the Regulation entitles EU citizens and companies to compensation for any damage caused to them by the application of the US sanctions.

This raises a number of urgent questions for EU economic operators regarding their Iran-related business. A first step towards clarification was made by the European Court of Justice by a judgment delivered in December 2021, but this judgment only dealt with questions relating to Article 5 (Bank Melli Iran v. Telekom Deutschland GmbH, file no. C-124/20). In relation to national case law, questions as to liability under Article 6 of the EU Blocking Statute remain largely unresolved.

Damages under Article 6 of the EU Blocking Statute

Recovery of damages by EU companies

According to Article 6 of the EU Blocking Statute, EU economic operators are entitled to recover any damages: (i) caused by the application of; (ii) based on; or (iii) resulting from the US sanctions listed in the Annex.

It is striking that the history and recitals of the EU Blocking Statute see EU economic operators as requiring protection as claimants, rather than as the defendants of the claim. It is to be presumed that Article 6 should be interpreted in such a way that private parties, who refrain from providing services, terminate contractual relationships, or otherwise, comply with the US sanctions listed in the Annex, may be sued for damages by other private parties. This already shows one of the central pitfalls of the EU Blocking Statute, namely that the US, as the "actual" perpetrator of any damage incurred, will not have to answer for the damages caused by these US sanctions due to sovereign immunity. Accordingly, EU economic operators may be not only beneficiaries of the EU’s fight against extraterritorial sanctions, but to a considerable extent, also its victims.

Legal nature of Article 6 of the EU Blocking Statute

Whether Article 6 of the EU Blocking Statute was supposed to have the far-reaching consequences of a de facto claim for damages or whether it was intended to explicitly only allow the skimming off of profits generated due to the Helms-Burton Act, is controversial. In the latter case, Article 6 would remain irrelevant in the context of the Iran sanctions added in 2018. EU economic operators complying with US sanctions should, however, be prepared for claims for damages being raised by private parties due to the lack of clarification by the highest courts and, on the basis of the Guidance Note issued by the EU Commission on the interpretation of the EU Blocking Statute (2018/C 277 I/03).

Specifics of European claims

Due to the European nature of a claim under Article 6 of the EU Blocking Statute, liability requirements of national law cannot be easily applied and, instead, a European understanding and interpretation of the claim is to be used, independent from Member State legislation.

Problem areas

In this context, in particular, the following problems arise:

Causation

Article 6 of the EU Blocking Statute contains the requirement that the damage must have been caused by the application of the US sanctions or the actions based on or resulting from them. In view of this wording, it remains unclear which specific acts will be sufficient to trigger liability. On the one hand, it is questionable whether “application” requires specific compliance with the US sanction or whether any de facto consideration of the US sanctions and their economic consequences is sufficient. On the other hand, the scope of liability needs to be clarified and specifically how the possibility to also claim damages from persons who merely act on behalf of a perpetrator or as intermediaries, provided for under Article 6(2) of the EU Blocking Statute, is to be understood. The wording of Article 6 also creates a requirement to show causation whereby it states that any person “…shall be entitled to recover any damages, including legal costs, caused to that person by the application of the laws specified in the Annex” and that “Such recovery may be obtained from the natural or legal person or any other entity causing the damages or from any person acting on its behalf or intermediary.” This is unlikely in situations where a person, is merely part of a chain of contractual relationships in which a sanction violation occurred at some point. Moreover, the European fundamental freedoms, such as the entrepreneurial freedom of the EU economic operators, suggest that the EU Blocking Statute is to be interpreted narrowly in both cases. Otherwise, the scope of action of EU economic operators would be massively restricted, which, in fact, is exactly what the EU Blocking Statute should provide protection against.

Fault

It is also unclear whether a claimant will need to show fault, i.e. whether it requires intent or at least negligence on the part of the perpetrator. This could be assumed due to the fact that, in the vast majority of national European legal systems, fault is a basic prerequisite for most claims for damages in tort. In claims arising out of EU legislation, this cannot be clearly determined. The European Court of Justice has also expressed ambivalent opinions on this in the past. The EU Commission's Guidance Note, however, does not only focus on the question of causation, but also explicitly on responsibility, which should correspond to “fault” within the meaning of the German understanding. The claim is therefore likely to be fault-based.

Damage

It is also unclear to what extent, an economic loss qualifies as “damage” within the meaning of Article 6. The EU Commission's Guidance Note merely states that "the scope of damages that can be claimed is [...] very broad, in line with the protective aim of the Blocking Statute.” Accordingly, economic losses of any kind would, in principle, be recoverable under Article 6 of the EU Blocking Statute.

Proportionality assessment

Finally, the question arises whether a defendant can raise proportionality as a defence and, more generally, the unreasonableness of complying with the EU Blocking Statute. In the Bank Melli Iran v. Deutsche Telekom Deutschland GmbH, the European Court of Justice had, in principle, opened up the way for such an assessment.
It ruled that the damage caused to a party by the US sanctions had to be balanced against the likelihood and extent of suffering economic losses in the case of noncompliance with the US sanctions.

Outlook

This overview shows that the EU Blocking Statute presents EU economic operators with numerous unresolved issues. The EU Blocking Statute seems to have failed insofar as its explicit aim – the protection of EU economic operators from extraterritorial sanctions – has not been achieved. Instead, it seems to allow for potential claims for damages against EU economic operators. The sheer unpredictable scope of Article 6 deepens the already existing dilemma for companies of complying with US sanctions, which concurrently leads to sanctions under the EU Blocking Statute.

The financial risks associated with the business decision to comply, in case of doubt, with US sanctions thus become hardly calculable. It is hoped that, over the next few years, (European) case law and the reform process initiated by the European Commission in 2021 will help to clarify any questions that remain. Irrespective of this, in order to prevent possible claims and be able to effectively defend themselves against them, it is important for potentially affected companies to carefully monitor the extent to which they may actually be affected by the EU Blocking Statute.