ECJ signals its approach to Iran sanctions cases in 2 appeals

On 28 November 2013, the European Court of Justice (5th Chamber) handed down two long-awaited judgments in appeals against General Court (GC) judgments annulling the listings of two companies included in the EU’s sanctions against Iran since July 2010. The two cases are Case C-280/12 P Council v Fulmen & Fereydoun Mahmoudian and Case C-348/12 P Council v Manufacturing Support & Procurement Kala Naft.

These appeals are interesting because there have recently been a large number of GC (lower court) judgments in Iran sanctions cases (many annulling designations, see e.g. previous blog) and it is important to know whether the ECJ agrees with the GC’s approach to those cases. The answer from Fulmen (in which the ECJ upheld the GC’s judgment annulling Fulmen’s designation) and Kala Naft (in which it overturned the GC’s judgment annulling Kala Naft’s designation) is that the ECJ seems to agree with the GC’s approach to some of those cases but not to others.

The ECJ’s main disagreement with the GC (which we discuss below) is that the ECJ has said that the Council can satisfy the criterion of having to prove that entities provide “support” for nuclear proliferation by showing simply that they are involved in the oil and gas sectors in Iran; the GC had previously said that involvement in that sector was not in itself enough, and that the Council had to show some kind of conduct demonstrating actual support for nuclear proliferation. However, in Fulmen – type cases, which are not about entities involved in oil and gas, the ECJ has upheld the GC’s approach of requiring evidential support for allegations of involvement in nuclear proliferation.

ECJ largely upholds General Court’s approach to Iran cases: Fulmen

The Fulmen appeal indicates that the ECJ upholds the approach that the GC has recently been taking to actions for annulment. Fulmen was listed for being “involved in the installation of electrical equipment on the Qom/Fordoo site at a time when the existence of the site had not yet been revealed” and Mr Mamoudian was included for being its Director. The ECJ agreed with the General Court that although those reasons were specific enough for Fulmen and Mr Mamoudian to be able to understand and contest, and the procedure had complied with their rights of defence and to effective judicial protection, the listings should be annulled for lack of evidence supporting the allegations.

Fulmen had provided evidence that the Council’s reasons were incorrect, and the Council provided no evidence to show that its allegations were well founded. The ECJ, applying its judgment in Kadi II (see previous blog), rejected the Council’s argument that it did not have to provide evidence because of the clandestine nature of the activities alleged or because Member States said evidence was confidential, and said the applicants had to be in a position to defend themselves and the Courts to review whether the allegations were well founded.

Involvement in oil and gas industries is enough to show support for nuclear proliferation: Kala Naft

By contrast to Fulmen, which was listed because of allegations about installing electrical equipment at a nuclear site, one of the reasons for Kala Naft’s designation was an allegation that it “sells equipment for the oil and gas sector which could be used for Iran’s nuclear programme”.

The ECJ agreed with the General Court that that reason was specific. Where the courts disagreed was as to whether selling equipment for the oil and gas sector is sufficient in itself for inclusion in the EU’s sanctions against Iran, which requires that an entity has (inter alia) provided “support” for nuclear proliferation.

The General Court had held it was not sufficient; “support” presupposes that a company “has previously adopted a course of conduct” showing support for proliferation, and “the mere risk of the entity concerned providing support for nuclear proliferation in the future is not sufficient”. Here the “general fact that the goods acquired by the applicant within the gas, oil and petrochemical sectors” may be used for nuclear proliferation was insufficient.

The ECJ disagreed, and held that “trading in key equipment and technology for the gas and oil industry” is in itself “capable of being regarded as support for the nuclear activities” because the EU’s restrictive measures of October 2010 (when Kala Naft was re-listed) themselves establish a link between the oil and gas industry and nuclear proliferation, particularly where oil and gas companies are “involved in the procurement of prohibited goods and technology”.

Other notable points about Kala Naft:

First, the ECJ found that link between the oil and gas sector and support for proliferation was justified and proportionate, given the Council’s broad discretion to decide on sanctions measures, and given that sanctions against Iran are “progressive and justified by the lack of success of the measures adopted previously”, and “owing to the risk” that the oil and gas industry present, for proliferation, “both by virtue of the revenue generated and through the use of equipment and materials which have much in common with those used for certain sensitive nuclear fuel cycle activities”.

Second, the ECJ therefore also disagreed with the General Court that the Council had erred by not giving Kala Naft evidence supporting its allegations; the only evidence needed was that Kala Naft was the central purchasing body for NIOC. The ECJ also stated that “support” for nuclear proliferation “implies a lesser degree of connection to Iran’s nuclear activities than ‘engagement’ or ‘direct association’”.

Third, the ECJ agreed with the GC that it had no jurisdiction to decide the other part of Kala Naft’s challenge, which was to the EU’s sanctions measures prohibiting the sale of equipment and technology to the oil and natural gas industry in Iran, because Article 275 TFEU only gives jurisdiction to consider the legality of “decisions providing for restrictive measures against natural or legal persons” and not CFSP measures more generally. In other words, the Court only has jurisdiction to annul the targeted part of EU sanctions, not the more general prohibitions.

There is an interesting blog on the Kala Naft judgment on EJIL: Talk! here.

General Court judgment 2 weeks earlier in North Drilling Co

The General Court handed down another Iran oil-related sanctions judgment on 12 November 2013, Case T-552/12 North Drilling Co v Council (judgment here, available only in French). The reason given for North Drilling’s designation was that it was said to be a 100% subsidiary of the National Iranian Oil Company.

The General Court annulled that listing because North Drilling said it had been privatized and had had no connection with NIOC since 2011, and therefore the Council had been acting on the basis of mistaken facts when it listed it. The Council argued that even after privatization the company was still under State control and still provided resources to the Iranian government, but the Court held that it would be unfair to permit the Council to rely on this new reason that had never been put to the applicant.