BRUSSELS: The EU’s top court on Tuesday upheld a law meant to shield European businesses from extraterritorial US sanctions, while recognising it did little to protect companies from the American punishment.

The European Court of Justice was ruling on a complaint brought by an Iranian bank, Bank Melli, over contracts severed by a Deutsche Telekom subsidiary after Washington in 2018 reinstated sanctions in the wake of its exit from the Iran nuclear deal.

The court determined the Iranian bank could invoke a 2018 EU regulation prohibiting European businesses from complying with US sanctions.

But judges also found that the German company still had leeway under the EU Charter of Fundamental Rights to protect its business.

The EU shielding law’s objectives “include protecting the established legal order and the interests of the European Union,” the court noted.

However, it observed that the law “would not be capable of counteracting the effects” of US sanctions.

It limited the scope of Bank Melli relying on the shielding law by saying it applied only as long as it “does not entail disproportionate effects” for the European company.

For the Deutsche Telekom subsidiary, Telekom, the costs could be immense. The subsidiary gets half its turnover from business in the United States.

The contracts with Bank Melli, for telecom services underpinning its commercial activities, were minor in comparison.

Telekom cut off its contracts before their term and without giving express reasons, prompting Bank Melli to take it to court in Germany.

The German court ordered the contracts be resumed until their expiry, but Bank Melli took it further, arguing that the EU shielding law should apply beyond that.

Taking up the matter, the European Court of Justice agreed that the “clear, precise and unconditional terms” of the EU law meant Bank Melli could rely on it.

But “proportionality” came into play as well, in terms of evaluating the impact on Telekom if it were forced to continue with the Iranian bank contracts, the court said.

As a result, the invocation of the EU shielding law by Bank Melli upon Telekom “does not have the effect of depriving the latter of the possibility of asserting its interests generally in the context of a contractual relationship, but rather of limiting the possibility”.

The EU court said that the German court hearing the case must weigh the aims of the EU shielding law against “the probability that Telekom would be exposed to economic losses and the extent of those losses” if forced to see through its contracts with Bank Melli.