MP logo Meyer-Reumann & Partners
German Legal Expertise in the Middle East since 1981

EU Court sanctions against IRISL

Guiding Principle

The European General Court, based in Luxembourg, has lifted the European Union’s sanctions against the Islamic Republic of Iran Shipping Lines (IRISL) and 17 other Iranian shipping companies connected to IRISL in its judgment dated 16 September 2013, in Case T-489/10, Islamic Republic of Iran Shipping Lines vs. Council of the European Union. The General Court came to this decision that the evidence of IRISL’s alleged involvement in nuclear proliferation offered by European governments ‘does not justify the adoption and maintenance of restrictive measures’. This ruling also included other Iranian shipping firms connected to IRISL.

The General Court of the European Union has, in a judgment dated 16 September 2013 in Case T-489/10[1], annulled restrictive measures against Islamic Republic of Iran Shipping Lines (“IRISL”) and 17 other applicants[2] linked to IRISL, having determined that the Council of the EU could not justify the adoption and maintenance of restrictive measures against these entities.

IRISL, having been targeted by the US, EU and even the United Nations Security Council, operated the largest dry bulk carrier in the Middle East and had up to 150 vessels under its control prior to EU sanctions against it in 2010. However, successive EU and U.S. sanctions against it and its subsidiaries have severely affected its commercial operations.

IRISL was hit with financial sanctions by the U.S. Treasury in 2008 for what it said was its role in aiding Iran’s ballistic missile development program, and any foreign companies doing businesses with IRISL may face punitive measures under U.S. law. On 26 July 2010, IRISL and 23 IRISL’s affiliates were placed on the list of entities involved in nuclear proliferation set out in Annex II to Council Decision 2010/413/CFSP of 26 July 2010 concerning restrictive measures against Iran. Based on EU Regulation 267/2012, at Article 23 (2)(a), all funds and economic resources of the persons and entities listed in Annex IX of the Regulation 267/2012 are frozen. The criteria for being listed in Annex IX is that the persons within it have been identified in the Decision 2010/413 as being engaged in or having supported Iran’s proliferation sensitive nuclear activities. Following the sanctions, several IRISL vessels were temporarily seized in foreign ports.

In Decision 2010/413, the EU Council stated the following grounds in respect of IRISL:

‘IRISL has been involved in the shipment of military-related cargo, including proscribed cargo from Iran. Three such incidents involved clear violations that were reported to the [United Nations] Security Council Iran Sanctions Committee. IRISL’s connection to proliferation was such that the [United Nations Security Council] called on States to conduct inspections of IRISL vessels, provided there are reasonable grounds to believe that the vessel is transporting proscribed goods, in [United Nations Security Council Resolutions] 1803 and 1929.’

The other applicants were identified in Decision 2010/413, in essence, as companies owned or controlled by IRISL or acting on its behalf. Khazar Shipping Lines was also identified as a company, which ‘[had] facilitated shipments involving UN- and US-designated entities, such as Bank Melli, by shipping cargo of proliferation concern from countries like Russia and Kazakhstan to Iran’.

IRISL (together with 17 of the 23 entities listed in Annex IX) applied to annul the Decision and the Regulation. The applicants put forward five pleas in law. The first plea alleged breach of their rights of defense and of their right to effective judicial protection. The second plea alleged breach of the obligation to state reasons. The third plea alleged breach of the principle of proportionality, of their right to property and of their right to carry on an economic activity. The fourth plea alleged error of assessment as regards the adoption of restrictive measures against the applicants. The fifth plea alleged that Article 16(2) of Regulation No 961/2010 and Article 23(2) of Regulation No 267/2012 are unlawful in that those provisions impose a prohibition on the loading and unloading of cargoes.

The Court addressed just two of the five grounds relied on by the applicants in its judgment; the second plea in law, as it concerns the statement of reasons relating to IRISL, and then the fourth plea in law.

With regard to the second plea in law, the applicants’ argument was that the Council breached its obligation to state reasons for the designation of IRISL when deciding to subject it to restrictive measures. The Council contested and stated that ‘the statement of reasons must be appropriate to the act at issue and to the context in which it was adopted. It is not necessary for the statement of reasons to specify all the relevant facts and points of law, since the question whether the statement of reasons is sufficient must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question. In particular, the reasons given for a measure adversely affecting a person are sufficient if it was adopted in circumstances known to that person which enable him to understand the scope of the measure concerning him. Taken as a whole, that evidence is sufficient to enable the applicants to understand that, in concluding that IRISL was providing support for nuclear proliferation, the Council relied on the three incidents involving the shipment of proscribed cargo by IRISL and on the fact that the Security Council considered it necessary to call on States to conduct inspections of IRISL vessels in certain circumstances.’

With regard to the fourth plea in law, the applicants’ argument was that the Council relied upon mere presumptions that the applicants were involved in nuclear proliferation and did not identify any evidence to support that conclusion. The applicants stated, in particular, that the three incidents involving the shipment by IRISL of proscribed goods did not relate to nuclear proliferation but to military material, and did not therefore justify the adoption of the restrictive measures relating to nuclear proliferation. In addition, in any event, IRISL was unaware of the nature of the goods shipped.

The Council contested the merits of the applicants’ arguments. According to the Council, ‘in the first place, although the three incidents in respect of which IRISL is accused relate to military material, they constitute support for nuclear proliferation, given, in particular, that they violate the Security Council resolutions relating to nuclear proliferation. In the second place, irrespective of the classification of the three incidents mentioned above, the fact that IRISL, as a large shipping company with an international presence that is owned by the Iranian State, transported prohibited military material means that it also necessarily transported material linked to nuclear proliferation, given that the development of activities linked to nuclear proliferation depends on shipping transport services. In the third place, in any event, the three incidents involving IRISL establish that there is a serious risk of IRISL transporting material linked to nuclear proliferation. Therefore, the adoption and maintenance of the restrictive measures to which it is subject is justified on a precautionary basis.’

After taking into consideration of the above arguments, the Court decided as follow:

1)    Article 20(1)(b) of Decision 2010/413 provides for the freezing of funds of ‘persons and entities … that are … providing support for … Iran’s proliferation-sensitive nuclear activities or for the development of nuclear weapon delivery systems, including through the involvement in procurement of the prohibited items, goods, equipment, materials and technology’. Similarly, Article 16(2)(a) of Regulation No 961/2010 and Article 23(2)(a) of Regulation No 267/2012 cover inter alia entities designated as ‘providing support for Iran’s proliferation-sensitive nuclear activities or the development of nuclear weapon delivery systems by Iran, including through involvement in the procurement of prohibited goods and technology’. Article 7(2) (a) and (b) of Regulation No 423/2007 covers inter alia persons and entities providing support for nuclear proliferation, without referring expressly to the procurement of prohibited technology and goods.

The wording used by the legislature implies that the adoption of restrictive measures against a person or an entity on account of the support which that person or entity has allegedly given to nuclear proliferation presupposes that person or entity has actually done so. By contrast, the mere risk that the person or entity concerned may in the future provide support for nuclear proliferation is not sufficient.

Therefore, Article 20(1)(b) of Decision 2010/413, Article 7(2) of Regulation No 423/2007, Article 16(2)(a) of Regulation No 961/2010 and Article 23(2)(a) of Regulation No 267/2012 required the Council to establish that support for nuclear proliferation had actually been provided by IRISL.

2)    In the present case, it is apparent from the 2009 annual report of the Sanctions Committee of the Security Council that the three incidents involving IRISL related to alleged breaches of the prohibition laid down in paragraph 5 of Resolution 1747 (2007) concerning the export of arms and related material by the Islamic Republic of Iran. By contrast, the other documents in the file, communicated to the applicants at their request by the Council and produced before this Court, do not contain evidence to suggest that the goods in question were also covered by the prohibition relating to material linked to nuclear proliferation, laid down in paragraph 7 of Resolution 1737 (2006).

In those circumstances, it must be concluded that it has not been established that, by having transported – on three occasions – military material in breach of the prohibition laid down in paragraph 5 of Resolution 1747 (2007), IRISL provided support for nuclear proliferation. Therefore, the three incidents in question do not justify the adoption and maintenance of the restrictive measures concerning IRISL.  In those circumstances, the Council’s assertion that IRISL has necessarily transported material linked to nuclear proliferation cannot be accepted.

3)    The Council claims that the three incidents involving IRISL establish that there is a serious risk of IRISL transporting material linked to nuclear proliferation, it must be borne in mind that, the existence of such a risk is not sufficient to justify the adoption and maintenance of restrictive measures in the light of the wording of Article 20(1)(b) of Decision 2010/413, Article 7(2)(a) and (b) of Regulation No 423/2007, Article 16(2)(a) of Regulation No 961/2010 and Article 23(2)(a) of Regulation No 267/2012.

Therefore, even if it appears appropriate to regard the fact that IRISL was involved in the three incidents concerning the shipment of military material in breach of the prohibition laid down in paragraph 5 of Resolution 1747 (2007) as increasing the risk that IRISL may also be involved in incidents relating to the shipment of material linked to nuclear proliferation, that does not, as the relevant legislation now stands, justify the adoption and maintenance of restrictive measures against it.

4)    With regard to the involvement of Khazar Shipping Lines in nuclear proliferation, Khazar Shipping Lines maintains that it is not involved in nuclear proliferation, and submits in particular that it has neither transported cargoes linked to nuclear proliferation nor provided services to Bank Melli Iran. In that regard, it is sufficient to note that, while Khazar Shipping Lines challenges the substance of the allegations against it, the Council has not provided any information or evidence to support them. In those circumstances, those allegations do not justify the adoption and maintenance of the restrictive measures against Khazar Shipping Lines.

5)    With regard to the fact that the applicants other than IRISL are owned or controlled by IRISL or act on its behalf, it should be noted that, when the funds of an entity identified as providing support for nuclear proliferation are frozen, there is a not insignificant danger that that entity may exert pressure on the entities it owns or controls or which act on its behalf, in order to circumvent the effect of the measures applying to it. That being so, the freezing of the funds of entities owned or controlled by an entity identified as providing support for nuclear proliferation or acting on its behalf is necessary and appropriate in order to ensure the effectiveness of the measures adopted vis-à-vis that entity and to ensure that those measures are not circumvented. However, in the present case the Council has not established that IRISL had provided support for nuclear proliferation. In those circumstances, even if the applicants other than IRISL are in fact owned or controlled by it or act on its behalf, that does not justify the adoption and maintenance of the restrictive measures to which they are subject, since IRISL has not been properly identified as providing support for nuclear proliferation.

In the light of all the foregoing, the fourth plea must be upheld in regard to all the applicants and the contested measures must, in consequence, be annulled in so far as they concern the applicants, without there being any need to examine the applicants’ other arguments and pleas in law.

EU governments have two months to appeal, and sanctions will remain in place until the appeals process is exhausted.

The judgment only annuls the applicants’ listing in Annex IX; it does not affect any of the other restrictions upon IRISL and the other applicants that might apply under other Articles of the Regulation 267/2012. For example, EU insurers will still be unable to provide insurance/reinsurance to IRISL as IRISL is considered as an “Iranian Person” and so EU domiciled companies will still be unable to provide key naval equipment and technology to IRISL.

This judgment has no effect upon EU member states’ UN obligations to inspect cargoes on vessels operated by IRISL. Furthermore, it will have no effect upon the US sanctions against IRISL. IRISL has been listed as a Specially Designated National under the US Weapons of Mass Destruction Proliferators sanctions regulations and it involves in the Iranian shipping industry under the Iran Freedom and Counter-Proliferation.

October, 2013 Zahra Tahsili
Meyer-Reumann & Partners, Tehran Office


[2]     Bushehr Shipping Co. Ltd (Malta); Hafize Darya Shipping Lines (HDSL) (Iran); Irano – Misr Shipping Co. (Iran); Irinvestship Ltd (UK); IRISL (Malta) Ltd (Malta); IRISL Club (Iran); IRISL Europe GmbH (Germany); IRISL Marine Services and Engineering Co. (Iran); ISI Maritime Ltd (Malta); Khazar Shipping Lines (Iran); Leadmarine (Singapore); Marble Shipping Ltd (Malta); Safiran Payam Darya Shipping Lines (SAPID) (Iran); Shipping Computer Services Co. (Iran); Soroush Saramin Asatir Ship Management (Iran); South Way Shipping Agency Co. Ltd (Iran); Valfajr 8th Shipping Line Co. (Iran).

Share:
For free subscription send us your contact details to Lexarabiae@meyer-reumann.com