Frankfurt court orders German graphite supplier to repay €35.9M to Iranian client despite U.S. sanctions
The Frankfurt Federal Constitutional Court issued a verdict in 2022 ordering an unnamed German company to pay back 35.9 million Eur to its former Iranian client after terminating a supply contract due to the reimposition of US sanctions against the client’s Iran-based parent company.
A company wholly owned by an undisclosed Iranian parent sued a German graphite electrodes provider over a contract termination. The German company halted its supply after the Iranian parent company was listed as an SDN on October 16, 2018.
Court documents show the German firm’s reluctance to repay the advance, arguing that doing so could place it on the SDN list. The court ultimately ordered the company to uphold its contractual obligations, highlighting the EU’s commitment to shielding domestic entities from extraterritorial enforcement of foreign sanctions through mechanisms like the EU Blocking Statute.
The case AZ: 2-05 O 406/18 began with the claimant, a subsidiary of an Iranian company, filing a lawsuit against the defendant, a company specializing in graphite electrodes. The legal journey started at the Regional Court of Frankfurt, where the claimant sought the return of a substantial prepayment, alleging that the defendant had failed to meet delivery obligations. The defendant, however, defended its actions, citing compliance with U.S. sanctions, which it argued were in line with the EU Blocking Regulation.
On 1 April 2022, the Regional Court of Frankfurt ruled in favor of the claimant, ordering the return of the funds. The defendant subsequently appealed the decision, taking the case to the Higher Regional Court of Frankfurt (OLG Frankfurt) under case number 17 U 90/22. The Regional Court of Frankfurt issued an initial ruling on April 1, 2022, in favor of the claimant, ordering the return of the funds.
The defendant appealed the decision, escalating the case to the Higher Regional Court of Frankfurt (OLG Frankfurt) under case number 17 U 90/22, where arguments focused on navigating the complexities of both U.S. sanctions and the EU Blocking Statute, which aims to protect EU entities from extraterritorial laws.
In connection with AZ: 2-05 O 406/18, Tehran Bureau submitted a request for access to the court documents on July 5, 2024. The request specifically aimed to investigate the parties involved in the graphite electrodes dispute and their connection to sanctions against Iran. Tehran Bureau sought access to regulatory communications about sanctions and complete contractual documentation. Despite expecting a response by August 7, 2024, Tehran Bureau did not receive any feedback by the deadline.
Industry overview
Graphite electrodes are used in electric arc furnaces to melt scrap steel and produce new steel efficiently. They are also essential for refining metals and conducting high-temperature processes in the metallurgical and chemical industries.
The main Iranian conglomerate active in this field is IMIDRO, a state-owned holding company overseeing Iran’s mining sector, with subsidiaries in steel, aluminum, copper, cement, and mineral exploitation. In 2013, the then-head of the organization, Mehdi Karbasian announced that international companies were interested in a joint venture with Iran in metals, according to state-owned media reports.
In the statement, Karbasian specifically mentioned German engineering company SMS Group as a front-runner. SMS Group has previous experience in Iran with Hormozgan Steel and Mobarakeh Steel, he added. Three years later, in 2016, Karbasian announced the implementation of a graphite electrodes project with “the help of Germany.”