Listing on Terror Lists and its Impact on Existing Contractual Relationships
In the tension between international counter-terrorism law and German civil law, practice-relevant questions become the focus as soon as a contracting party is listed on a so-called terror list. The Higher Regional Court of Frankfurt am Main had the opportunity to comment on central aspects of this constellation in November 2021 (Case No.: 6 U 65/20). The decision sheds light on the scope of the right to refuse performance as well as the impact of union law sanction mechanisms on private contractual relationships.
Background: Sanction Lists and Terror Financing
In the context of international counter-terrorism efforts, the European Union and other actors pursue a consistent sanctions practice, implemented among other things through so-called terror lists, such as the EU Regulation 2580/2001. As a result, individuals and legal entities, organizations, or institutions accused of being linked to terrorist activities are recorded in specially maintained registers. Listed parties are subject to various restrictions: Assets are to be frozen, economic resources must not be provided under any circumstances, and payment flows are prohibited.
Impact of Listing on Civil Law Performance Relationships
Rights to Refuse Performance in Contractual Relationships
In German contract law, the principle of pacta sunt servanda (agreements must be kept) holds a high status. However, if a contracting party is on a sanctions or terror list, special questions arise: Does the listing of one party on such a list entitle the other side to cease or permanently refuse due performances?
The Higher Regional Court of Frankfurt am Main denied this for the specific case: The mere listing of one party does not establish a general right to refuse performance for the other party. Particularly, the occurrence of a suspensive or dissolving condition within the meaning of § 275 BGB (impossibility) is not necessarily present due to mere inclusion on the EU terror list. Instead, the availability of civil claims is regularly only temporarily restricted: For the duration of the sanctions regime, claims, for example for payment, are indeed blocked, but they do not extinguish permanently.
Legal Situation Regarding Frozen Assets
From a union law perspective, listing under the EU Regulation results in the inability to dispose of a listed person’s assets. The obligation of third parties to perform – for example, paying a purchase price – still exists, but it is suspended for the duration of the sanction. The claim remains, but cannot be fulfilled. The refusing party can invoke that fulfilling its obligation is currently prohibited by union law. This prohibition acts not as a permanent refusal to perform, but as a temporary restriction.
Termination or Suspension of Contracts?
A reference to contract termination or rescission rights is only considered under narrow conditions in these constellations. Neither an automatic elimination of the basis of the transaction nor a permanent impossibility justifies a claim to terminate the contractual relationship merely due to a party’s inclusion on a terror list. As soon as the sanction is lifted, the claim revives or can be properly fulfilled again.
Balancing Interests and Protection Mechanisms
The tension between preventing terrorist financial flows and maintaining civil law contractual obligations requires a nuanced balance of interests. While the objective of sanctions law – effectively combating terrorism – is paramount, the reliability of private economic relationships is maintained: The legal system accepts a temporary suspension without allowing original civil claims to be extinguished permanently.
Practical Relevance for Economic Actors
For companies, investors, and other stakeholders, the decision of the Frankfurt Higher Regional Court provides important guidance: The interests of the contracting parties are affected by a factual impediment to performance in the event of a sanction, but this does not lead to a complete elimination of the claim. From a contract practice perspective, it is advisable to keep an eye on any sanctions and listings and, if necessary, rely on individual contractual provisions to safeguard the parties.
This decision provides a significant reference point for how the interplay of union law and German contract law is shaped in the face of sanction mechanisms. It remains open in which exceptional cases – such as in the case of permanent listing or further complications – more comprehensive rights could arise. Ongoing proceedings or new case law could further clarify this.
Summary and Outlook
The listing of a contracting party on, for example, the EU terror list temporarily hampers the fulfillability of civil claims according to current case law, but does not affect their legal basis. A right to refuse performance does not result from this alone. Nevertheless, a careful legal analysis of the details is recommended.
Anyone with questions about the impact of sanctions on existing contractual relationships, recent developments in sanctions law, or the secure implementation of business relationships in an international context will find competent contacts at MTR Legal Attorneys – both nationally and internationally. We accompany you through complex legal issues and provide you with extensive experience.
Source:
OLG Frankfurt am Main, Judgment of 04.11.2021, Case No.: 6 U 65/20
(https://urteile.news/OLG-Frankfurt-am-Main_6-U-6520_No-right-to-refuse-performance-due-to-listing-of-the-contracting-party-on-the-so-called-terror-list~N31008)
