Iran's Bank Mellat plans to sue European Union governments for damages after a European court ruled to annul sanctions against the company, lawyers said on Wednesday.

Europe's General Court said on Tuesday the EU had failed to provide enough evidence that Bank Mellat was linked to Iran's disputed nuclear progamme when the bloc targeted it with sanctions in July 2010, and ordered the measures annulled.

EU governments may appeal the decision, and diplomats said broader European sanctions against Iranian banks could still limit Bank Mellat's ability to function in Europe.

But lawyers for the bank, the biggest private sector lender in Iran, said the ruling meant it could resume trading in Europe.

Bank Mellat "will now be able to commence trading internationally and try and draw back the losses incurred over the last three years since the sanctions were imposed," law firm Zaiwalla & Company said in a statement.

"Furthermore, the bank will now look to claim damages from the EU Council."

Sarosh Zaiwalla, who represented Bank Mellat, said being put on the sanctions list resulted in a freeze on all the bank's assets in the EU and its international trade was effectively suspended for three years.

The EU argued in 2010, when it decided to impose the sanctions, that the bank facilitated Tehran's disputed nuclear programme and provided financial services to companies or institutions targeted by international sanctions.

Tehran says its nuclear work has only peaceful purposes but the United Nations Security Council has ordered it to suspend uranium enrichment, concerned that its ultimate goal is to provide Iran with an atomic bomb.

The case is one of a handful involving Iranian companies that the EU has lost in the court in the last year and will add to concerns among many European diplomats that legal rulings could undermine the bloc's sanctions policy against Iran.

Iranian companies and individuals have nearly 50 cases outstanding in the court.

In preparing sanctions listings, EU diplomats face a challenge of providing sufficient justification while not compromising intelligence sources.

Beside failing to prove that the bank knowingly committed wrongdoing, the court said that the Council of the European Union failed to show the bank reasons for its listing, hampering its defence, and had erroneously claimed it was a state-owned bank in its original sanction decision.

The General Court also ordered the Council to pay Bank Mellat's legal costs.

The EU side has two months to appeal Tuesday's ruling.

EU authorities declined to detail the impact of the decision on the bank's business in Europe.

"We take note of the judgment and we will study it in great detail," said a spokeswoman for EU foreign policy chief Catherine Ashton.

Bank Mellat was formed through the merger of 10 banks in 1980 and boasts 1,800 branches in Iran as well as branches in Turkey, South Korea, London and Dubai. It has also appealed to the UK Supreme Court to overturn a ban on its operations.

That case is due to be heard in March. – Reuters