The German government and the EU have very compelling legal defenses against any claims for damages because of stopping the North Stream 2 gas pipeline project.
enough, some Gazprom lobbyists are busy issuing ominous warnings against
sanctioning North Stream 2.
lobbyists at work
German government, they warn, will be faced with a “snowball of litigation” if
sanctions are imposed.
lobbyists also argue there will be terrible costs imposed on the Western energy
company partners if the North Stream 2 project is sanctioned.
and EU on solid legal grounds
reality, both the German government and the European Union (as sanctions are
most likely to be adopted at EU level) have very compelling legal defenses
against any damages claim.
damages claims were indeed brought as a result of sanctions being imposed, then
it is most likely that such claims would be directed against the European
host of practical reasons, which include the multi-state financing, the
multi-state territorial and Exclusive Economic Zone footprint of the pipeline,
sanctions are most likely to be applied at EU level.
dim chances suing the EU
Stream 2 would likely seek to bring a direct action challenging the sanctions
as unlawful under European Union law and seeking damages. Or it could pursue a
damages claim under the Energy Charter Treaty (ECT) — the multilateral energy
challenge by Gazprom before the EU General Court and ultimately the Court of
Justice of the European Union (CJEU) would be extremely difficult to mount
lawyers of the European Commission’s and the EU Council’s Legal Services would
be able to compellingly argue that the sanctions had a legitimate aim to push
back at Moscow for poisoning the leader of the Russian opposition, Alexei
already have substantial evidence from the Berlin hospital, the Charité, of the
use of Novichok on Mr. Navalny. Evidence from a host of research centers and
from the Skripal case in the UK support the proposition that Novichok is a
weapons grade poison. As such, it required state resources to produce and was
in fact only produced by the Russian state.
foreign policy reasoning matters
perspective of the EU’s external policy, it simply cannot accept having the
principal leader of the opposition of Russia — after all, a Council of Europe
Contracting State — being poisoned by his own government.
the EU accept Russian support for the suppression of the legitimate democratic
wishes of the Belarusian people, by the installation of Russian police and
military actors into the Belarusian state to assist in organizing that
these acts run counter to the European Union’s fundamental values, the right to
life, the right to democratic free expression and the fundamental right of
European peoples to make their own choice as to their future.
which makes North Stream 2 a worthy target for EU sanctions.
problem? It is a 100% owner of North Stream 2
damage claims by Western companies involved in the project, it matters greatly
that North Stream 2 is 100% owned by Gazprom. Moreover, Gazprom itself is
directly 51% owned by the Russian state over which it maintains complete
direction and control.
raises the question against whom Wintershall, Uniper, Engie and Shell will
direct their damage claims. It stands to reason that the “poor Western energy
companies” involved in the project weren’t naïve.
all, they have very expensive external lawyers on retainer. They should have
insured, one way or another, if the pipeline is sanctioned, that those
companies do not lose out.
particular, one expects that these energy companies were smart enough to secure
claims against Gazprom if the pipeline project is stopped due to actions or
events related to the conduct of Russian authorities.
would take the German government off the hook, even though this is the damage
dimension Gazprom lawyers now seek to direct attention to. One wonders why…
luck for Gazprom
Legal Services of the Union will therefore be able to identify both:
legitimate objective stemming from the Navalny poisoning and Russian
interference in the Belarusian state and
legitimate target for sanctions — in this case a Russian state-owned and
state-controlled entity — and one which threatens EU interests both inside and
out of the Union.
consequence, it would be very challenging at best for North Stream 2 to move
successfully against sanctions imposed by the EU and argue they would be set
aside, never mind successfully pursue any claims to obtain damages.
Gazprom rely on the Energy Charter Treaty?
alternative for North Stream 2 would be to seek instead to bring a damages
claim against the European Union via the Energy Charter Treaty (ECT).
German Chancellery should not be greatly worried about any potential ECT claim
by Gazprom either.
North Stream 2 has brought an ECT claim against the European Union for daring
to apply EU law to the pipeline.
claim is risible and will be thrown out by the ECT tribunal. What North Stream
2 argues is that the EU had no right to extend EU energy liberalization law to
all new pipelines.
defined all new pipelines as those completed by May 23, 2019. At that date only
40% of the pipeline had been constructed, furthermore North Stream 2 did not
even have all the route permits in place.
Danish permit was not granted until October 2019 and even then work could not
start in Danish waters until November 2019, five months after the 23 May
reasons stand out in this regard. First, the issue of what constitutes a
cut-off date under EU regulations is a sovereign EU matter.
be customary in Russia to play with, or disregard entirely, rules and
regulations. Not so in the EU, which operates under the rule of law.
second, no responsible investor would make a final investment decision before
all the route permits were in place. As a consequence, the capacity of North
Stream 2 to successfully sustain an ECT damages claim against the European
Union is extremely limited.
also worth noting that Russia withdrew from the Energy Charter Treaty in 2009.
In addition, it is in the process of making numerous complaints about the
application of the ECT on its territory.
only use the ECT now because of artful tangential circumstances. North Stream
2, although it is 100% owned by Gazprom, is in law a Swiss company. Switzerland
is a Contracting Party to the ECT. Currently, the ECT is undergoing a process
of modernization heavily supported by the European Union.
obvious way for the ECT to be modernized for the future would be to limit the
capacity of state-owned and controlled companies of non-ECT states from
obtaining benefit of the Treaty.
addition, any claims on the part of Gazprom and/or the participating companies
of being surprised by the turn of events ring hollow.
context, it is worth remembering that from its very launch in June 2015, North
Stream 2 was very controversial.
Gazprom and its Western energy partners have long been on full notice regarding
the controversial nature of the project. They knew by the summer of 2016 that
the project was controversial, had been subject to legal challenge and was
likely to be subject to further legal challenges.
structure the public debate
a context and under such circumstances, it is almost inconceivable that the
Western energy companies would not have sought significant financial guarantees
from Gazprom for their participation in the financing of the project.
to direct the public debate in Europe away from the way in which Gazprom
lobbyists seek to direct it with their scare-mongering, the German Chancellery
should seek public answers to the following questions from the Western energy
company partners involved in the project:
you receive any form of guarantee of indemnification should the project have to
be cancelled, including as a result of sanctions being imposed?
the fees you were paid for the financing above normal market rates, not least
to reflect the political risk involved in the project?
you receive favorable business deals from Gazprom or other state-controlled or
influenced companies at around the same time as the North Stream 2 financing,
e.g., access to Russian oil and gas acreage — as a form of “pre-compensation”?
self-protection, no dice
it turn out that Western energy companies did not obtain some form of
indemnification or financial comfort from Gazprom to cover the risks of their
participation in North Stream 2, it should not be for German — or EU — taxpayers
to be asked to pay for their corporate incompetence.
case, it is surely the responsibility of the shareholders of those Western
energy companies who should then demand the resignation of the executives who
executed such a risky deal without proper legal protections.
Riley is a Senior Associate Fellow of Energy Strategy and Energy Security
European Union at The Institute for Statecraft in London, and specializes in
antitrust, trade and energy law and policy issues. From 2007 to 2015, Mr. Riley
held a chair in international commercial law at the City Law School, Grays Inn,
part of City University, London. Prior to that, he held a number of academic
appointments in London, Nottingham and Edinburgh. Alan is also chair of the
Competition Law Scholars Forum (clasf) and co-editor of the Competition Law
Review. He holds a PhD from the Europa Institute, Edinburgh University and
qualified in 1991 as an English solicitor.
specializes in energy law, particularly in relation to the market and strategic
questions in relation to pipeline gas and LNG.
energy field, he is researching a number of questions concerning market
liberalization, and market regulation in both the Russian and European Union
author of “The Potemkin Dragon: China, A Danger to Itself and the World.”