SUMMARY:
This blog post outlines the legal struggles encountered by Nord Stream 2 AG, the operator of the Nord Stream 2 pipeline. It covers investor-state dispute settlement (ISDS) claims under the Energy Charter Treaty, challenges regarding EU pipeline regulations, and the resulting bankruptcy proceedings exacerbated by multiple court-ordered moratoriums.
KEY TAKEAWAYS:
Legal Challenges: Nord Stream 2 AG confronted significant legal hurdles after the German government suspended the pipeline's certification, which raised concerns about potential ISDS claims under the Energy Charter Treaty.EU Court Involvement: The EU's highest court partially accepted Nord Stream 2 AG's challenge against EU pipeline regulations, highlighting ongoing tensions within regulatory frameworks.Impact of Geopolitics: Even with some legal victories, the future of the pipeline was severely threatened by the outbreak of war in Ukraine, coupled with Germany's withdrawal of support.Rescue Attempts: To stave off insolvency, Nord Stream 2 AG was granted several court-approved moratoriums.European Commission's Role: The European Commission represented the European Union in the investor-state arbitration initiated by Nord Stream 2 AG, reflecting the intricate relationship between member states and EU regulations.Complexity of Investment Treaties: The blog highlights the intricate nature of investment treaty arbitration involving the European Union, showcasing the balance of interests at play.
DATA:
SOURCE:
File: 2023_Investment_Treaty_Arbitration_-_European_Union.pdf
24 Feb 2022 - The German government has been worried about being sued by the fossil fuel companies behind the Russian gas pipeline under the Energy Charter Treaty
12 July 2022 - The Court declares the action brought by Nord Stream 2 AGAfter Russian tanks rolled into Ukraine on Tuesday, German chancellor Olaf Scholz finally decided to halt the certification of the Nord Stream 2 gas pipeline linking Germany and Russia.But why has the German government delayed this decision for so long? And why did Scholz merely halt the certification rather than cancelling it?The words of German environment minister Svenja Schulze from last February give a clue. “We also run the risk of ending up in international arbitration courts with compensation claims if we stop the project,” she said.Her warning added to a growing list of ministers admitting that they feared investor-state-dispute settlement (ISDS) claims under the Energy Charter Treaty (ECT), of which Germany is one of 53 members.
...against the directive extending certain rules of the internal market in natural gas to pipelines from third countries to be partially admissible.
12 July 2022 - Gazprom’s Shunned Nord Stream 2 Wins Spat Over EU Pipeline Rules
EU top court says gas project’s challenge is admissibleLower EU court will have to rule on substance of dispute
Russia’s shunned Nord Stream 2 gas pipeline won a legal boost in its pre-war challenge against European Union rules that subjected all new and existing pipelines involving foreign suppliers to the EU’s energy market-opening requirements, after the bloc’s top court said its appeal can be heard.
While the ruling is a win for Nord Stream 2, its impact may have been overtaken by events in Ukraine, which led Germany to withdraw its backing for the project.
The operator of Nord Stream 2, a pipeline designed to double Russia's gas exports to Germany, won an appeal in the EU's top court on Tuesday after challenging European Union rules that require separate companies to build, operate and own pipelines.
12 July 2022 - Gazprom’s Shunned Nord Stream 2 Wins Spat Over EU Pipeline Rules
EU top court says gas project’s challenge is admissible
Lower EU court will have to rule on substance of dispute
Russia’s shunned Nord Stream 2 gas pipeline won a legal boost in its pre-war challenge against European Union rules that subjected all new and existing pipelines involving foreign suppliers to the EU’s energy market-opening requirements, after the bloc’s top court said its appeal can be heard.
While the ruling is a win for Nord Stream 2, its impact may have been overtaken by events in Ukraine, which led Germany to withdraw its backing for the project.
12 July 2022 - Judgment of the Court in Case C-348/20 P | Nord Stream 2 v Parliament and Council
12 July 2022 - The Court declares the action brought by Nord Stream 2 AG against the directive
... extending certain rules of the internal market in natural gas to pipelines from third countries to be partially admissible
13 July 2022 - EU and US welcome Canada's decision to return Russian turbine to Germany
13 July 2022 - EU court points to future resurrection of Russian gas pipe
In May, the court granted a provisional moratorium against bankruptcy proceedings for the first time, which was valid until September 10. This period has now been extended by another four months.
The Swiss company behind the Russian gas pipeline Nord Stream 2 has received a four-month extension to try to repay its debts.
8 Sept 2022 - Gazprom unit granted Nord Stream 2 debt restructuring moratorium extension
Nord Stream 2 AG will not go bankrupt at least until 10th of January 2023 thanks to another decision from Zug court.
10 Sept 2022 - Nord Stream 2 gas link operator wins further stay of bankruptcy: court
On May 11, Switzerland-based Nord Stream 2 AG was awarded a provisional stay of bankruptcy until Sept. 10 2022, according to a notice in the Swiss Official Gazette of Commerce.
In a new notice dated Sept. 8, a court in Zug awarded a four-month extension of the stay of bankruptcy from Sept. 10 until Jan. 10, 2023.
There have been calls from within Germany in recent weeks to allow Nord Stream 2 to begin operations after flows through the first Nord Stream system were curtailed and then halted altogether, with gas prices having surged to new records as a result.
28 Dec 2022 - Nord Stream 2 pipeline firm gets 6-month stay of bankruptcy
A Swiss court has granted a six-month “stay of bankruptcy” to the operating company for the never-opened Nord Stream 2 pipeline, which was built to bring Russian gas to Germany but put on ice shortly before Russia invaded Ukraine in February.
Nord Stream 2 AG, a subsidiary of Russia’s Gazprom, is based in Zug. Nord Stream 2′s court-appointed administrator, Transliq AG, sought the extension.
INVESTMENT TREATY ARBITRATION European Union
...However, CETA, EUSIPA and EUVIPA do not specify which institution of the European Union must be served with the ‘notice to submit a claim’, and, potentially, with the notice of arbitration.
CETA merely provides (article 8.23.8) that the European Union and Canada will notify each other of the place of delivery of notices and other documents by the investors and that this information will be made publicly available. EUSIPA and EUVIPA do not contain such a provision.
As a default, it is the European Commission that represents the European Union in international judicial proceedings.
So far, only one investor-state arbitration has been initiated against the European Union (pursuant to the UNICTRAL Arbitration Rules 1976 and the Energy Charter Treaty (ECT) ). Based on publicly available information, the claimant (Nord Stream 2 AG) served the notice for arbitration on the EU Commission represented by its president and other senior officials (such as the Director-General for the EU Commission’s Legal Service and the Director-General for Trade).
Law stated - 19 October 2022
UPDATE 06-03-2025
Arbitration Risks for Germany if Certification Stop Becomes Final
If Germany’s decision to halt Nord Stream 2’s certification—initially paused in February 2022 and effectively stalled since—becomes a permanent stop, it could trigger significant arbitration risks under international investment law, particularly through the Energy Charter Treaty (ECT).
Nord Stream 2 AG, a Swiss-registered company wholly owned by Russia’s Gazprom, has already initiated arbitration proceedings against the EU (PCA Case No. 2020-07), but Germany, as the pipeline’s landfall state, could also face direct or related claims.
Legal Basis for Claims: Nord Stream 2 AG could argue that Germany’s refusal to certify the pipeline violates its obligations under the ECT, specifically Article 10(1), which mandates "fair and equitable treatment" (FET) and protection against "unreasonable or discriminatory measures." The company might also invoke Article 13 (expropriation) or Article 10(7) (national treatment and most-favored-nation status), though FET is the most likely cornerstone. The argument hinges on "legitimate expectations"—a key principle in investment arbitration—where investors rely on host state actions (like issuing permits) to justify their investments.
Legitimate Expectations: As Gabriel Lentner noted in the Tagesspiegel Background interview cited by Clean Energy Wire, Nord Stream 2 AG could point to "positive signals" from Germany, such as construction permits granted in 2018 by the Stralsund Mining Authority and federal approvals under Merkel’s government. These actions, alongside Germany’s historical support for the project (e.g., classifying it as a commercial venture), could be framed as creating a reasonable expectation of certification. Arbitration tribunals often assess whether a state’s conduct—permits, assurances, or regulatory stability—induced significant investment (here, $11 billion), only for later actions to undermine it without compensation.
Damages at Stake: If a tribunal finds Germany liable, the financial exposure could be massive. Nord Stream 2 AG has suggested losses exceeding €8 billion, though claims could escalate to cover the full project cost plus lost profits—potentially €9–11 billion or more, given Gazprom’s investment and the pipeline’s intended 55 bcm annual capacity. Under ECT Article 26, compensation typically reflects "fair market value" before the breach, a figure that could dwarf Germany’s initial economic calculus for halting certification.
Germany’s Defenses and Risks: Germany might counter that its regulatory sovereignty—exercised via the February 2022 suspension amid Russia’s Ukraine aggression—justifies the stop. However,
Lentner’s point is critical: tribunals often discount "changing political situations" (like the Ukraine crisis) as a valid excuse unless tied to objective, non-discriminatory necessity (e.g., public security under ECT Article 24). Germany’s prior approval of Nord Stream 1 and its energy dependence on Russia could weaken claims of consistent policy. If the stop is deemed final, arbitrary, or disproportionate, Germany risks losing, as tribunals prioritize investor stability over post-hoc political shifts.
Arbitration Framework: Germany is bound by the ECT (signed 1994, ratified 1997) and the ICSID Convention (ratified 1969), offering Nord Stream 2 AG multiple arbitration venues. German arbitration law (ZPO Section 1025 et seq.) aligns with the UNCITRAL Model Law, granting tribunals broad autonomy to assess FET breaches. The EU’s 2019 Gas Directive amendment, which Germany applied, might also be challenged as discriminatory (a “lex Nord Stream 2”), amplifying the case’s complexity.
In short, a final certification stop risks exposing Germany to a costly arbitration loss, with Nord Stream 2 AG leveraging legitimate expectations against a politically motivated reversal. The precedent of Strabag v. Germany (ICSID, 2019), where regulatory shifts in renewables prompted ECT claims, underscores this vulnerability.
Why the February 2022 Certification Pause Was Likely TemporaryThe certification pause announced by Chancellor Olaf Scholz on February 22, 2022—ordering the Economy Ministry to withdraw the supply security report—appears designed as a temporary measure rather than a permanent end, driven by strategic and legal considerations:
Political Leverage: As Jake Sullivan articulated on February 6, 2022, the U.S. and Germany viewed Nord Stream 2’s non-operational status as “leverage for us, not Vladimir Putin.” The pause, enacted days before Russia’s invasion, aimed to deter aggression by threatening Russia’s economic gains without irrevocably killing the project. Scholz’s vague “severe consequences” rhetoric and Biden’s February 7 pledge to “bring an end to it” suggest a reversible stance tied to Russia’s actions, not a definitive closure.Legal Flexibility: By withdrawing the security report rather than rejecting certification outright, Germany kept the process in limbo—avoiding a final decision that could trigger immediate arbitration. Under German energy law (EnWG) and EU Directive 2009/73/EC, certification requires a positive security assessment, but pausing it sidesteps a formal denial. This aligns with Merkel’s earlier deal with the U.S. (July 2021), which allowed certification unless Russia weaponized energy—a condition met by February 2022, justifying a temporary hold.Arbitration Avoidance: A temporary pause mitigates arbitration risks by preserving Nord Stream 2 AG’s hope of eventual approval, delaying claims. A final stop, as Lentner implies, would solidify the breach of legitimate expectations, given prior permits and investments. The ECT’s three-month cooling-off period (Article 26) had already been tested by Nord Stream 2 AG against the EU in 2019; Germany likely sought to avoid a parallel claim by keeping the door ajar. Germany might certify post-war to dodge a €9 billion payout.Energy Pragmatism: Germany’s reliance on Russian gas (39% of imports in 2021) and soaring prices in 2022 (spot market peaking at $30/mmBtu) made a permanent halt unpalatable. The pause allowed time to secure LNG (e.g., U.S. exports up 63% in 2022) while retaining the pipeline as a future option, balancing geopolitics and energy needs.Lentner’s Insight: The quote highlights why the pause was tactical: tribunals prioritize investor expectations (permits issued) over political crises (Ukraine). A temporary suspension could be framed as a proportionate response, not a capricious end, reducing Germany’s legal exposure if challenged.
CONCLUSION:
In conclusion, the February 2022 pause was likely a temporary gambit—using Nord Stream 2 as a geopolitical bargaining chip while dodging the arbitration fallout of a final stop. A permanent halt risks billions in damages, hinging on Germany’s inability to justify overturning Nord Stream 2 AG’s expectations amidst a crisis it didn’t foresee when permits were granted. The pause bought time, not closure.RELATED POSTS:
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