Content Join OGEMID
 
  • Linkedin
  • Twitter
  • Rss

Transnational Dispute Management

Skip navigation

Transnational Dispute Management

The network for international arbitration, mediation and ADR, international investment law and Transnational Dispute Management

Join OGEMID

Transnational Dispute Management

The network for international arbitration, mediation and ADR, international investment law and Transnational Dispute Management

  • Sign in
  • Subscribe
  • Home
  • Sign in
  • About About
    1. Home
    2. About
    3. About TDM
    4. About TDM
    5. Founding Editor T.W. Wälde
    6. T.W. Wälde
    7. Editorial team
    8. Editorial team
    9. Contributing Authors
    10. Contributing Authors
    11. Subscriptions
    12. Subscriptions
  • Journal Journal
    1. Home
    2. Journal
    3. Browse Issues
    4. Browse
    5. Articles by Category
    6. By Category
    7. Articles by Author
    8. By Author
    9. Advance publication
    10. Advance publication
    11. Specials
    12. Specials
    13. Search
    14. Search
    15. Book reviews
    16. Reviews
  • Legal & Regulatory docs. L & r docs
    1. Home
    2. Legal & Regulatory docs.
    3. L&R by Country
    4. L&R by Country
    5. L&R by Category
    6. L&R by Category
    7. L&R recent additions
    8. L&R recent additions
    9. Search
    10. Search
  • Audiovisual library AV library
    1. Home
    2. Audiovisual library
    3. Audiovisual Library
    4. Audiovisual Library
    5. TDM/OGEMID Interviews
    6. TDM/OGEMID Interviews
    7. Conference presentations
    8. Conference presentations
  • OGEMID OGEMID
    1. Home
    2. OGEMID
    3. About OGEMID
    4. About OGEMID
    5. Suggest a topic
    6. Suggest a topic
    7. Guest programme
    8. Guest programme
    9. Seminar programme
    10. Seminar programme
    11. Browse archive
    12. Browse archive
    13. Search
    14. Search
    15. Join
    16. Join
  • News & Events Events
    1. Home
    2. News & Events
    3. News
    4. News
    5. Events
    6. Events
  • Subscribe
Home > Legal & Regulatory docs.

Nord Stream 2 AG v The European Union - PCA Case No 2020-07 - Respondent's Rejoinder on Merits and Reply on Jurisdiction - 22 February 2022

  • Sign in to download document
Country
  • Switzerland
Year

2022

Summary

Table of Contents

1 SUMMARY
1.1 THE AMENDING DIRECTIVE PURSUES LEGITIMATE AND ACHIEVABLE OBJECTIVES
1.2 THE AMENDING DIRECTIVE DOES NOT INVOLVE A "DRAMATIC REGULATORY CHANGE"
1.3 THERE WAS NO "DELIBERATE EXCLUSION" OF THE NS 2 PIPELINE PROJECT FROM THE DEROGATION REGIME NOR ANY SPECIFIC TARGETING
1.4 THE AMENDING DIRECTIVE UNDERWENT A PROPER LEGISLATIVE PROCESS
1.5 THE AMENDING DIRECTIVE WILL NOT HAVE THE ALLEGED "IMPACT" ON THE CLAIMANT'S INVESTMENT
1.6 THE EUROPEAN UNION HAS NOT BREACHED ITS OBLIGATIONS UNDER THE ECT
1.6.1 There is no breach of the fair and equitable treatment standard under Article 10(1) ECT
1.6.2 There is no impairment by unreasonable or discriminatory measures under Article 10(1) ECT
1.6.3 There is no breach of the constant protection and security standard under Article 10(1) ECT
1.6.4 There is no breach of most favoured and national treatment standard under Article 10(7) ECT
1.6.5 There is no breach of the provisions on expropriation under Article 13 ECT
1.7 THE TRIBUNAL LACKS JURISDICTION
1.7.1 The Tribunal lacks jurisdiction pursuant to the ECT's fork-in-the-road provision
1.7.2 The Tribunal lacks jurisdiction ratione personae
1.8 THE RELIEF SOUGHT BY THE CLAIMANT IS INAPPROPRIATE

2 THE AMENDING DIRECTIVE PURSUES LEGITIMATE AND ACHIEVABLE POLICY OBJECTIVES
2.1 INTRODUCTION
2.2 THE LEGITIMATE OBJECTIVES CITED BY THE EUROPEAN UNION ARE NOT "FABRICATED"
2.3 THE ARGUMENTS AND CONSIDERATIONS THAT THE CLAIMANT CONSIDERS AS "ENTIRELY UNADDRESSED" BY THE EUROPEAN UNION ARE IRRELEVANT AND UNFOUNDED
2.4 THE CLAIMANT HAS FAILED TO PROVIDE ANY COMPELLING RESPONSE TO THE EU'S REBUTTAL
2.5 THE EXPERT REPORT OF PROFESSOR MADURO CORRECTLY PRESENTS THE TRUE LEGAL SITUATION
2.6 THE CLAIMANT'S ALLEGATION THAT NORD STREAM 2 COULD NOT BE A THREAT TO SECURITY OF SUPPLY IS IRRELEVANT
2.7 THE POSSIBILITY TO APPLY FOR DEROGATIONS DOES NOT PREVENT THE ACHIEVEMENT OF THE OBJECTIVES OF THE AMENDING DIRECTIVE

3 THE AMENDING DIRECTIVE DOES NOT INVOLVE A "DRAMATIC REGULATORY CHANGE"
3.1 INTRODUCTION
3.2 THERE WERE SUFFICIENT INDICATIONS THAT THE GAS DIRECTIVE WOULD APPLY OR BE RENDERED APPLICABLE TO PIPELINES SUCH AS NORD STREAM 2 ALSO OFFSHORE
3.2.1 Signalling from the original Gas Directive and from Member States' territorial jurisdiction
3.2.2 Indications from contemporaneous Commission statements
3.2.3 The official statements postdating the investment decision
3.2.4 Indications from contemporaneous EU decisions
3.3 EU COMPETITION LAW COULD HAVE RESULTED IN THE REGULATORY REQUIREMENTS BEING ENFORCED AGAINST THE CLAIMANT
3.4 THE CLAIMANT WAS AWARE THAT THE REGULATORY REQUIREMENTS COULD APPLY TO PIPELINES SUCH AS NORD STREAM 2

4 THERE WAS NO "DELIBERATE EXCLUSION" OF THE NS2 PIPELINE PROJECT FROM THE DEROGATION REGIME NOR ANY SPECIFIC TARGETING
4.1 INTRODUCTION
4.2 THE GERMAN AUTHORITY HAS APPLIED THE "COMPLETED" CRITERION TO THE FACTS OF THE NSP2AG PROJECT
4.3 THE AMENDING DIRECTIVE IS NOT DISCRIMINATORY, NEITHER IN INTENTION NOR IN EFFECT
4.3.1 There is no aim in the legislation to obstruct the Nord Stream 2 Project
4.3.2 The Claimant's focus on derogations for certain offshore pipelines ignores that other third country pipelines are subject to the Gas Directive
4.3.3 The "completed" criterion is entirely appropriate
4.3.4 Article 49a does not "intentionally impose[] obstacles for Nord Stream 2"
4.4 AN ARTICLE 36 EXEMPTION IS A SUITABLE FLEXIBILITY, COMPARABLE TO AN ARTICLE 49A DEROGATION
4.4.1 Article 49a and Article 36 form part of a coherent system of obligations and flexibilities under the Gas Directive
4.4.2 An Article 36 exemption can be as favourable as an Article 49a derogation
4.4.3 The OPAL Decision demonstrates that the start of works does not prevent an application for an Article 36 exemption

5 THE AMENDING DIRECTIVE UNDERWENT A PROPER LEGISLATIVE PROCESS
5.1 INTRODUCTION
5.2 AN IMPACT ASSESSMENT WAS NOT REQUIRED
5.3 AN EX-POST EVALUATION WAS NOT NEEDED
5.4 STAKEHOLDERS WERE INVOLVED IN THE LEGISLATIVE PROCESS
5.5 ASSERTIONS ARE GROUNDLESS
5.5.1 The Amending Directive is an act of general and abstract application
5.5.2 The procedure in the European Parliament was regular and proper
5.5.2.1The procedure for the examination of legislative proposals was fully respected
5.5.2.2The work in the ITRE Committee followed an ordinary procedure
5.5.2.3The appointment of the rapporteur complied with the applicable rules and practice
5.5.2.4The appointment of the shadow rapporteurs complied with the applicable rules and practice
5.5.2.5The timetable in the Parliament was not unusual
5.6 THE AMENDING DIRECTIVE WAS ADOPTED THROUGH DEMOCRATIC DECISION-MAKING
5.7 THE EXPLANATORY MEMORANDUM IS THE RESULT OF AN ANALYSIS BY THE EUROPEAN COMMISSION
5.8 CONCLUSION

6 THE AMENDING DIRECTIVE WILL NOT HAVE THE ALLEGED "IMPACT" ON THE CLAIMANT'S INVESTMENT IN THE NORTH STREAM 2 PIPELINE
6.1 INTRODUCTION
6.2 THE "IMPACT" OF THE AMENDING DIRECTIVE, AS TRANSPOSED AND IMPLEMENTED BY GERMANY, ON NSP2AG'S INVESTMENT REMAINS HIGHLY UNCERTAIN
6.3 THE CLAIMANT HAS FAILED TO TAKE ACTION IN ORDER TO PREVENT OR MITIGATE THE ALLEGED IMPACT
6.3.1 NSP2AG failed to exercise due diligence when making its investment decision
6.3.2 The Claimant has not requested an Article 36 exemption
6.3.3 The Claimant has not sought to avail itself of Article 9(6) of the Gas Directive
6.3.4 The Russian Government could prevent the alleged adverse impact of the TPA requirements by allowing exports of gas from Russia by other undertakings
6.3.5 The Claimant has opposed the negotiation of an IGA between the European Union and Russia
6.4 THE CLAIMANT HAS NOT PROVEN THAT IT HAS ALREADY SUFFERED LOSSES ATTRIBUTABLE TO THE EUROPEAN UNION
6.4.1 The Claimant has failed to prove that it has already suffered losses attributable to the European Union resulting from the current inability to operate the NS2 pipeline
6.4.2
6.5 THE IMPACT RESULTING FROM ACTIONS OR OMISSION OF ENTITIES BELONGING TO THE SAME GROUP AS THE CLAIMANT, OR OF THE CLAIMANT'S ULTIMATE OWNER AND CONTROLLER, MUST BE ATTRIBUTED TO THE CLAIMANT
6.6 THE IMPACT RESULTING FROM THE U.S. SANCTIONS IS NOT ATTRIBUTABLE TO THE EUROPEAN UNION

7 THE EUROPEAN UNION HAS NOT BREACHED ITS OBLIGATIONS UNDER THE ECT
7.1 THERE IS NO BREACH OF THE FAIR AND EQUITABLE TREATMENT STANDARD UNDER ARTICLE 10(1) ECT
7.1.1 The European Union ensured due process and did not deny justice
7.1.1.1 The Claimant has been inconsistent in its assertion of the relevant standard to be applied
7.1.1.2 The Claimant continues to overstate the content of the legal standard required to demonstrate a breach of due process
7.1.1.3 The European Union has ensured due process
7.1.1.4 Conclusion
7.1.2 The European Union has acted in good faith
7.1.2.1 Good faith is not a stand-alone obligation under Article 10(1) of the ECT
Good faith as a general requirement of international law
Absent showings of bad faith, there is a presumption of good faith
7.1.2.2 The European Union has acted in good faith
7.1.2.3 Conclusion
7.1.3 The European Union has acted proportionately
7.1.3.1 The Claimant continues to overstate the legal standard applicable to proportionality under Article 10(1) of the ECT
7.1.3.2 The EU enjoys a wide margin of appreciation in enacting economic regulations in the interests of its citizens
7.1.3.3 The allegation that the European Union has acted disproportionately is premised on unproven factual allegations with regard to both the effects and the objectives of the Amending Directive
7.1.3.3.1 The Amending Directive did not cause any dramatic regulatory change
7.1.3.3.2 The public benefits of the Amending Directive outweigh any practical effects on Nord Stream
7.1.3.3.3 The objectives of the Amending Directive are legitimate, suitable, and achievable
7.1.3.3.4 Nord Stream 2 can apply for an Article 36 exemption
7.1.3.3.5 The Amending Directive includes an appropriate derogation mechanism
7.1.3.4 Conclusion
7.1.4 The European Union did not breach legitimate expectations
7.1.4.1 Legitimate expectations under the FET standard under Article 10(1) of the ECT
7.1.4.2 Legitimate expectations require an investment-inducing regulatory framework
7.1.4.2.1 The Claimant's criticism of the authorities relied on by the Respondent
7.1.4.2.2 The authorities relied on by the Claimant
7.1.4.2.3 No right to a stable legal and business environment
7.1.4.3 NSP2AG's expectations were not legitimate, reasonable and justifiable
7.1.4.4 NSP2AG did not rely on its alleged expectations when making the investment
7.1.5 The European Union has acted transparently
7.1.5.1 The threshold to demonstrate a lack of transparency is high
7.1.5.2 The European Union acted transparently
7.1.5.3 Conclusions
7.2 THERE IS NO IMPAIRMENT BY UNREASONABLE OR DISCRIMINATORY MEASURES UNDER ARTICLE 10(1) ECT
7.2.1 The European Union has not failed to properly address the Claimant's case
7.2.2 The Claimant has not demonstrated unreasonable or discriminatory measures
7.2.2.1The Claimant has not demonstrated the existence of unreasonable or arbitrary measures
7.2.2.2The Claimant has not demonstrated the existence of discriminatory measures
The Claimant has failed to demonstrate that there exist comparators who are treated more favourably
The Claimant has failed to demonstrate that any differential treatment, to the extent it exists, is not justified
The Claimant has not demonstrated that its investment has been impaired
7.2.3 Conclusion
7.3 THERE IS NO BREACH OF THE CONSTANT PROTECTION AND SECURITY STANDARD UNDER ARTICLE 10(1) ECT
7.3.1 The CPS standard is narrow in its application
7.3.1.1 The CPS standard protects investments from physical damage
7.3.1.2 Even if the CPS standard encompassed legal security, it is still a narrower standard than that advocated by the Claimant
7.3.2 The European Union did not breach the CPS standard
7.3.3 Conclusion
7.4 THERE IS NO BREACH OF MOST-FAVOURED-NATION AND NATIONAL TREATMENT UNDER ARTICLE 10(7) ECT
7.4.1 The Claimant's assertion that origin is irrelevant is incorrect
7.4.2 The Claimant has failed to demonstrate less favourable treatment than "like" investments of investors
7.4.3 Conclusion
7.5 THERE IS NO BREACH OF THE PROVISIONS REGULATING EXPROPRIATION UNDER ARTICLE 13 ECT
7.5.1 The Claimant cannot show that the Amending Directive has an "equivalent effect" to expropriation
7.5.1.1 The "impact" of the Amending Directive on NSP2AG's investment remains at this stage highly uncertain and could be averted or mitigated by the Claimant
7.5.1.2 In any event, the Claimant cannot show that full compliance with the requirements of the Amending Directive, as transposed and implemented by Germany, would constitute indirect expropriation
7.5.2 The Amending Directive falls within the scope of the EU's police powers
7.5.2.1 The police powers doctrine is a fundamental principle of international law
7.5.2.2 The Gas Directive and the Amending Directive are designed to pursue legitimate public welfare objectives of fundamental importance for the European Union
7.5.2.3 The Amending Directive is not discriminatory, not disproportionate, and was enacted in accordance with due process
7.5.3 The question of whether an indirect expropriation is unlawful giving rise to compensation is moot
7.5.4 Conclusion

8 THE TRIBUNAL LACKS JURISDICTION
8.1 THE TRIBUNAL LACKS JURISDICTION PURSUANT TO THE ECT'S FORK-IN-THE-ROAD PROVISION
8.1.1 Introduction
8.1.2 The Claimant had already elected a different jurisdiction for its claim prior to filing its Notice of Arbitration, vitiating the European Union's consent to the present arbitral proceedings
8.1.2.1 The European Union's interpretation of the ECT's fork-in-the-road clause is in line with its ordinary meaning, object and purpose
8.1.2.1.1 ECT Article 26(1) does not constrain the scope or application of ECT Article 26(3)(b)(i)
8.1.2.1.2 The European Union's interpretation of ECT Article 26(3)(b)(i) gives it effet utile
8.1.2.2 The "same fundamental basis" test applies to the ECT's fork-in-the-road clause
8.1.2.3 The Claimant's application for annulment before the Court of Justice of the European Union and the present arbitration proceedings have the "same fundamental basis"
8.1.2.3.1 The fundamental cause of the proceedings before the Court of Justice of the European Union and the present arbitration proceedings is the same
8.1.2.3.2 The request for relief is also the same in both disputes
8.1.2.4 The "triple identity test" that the Claimant advocates renders fork-in-the-road clauses useless and deprives them of any effet utile
8.1.2.5 In any event, the proceedings before the Court of Justice of the European Union and the present arbitration proceedings meet the "triple identity" test developed in the context of claims of lis pendens
8.1.2.5.1 Identity of parties
8.1.2.5.2 Identity of object
8.1.2.5.3 Identity of cause of action
8.1.2. 6Conclusion
8.2 THE TRIBUNAL LACKS JURISDICTION RATIONE PERSONAE
8.2.1 Introduction
8.2.2 The Claimant Has Failed to Provide any Compelling Response to the EU's Juridictional Objection Ratione Personae
8.2.2.1 The European Union's objection to the Tribunal's jurisdiction ratione personae is appropriate, genuine and coherent with its jurisdictional objection based on the ECT's fork-in-the-road clause
8.2.2.1.1 The European Union's objection to the Tribunal's jurisdiction ratione personae is appropriate
8.2.2.1.2 The European Union's objection to the Tribunal's jurisdiction ratione personae is genuine and in line with its overall conduct
8.2.2.1.3 The European Union's objection to the Tribunal's jurisdiction ratione personae is coherent with its jurisdictional objection based on the ECT's fork-in-the-road clause
8.2.2.2 The "practical effects" alleged by the Claimant may not flow from the Amending Directive, but rather, may only flow (if at all) from measures (including both actions and omissions) of the EU Member States in transposing and implementing the Amending Directive
8.2.2.3 The EU Member States have a wide margin of discretion to implement the relevant provisions of the EU Directives challenged by the Claimant
8.2.2.4 The alleged breaches result may only result from measures which cannot be attributed to the European Union
8.2.2.5 The European Union is not otherwise responsible for the alleged breaches of the ECT in accordance with international law

9 THE RELIEF SOUGHT BY THE CLAIMANT IS INAPPROPRIATE
9.1 INTRODUCTION
9.2 THE RELIEF SOUGHT BY THE CLAIMANT IS INAPPROPRIATE AS A MATTER OF INTERNATIONAL LAW
9.2.1 The Chorzów Factory case does not provide support for the Claimant's request for a final injunctive remedy in an investor-State dispute
9.2.2 The ILC Articles do not provide support for the Claimant's request for a final injunctive remedy in an investor-State dispute
9.2.3 Conclusion
9.3 ARTICLE 26(8) DOES NOT PROVIDE THE POWER TO AWARD A FINAL INJUNCTIVE REMEDY
9.3.1 The ordinary meaning of Article 26(8) of the ECT makes clear that it does not provide for the relief requested
9.3.2 The considerations of tribunals and commentators make clear that Article 26(8) does not provide for the relief requested
9.3.3 Conclusion
9.4 IN ANY EVENT, THE CLAIMANT IS UNABLE TO MEET THE TEST REQUIRED TO GRANT INJUNCTIVE RELIEF
9.4.1 The threshold for obtaining injunctive relief is high
9.4.2 The Claimant fails even on its own standards
9.4.2.1 The requested relief is not materially possible
9.4.2.2 The requested relief is not proportionate
9.4.3 Conclusion
9.5 THE CLAIMANT'S REQUEST FOR "ALTERNATIVE RELIEF" IS UNSUPPORTED

10 RELIEF SOUGHT

1 SUMMARY

1.1 The Amending Directive pursues legitimate and achievable objectives

1. In its Reply the Claimant continues to assert that the Amending Directive's objectives are contradictory, lack clarity and cannot be achieved. The Claimant's assertions are premised on the assumption that the objectives of the Amending Directive, as described and explained by the European Union, are "fabricated", and that the Amending Directive's real purpose is to "harm the Claimant", which is "the only objective that it achieves".

2. As the European Union has demonstrated in its Counter-Memorial, that assumption is baseless. The Amending Directive does pursue legitimate and achievable objectives, which are clearly set out in the Amending Directive itself and accompanying documents. By clarifying that the EU internal market rules for gas established by the Gas Directive are applicable to all interconnectors, including interconnectors between the European Union and third countries, the Amending Directive contributes to the proper functioning of the EU's internal market in natural gas. By ensuring that the core rules of the gas internal market apply equally to all pipelines within the EU territory, the Amending Directive ensures a level playing field for all suppliers, enhances transparency and provides legal certainty to all market participants. It also enhances security of supply in the European Union.

3. In its Reply the Claimant seeks to rebut the explanations provided by the European Union by advancing a series of assertions which, as the European Union will demonstrate in Section 2, are unsubstantiated and incorrect.

1.2 The Amending Directive does not involve a "dramatic regulatory change"

4. In its Reply Memorial, the Claimant has abandoned its original claim that it made its investment on the understanding that the Gas Directive, until the Amending Directive was enacted, would not apply at all to Nord Stream 2. However, it still asserts that an alleged "dramatic regulatory change" resulted from the requirements of unbundling, tariff regulation and third party access having been rendered applicable to offshore sections of import pipelines, arguing that the original Gas Directive applied to such pipelines only as from the coastal terminal where they reached landfall in a Member State.

5. This new claim is as much without merit as the previous one. When the Claimant took its Investment Decision, there were numerous indications that the original Gas Directive imposed these Regulatory Requirements to pipelines such as Nord Stream 2 over the entirety of Member States' territory, including offshore, such as (i) the express provisions of the original Gas Directive and the scope of EU Member States' territorial jurisdiction under international law; (ii) official statements by Commission representatives regarding Nord Stream and the comparable offshore South Stream project rendered public at the time the Investment Decision regarding Nord Stream 2 was taken; and (iii) EU decisions and opinions regarding comparable pipelines.

6. The Claimant's Reply does not offer alternative interpretations of the provisions of the original Gas Directive that already pointed to its applicability to the Nord Stream 2 pipeline. The Claimant does not engage, either, with the scope of EU Member States' territorial jurisdiction covering their territorial waters, in which the original Gas Directive is alleged not to have applied.

7. Most tellingly, the Claimant does not give convincing reasons why it should not have taken seriously the contemporaneous official EU statements referred to in the EU's Counter-Memorial, each of which would in itself have been a warning sign to a duly diligent investor that the original Gas Directive would apply to pipelines such as Nord Stream 2 both onshore and offshore. Only extreme recklessness or the bad faith intention of pre-empting the regulator's choices through the fait accompli of an implemented pipeline project can explain why the Claimant ignored these statements and abstained from contacting the EU authorities to seek clarification.

8. Instead, the Claimant in its Reply seeks to rely on informal statements conveying the unofficial views of individual EU representatives [...], i.e. about after the Claimant made its Investment Decision. Such documents are to be disregarded ratione temporis. In any event, the informal statements invoked draw a picture of legal uncertainty and of a state of regulatory flux on which no duly diligent investor would have relied.

9. The Claimant's Reply also provides no convincing rebuttal to the European Commission opinions and decisions referred to in the Counter-Memorial, which indicated that the original Gas Directive applied to pipelines importing gas from third countries to the European Union. Rather, the Claimant downplays these opinions and decisions as relating to "less relevant pipelines" without this categorisation being rooted in the Gas Directive or being consistently applied by the Claimant itself.

10. The Claimant's depiction of EU Competition Law as irrelevant for the present proceedings sidesteps the EU's point that these Competition Law rules were an intrinsic part of the regulatory framework at the time the Claimant took its Investment Decision and achieved a result equivalent to the Amending Directive.

Its attempt at interpreting EU competition rules as not applying to Nord Stream is not rooted in settled case law of the EU Court of Justice, on which any duly diligent investor would have based its assessment.

11. Finally, contemporaneous evidence leaves no doubt that the Claimant was well aware of the prospect that the Regulatory Requirements would apply to Nord Stream 2 when it took its Investment Decision. Most notably,, the Claimant's sole shareholder Gazprom issued a prospectus in which it informed securities investors of the likelihood that these Regulatory Requirements would apply to Nord Stream 2 under the original Gas Directive.

1.3 There was no "deliberate exclusion" of the NS 2 pipeline project from the derogation regime nor any specific targeting

12. In its Reply, the Claimant alleges that the Amending Directive targets and deliberately discriminates Nord Stream 2, claiming that this "intention" is "obvious". The Claimant argues that this results in impairment by unreasonable or discriminatory measures under Article 10(1) ECT and breaches the most- favoured-nation and national treatment obligation under Article 10(7) ECT.

13. The European Union notes that every argument the Claimant makes with respect to the alleged targeting of NSP2AG or discrimination of NSP2AG starts from the assumption that the Amending Directive could have no other "intention" than to obstruct Nord Stream 2. The Claimant thereby refuses to look at the full legal framework established through the Gas Directive, as amended, in an objective and coherent way. The Amending Directive does not have the aim to obstruct NSP2AG. It has the objective of clarifying the application of the legal framework of the Gas Directive, making express the European Union's position that the Gas Directive's rules apply to transmission pipelines connecting the European Union with third countries. The isolated statements by certain individuals, in the margins of a much more complex legislative process, that the Claimant keeps on citing do not undermine this.

14. The Amending Directive does not discriminate "in effect" either. The Amending Directive clarifies the legal situation for all interconnectors with third countries, present and future ones, be they onshore or offshore. The Claimant assumes that, in this context, it should obtain an unconditional Article 49a derogation from the obligations in the Gas Directive. Yet, there exist at present pipelines connecting with third countries that do not benefit from an Article 49a derogation. In any event, if the Amending Directive is considered in the broader context of the Gas Directive, in particular the existence of several flexibilities nder that Directive, it is again obvious that the Amending Directive does not "target" NSP2AG. Indeed, even if an Article 49a derogation would not be granted, other flexibilities are available in a coherent system. In particular, the Claimant itself decided not to apply for an Article 36 exemption, claiming that this would not be available and not comparable to an Article 49a derogation. However, the European Union explains in detail the parallelism between Article 49a and Article 36. Both Article 36 and Article 49a form part of a coherent system of obligations and flexibilities under the Gas Directive. It was the Claimant's own deliberate choice not to apply for an Article 36 exemption, or any other flexibility, and bet everything on obtaining an unconditional Article 49a derogation.

15. For all these reasons, the Claimant cannot establish impairment by unreasonable or discriminatory measures under Article 10(1) ECT or a breach of the most-favoured-nation and national treatment obligation under Article 10(7) ECT.

1.4 The Amending Directive underwent a proper legislative process

16. The Claimant asserts that the legislative process for the adoption of the Amending Directive was hasty and followed an improper legislative procedure.

These allegations are unfounded. The Amending Directive was adopted in accordance with the rules and procedures applicable to acts of its type.

17. The Claimant misunderstands the EU legislative process and wilfully misrepresents the circumstances in which consultations, evaluations or assessments are required.

18. First, based on the Better Regulation Toolbox 2017, the Commission evaluated the need to carry out an impact assessment and included such evaluation in the Explanatory Memorandum and in the Staff Working Document accompanying the Proposal, concluding that there was no need for an impact assessment.

19. Second, an ex-post evaluation is only necessary when the overall performance of the existing piece of legislation is assessed and a comprehensive review of a piece of legislation is envisaged. Instead, for targeted revisions an ex-post evaluation is not always needed. In the present case, since the purpose of the Amending Directive was simply to clarify that the Gas Directive also applies to gas transmission lines between a Member State and a third country, an ex-post evaluation of the Gas Directive was not necessary.

20. Third, a formal public consultation was not compulsory nor needed, given the limited scope of the proposed act. Nevertheless, stakeholders were actively involved in the legislative process through their answers to a request for feedback and participation in a public hearing.

21. Fourth, in the legislative process for the adoption of the Amending Directive, the parliamentary procedure was regular and proper, complied with the Rules of Procedure of the European Parliament 2017, and followed the practice.

22. Finally, the Amending Directive was adopted through democratic decision- making, where discordant opinions are inherent to the legislative process and decisions are taken by the majority.

23. To conclude, the ordinary legislative procedure that led to the adoption of the Amending Directive followed all of the necessary steps provided for in the TFEU and there was nothing unusual about it. The process respected the guidance provided for in the Interinstitutional Agreement and detailed in the Better Regulation Guidelines and the Better Regulation Toolbox. The negotiation process of the Amending Directive ensured the active participation of stakeholders and all the relevant political actors concerned.

1.5 The Amending Directive will not have the alleged "impact" on the Claimant's investment

24. The Claimant continues to allege the Amending Directive will have a "catastrophic impact" on its investment, while still being unable to demonstrate that any such impact has in fact occurred or is likely to occur.

25. Despite the factual developments since the Claimant's Memorial of 3 July cited by the Claimant, the "impact" of the Amending Directive on NSP2AG's investment in the NS2 pipeline remains highly uncertain. Therefore, the Claimant's allegations with regard to that "impact" remain speculative and premature.

26. The "impact" of the Amending Directive on the Claimant's investment continues to depend on measures that the German authorities may or may not adopt within the margin of discretion accorded to them by the Amending Directive, as well as on choices to be made by the Claimant itself within the framework of those measures (Section 6.2).

27. As the European Union will recall in the present Rejoinder, the Claimant could have avoided the alleged "impact" by exercising due diligence (Section 6.3.1). Moreover, the Claimant (and its controlling shareholders Gazprom and the Russian Federation) have failed to take action reasonably within their power in order to avert or mitigate the alleged impact, notably by requesting an exemption based on Article 36 of the Gas Directive (Section 6.3.2), by re-organising itself in accordance with Article 9(6) of the Gas Directive (Section 6.3.3), by abolishing or relaxing the export monopoly granted to Gazprom Export (Section 6.3.4), and/or by negotiating an IGA with the European Union (Section 6.3.5).

28. The Claimant also has failed to substantiate its allegation that it has already suffered any financial losses attributable to the European Union resulting either from its current inability to operate the NS2 pipeline (Section 6.4).

29. Finally, in assessing any alleged "impact" of EU measures on the Claimant, the Claimant's own contributions to such impacts must be taken into account in accordance with principles of international law. In the present case, the "impacts"

resulting from actions or omissions of other entities belonging to the Gazprom group, or from the Claimant's ultimate owner and controller (the Russian Federation) are clearly attributable to the Claimant (Section 6.4). In turn, the "impact" resulting from the sanctions imposed or threatened by the United States with regard to the NS 2 project cannot be attributed to the European Union (Section 6.5).

1.6 The European Union has not breached its obligations under the ECT

30. The Claimant's arguments as set out in their Reply fail to demonstrate that the EU has breached the ECT. To the contrary, it is clear that there has been no breach of the fair and equitable treatment ("FET") standard under Article 10(1) of the ECT, no breach of the obligations to provide constant security and protection ("CPS") under Article 10(1) of the ECT, no breach of the most-favoured-nation ("MFN") and national treatment standards under Article 10(7) of the ECT, and no breach of the provisions regulating expropriation under Article 13 of the ECT.

1.6.1 There is no breach of the fair and equitable treatment standard under Article 10(1) ECT

31. The Claimant's allegations of breach of ECT obligations under the FET standard contained in Article 10(1) of the ECT are unsustainable, in light of the legal content of the standards alleged and the facts at issue in this dispute. The EU has fully complied with its obligations under the standards set out in Article 10(1) of the ECT: it ensured due process and justice and did not breach legitimate expectations; it acted proportionately, transparently, and in good faith; and there was no impairment by unreasonable or discriminatory measures.

32. First, the EU ensured due process and justice. The Claimant has failed to demonstrate a breach of the obligation to accord due process, a breach which requires a high threshold of severity and gravity. Indeed, no tribunal has ever sought to second-guess the decisions reached by a duly elected parliamentary assembly on the basis of alleged lack of "due process", under the FET standard or otherwise. Nothing in the various steps of the legislative process followed by the EU or any of its constitutive organs (notably the European Parliament) has come close to violating a standard of "due legislative process", even if such a thing had been elaborated by investment treaty tribunals, which it has not. To the contrary, the process for adoption of the Amending Directive followed the ordinary legislative procedure as outlined in Article 294 of the TFEU and met all the requirements applicable to a legislative act of its nature and scope.

33. Second, the EU has acted in good faith. While the notion of good faith may underpin the interpretation of the FET standard, it is not an autonomous stand- alone obligation under Article 10(1). Moreover, in the absence of evidence of bad faith on the part of the EU, the European Union is presumed to have acted in good faith. In fact, the EU has acted and continues to act in good faith by providing the required clarification with regard to the regime applicable to offshore pipelines to and from third countries. It adopted the Amending Directive pursuant to a democratic decision-making process. The European Union has provided full evidence of the fact that the Amending Directive, like any other directive, is an act of general and abstract nature, which will apply to all gas transmission lines going forward.

34. Third, the EU has acted proportionately. The EU enjoys a wide margin of discretion in adopting policies in the public interest, and tribunals have been (rightly) cautious about appearing to second-guess the policy decisions of sovereigns. Instead, tribunals have found that measures are "disproportionate"

only where there is a manifest disconnect between the stated policy objectives of the State and the measures actually adopted. None of these circumstances are present here. The Amending Directive did not cause any dramatic regulatory change, and the public benefits of the Amending Directive outweigh any practical adverse effects on interests of the Claimant - particularly in circumstances where the Claimant has not proven those effects and can try to mitigate any impact by applying for an exemption and where the Gas Directive, as amended, includes appropriate flexibilities.

35. Fourth, the EU did not breach any alleged legitimate expectations of the Claimant. There has been no regulatory change, let alone a dramatic or radical regulatory change, and the Claimant's claim of alleged breach of legitimate expectations with respect to the stability of the legal framework can be dismissed for this reason alone. In any event, none of the additional arguments advanced in the Claimant's Reply support a claim of a breach of alleged legitimate expectations because: (i) the protection of legitimate expectations is merely one element of the FET standard applicable under the ECT; (ii) legitimate expectations require a specific investment-inducing regulatory framework, in the absence of which they do not guarantee a stable legal and business environment; (iii) NSP2AG's expectations were not reasonable, legitimate and justifiable; and (iv) the Claimant did not rely on the expectations it allegedly had at the time of the investment. Each of the above points would suffice individually to reject the claim of legitimate expectations.

36. Fifth, the EU has acted transparently. The Claimant has failed to meet the high threshold required to demonstrate a lack of transparent conditions under Article 10(1) of the ECT, and to establish that the EU did not act in a transparent manner. Consequently, the Claimant's claim must fail. Furthermore, the EU has acted transparently with respect to the three specific allegations raised by the Claimant: (i) the Amending Directive underwent a proper legislative process, where all the applicable rules were respected, all the relevant actors were involved, and the usual timetables were followed; (ii) the policy objectives of the Amending Directive are legitimate, suitable and achievable; and (iii) the EU ensured full transparency in its exchanges with NSP2AG, as supported by the evidence.

1.6.2 There is no impairment by unreasonable or discriminatory measures under Article 10(1) ECT

37. An objective assessment of the full legal framework established through the Gas Directive, as amended, demonstrates that the Gas Directive does not have the "intent" to specifically target or discriminate against the NSP2AG pipeline project.

Neither can the Claimant demonstrate that the practical effect of the Gas Directive, as amended, is such that the Claimant is discriminated against.

Moreover, even if the Tribunal were to find that the Claimant had sufficiently established that the Amending Directive is unreasonable or discriminatory (quod non), the Claimant has failed to demonstrate impairment with respect to the management, maintenance, use, enjoyment or disposal of its investment, as required by Article 10(1) of the ECT. Contrary to what the Claimant argues, NSP2AG is not prevented from developing its investment project while at the same time complying with the applicable rules in the Gas Directive. For these reasons, the Claimant cannot establish impairment by unreasonable or discriminatory measures under Article 10(1) ECT.

1.6.3 There is no breach of the constant protection and security standard under Article 10(1) ECT

38. Contrary to the Claimant's arguments, the CPS standard under Article 10(1) of the ECT has consistently been identified as an obligation to protect from physical interference (not to provide legal security), consistent with longstanding content of the equivalent "full protection and security" obligation under public international law. Even if the CPS standard under the ECT extended to legal security (quod non), it does not oblige the EU to "maintain through its legal and regulatory framework a secure investment environment" as the Claimant asserts.

39. In any event, nothing in the European Union's conduct amounts to a violation of even that misstatement of the CPS standard. Contrary to the Claimant's assertions, the Amending Directive pursues legitimate, suitable and achievable objectives, which are in line with the objectives of the Gas Directive. The Amending Directive underwent a proper legislative process, which respected all the applicable rules, involved all the necessary actors, and followed the usual timetables. Finally, the Amending Directive did not cause any dramatic regulatory change. Accordingly, even on the Claimant's misstated standard of the CPS obligation, the EU has not breached Article 10(1) of the ECT.

1.6.4 There is no breach of most favoured and national treatment standard under Article 10(7) ECT

40. An objective assessment of the full legal framework established through the Gas Directive, as amended, demonstrates that the Gas Directive does not have the "intent" to specifically target or discriminate against the NSP2AG pipeline project.

Neither can the Claimant demonstrate that the practical effect of the Gas Directive, as amended, is such that the Claimant is discriminated against when compared to the treatment afforded to suitable comparators. For these reasons, the Claimant cannot establish a breach of the most-favoured-nation and national treatment obligation under Article 10(7) ECT.

1.6.5 There is no breach of the provisions on expropriation under Article ECT

41. The Claimant has been unable to satisfactorily demonstrate that its investment has had the equivalent effect of an expropriation under Article 13 of the ECT, because there is no substantial impairment of the Claimant's investment. The Claimant has not been deprived of its ownership, use or enjoyment of the NS2 pipeline. Rather, the Claimant's claim under Article 13(1) of the ECT is built upon the speculation that the Amending Directive

Moreover, the Claimant has failed to prove that it has already suffered any losses attributable to the European Union resulting either from its current inability to operate the NS2 pipeline [...]. Finally, the Claimant could have prevented, and indeed can still prevent or at least substantially mitigate, the adverse impact of the Amending Directive alleged by the Claimant.

42. Even if there was a substantial deprivation of the Claimant's investment (quod non), the Claimant has been unable to rebut the EU's demonstration that the measures constitute a legitimate exercise of the police powers of the State. The Gas Directive and the Amending Directive are designed to pursue legitimate public welfare objectives of fundamental importance for the European Union, and were adopted in a non-discriminatory and proportionate way. Consequently, the Claimant's claim of unlawful expropriation under Article 13 of the ECT should be dismissed.

1.7 The tribunal lacks jurisdiction

43. Section 8 of this Reply Memorial on Jurisdiction addresses the Claimant's arguments in its Counter-Memorial on Jurisdiction regarding the jurisdictional objections the European Union raised in its Memorial on Jurisdiction. In Section of this Reply Memorial on Jurisdiction, the European Union demonstrates that the Claimant has failed to overcome the European Union's objections that: (i) this Tribunal lacks jurisdiction pursuant to the ECT's fork-in-the-road provision (Section 8.1); and (ii) this Tribunal lacks jurisdiction ratione personae (Section 8.2).

1.7.1 The Tribunal lacks jurisdiction pursuant to the ECT's fork-in-the-road provision

44. With regard to the ECT's fork-in-the-road provision, the Claimant has not disputed the fact that it is also pursuing, in parallel with the present arbitration proceedings, proceedings before the Court of Justice of the European Union against the co-legislators of the European Union (Council and Parliament) with regard to the Amending Directive. Nor can the Claimant deny that its application before the Court of Justice of the European Union arises out of the same facts, makes essentially the same allegations and seeks essentially the same outcome as its request before this Tribunal.

45. These facts alone suffice for the Tribunal to find that it lacks jurisdiction over these proceedings. The Claimant's non-compliance with the ECT's fork-in-the- road clause results in a lack of consent to the present proceedings by the European Union. The Tribunal should disregard the Claimant's contention that the ECT's fork-in-the-road provision must be applied in a rigid and narrow fashion, as the Claimant's approach runs contrary to its wording and purpose and would deprive the ECT's fork-in-the-road provision of effet utile.

1.7.2 The Tribunal lacks jurisdiction ratione personae

46. In its Counter-Memorial on Jurisdiction, the Claimant has failed to provide any compelling response to the European Union's objection to the Tribunal's jurisdiction ratione personae. Contrary to the Claimant's assertions, the European Union's objection in this regard is appropriate, genuine and coherent with its parallel jurisdictional objection based on the Claimant's failure to respect the ECT's fork-in-the-road clause. Any effect that the Claimant ascribes to the Amending Directive may only flow (if at all) from the conduct of the EU Member States in the exercise of their margin of discretion in transposing and implementing the Amending Directive. The breaches that the Claimant alleges therefore may only result (if at all) from measures that cannot be attributed to the European Union and for which the European Union cannot be held responsible under international law.

1.8 The relief sought by the Claimant is inappropriate

47. The Claimant requests as its "primary relief" that the Tribunal order the European Union, "by means of its own choosing", to "remove the application of Articles 9, 10, 11, 32, 41(6), 41(8) and 41(10) of the Gas Directive (i.e., those provisions which became applicable to Nord Stream 2 as a result of the Amending Directive to NSP2AG and Nord Stream 2)", thus "restoring the position that would have existed but for the EU's breaches of the ECT". In addition, for the first time, the Claimant also makes a request for "alternative relief" in the form of an interim injunction.

48. Despite the Claimant's protestations, this request confirms that the Claimant seeks remedies of interim and final permanent injunctions, preventing the European Union from applying general rules of EU law. The requested relief lacks any secure foundations in general public international law, under the ECT or principles of investment law. Granting the Claimant's request would amount to an extraordinary and unprecedented incursion into the EU's sovereign right to regulate within the scope of their powers to promote public welfare objectives.

49. First, issuing an injunction remains an inappropriate remedy under international law with respect to investor-State disputes. While the Claimant seeks to ground its request in the principle of full reparation, it is clear that principles of international law developed in the State-to-State context cannot be transposed in toto to investment arbitration proceedings between a private entity and a State.

50. Second, the Claimant has failed to demonstrate that this Tribunal has the power to grant a final injunction under the ECT and principles of investment law.

Contrary to the Claimant's assertions, a plain reading of Article 26(8) of the ECT makes clear that it fails to provide for final injunctive relief, either as an alternative or in priority. This plain reading is supported by the views of tribunals and commentators considering the scope of application of Article 26(8) of the ECT. In fact, the weight of ECT jurisprudence makes clear that the provision fails to empower the Tribunal to issue "restitution" of an entire legal regulatory framework and its application to a particular party, with no regard to the widespread implications such an order would have across European society as a whole.

51. Third, even if the Tribunal had the power to order a final or interim injunction (quod non), the Claimant has failed to demonstrate that issuing a final injunction is appropriate in the circumstances. The Claimant fails both on the high threshold required to grant either interim or final injunctive relief, and even on its own (inaccurate) standards. In particular, the relief the Claimant requests is impossible, and wholly disproportionate in light of the deference to be afforded to the sovereign regulatory powers of States.

52. Finally, the Claimant's request for "alternative relief" in the form of an interim injunction is entirely unsupported. The Claimant fails to elaborate on any argument as to the standard the Tribunal should apply in determining the appropriateness of an interim injunction, or provide factual arguments to demonstrate it meets those standards. In this respect, the Claimant's request is wholly deficient, and should be rejected out of hand.

...

10 RELIEF SOUGHT

1099. On the basis of the foregoing, the European Union respectfully requests that the Tribunal:

1) Dismiss all the requests made by the Claimant for lack of jurisdiction;

2) In so far as the Tribunal had jurisdiction, reject the Claimant's requests for an order declaring that the European Union is in breach of any substantive obligations under the Energy Charter Treaty;

3) Decline to order the European Union to remove the application of Articles 9, 10, 11, 32, 41(6), 41(8) and 41(10) of the Gas Directive to NSP2AG and Nord Stream 2;

4) Decline to order that the European Union pay compensation to NSP2AG, in the alternative to granting the relief requested in (3);

5) Order that the Claimant pay the costs of these arbitration proceedings, including the fees and expenses of the Tribunal and costs of legal representation and applicable interest;

6) Order such other and further relief as to the Tribunal may seem just.

All of which is respectfully submitted on behalf of the European Union by:

...

To download this document you need to be a subscriber

Sign in

Forgot password?

Sign in

Subscribe

Fill in the registration form and answer a few simple questions to receive a quote.

Subscribe now

Documents missing? Documents to share? Let us know!

If you know of documents which are currently missing from our Legal & Regulatory database do let us know. You can send them directly to us for inclusion in the database, anonymously or otherwise.
Learn more here

Call for contributions

TDM Call for Papers: Sanctions and International Arbitration: Impact on Substantive and Procedural Issues

Ali Burney, Rinat Gareev, Kiran Nasir Gore, Dini Sejko, Prof. Joel Slawotsky, May Tai

  • Ali Burney
  • Rinat Gareev
  • Kiran Gore
  • Dr Dini Sejko
  • Prof. Joel Slawotsky
  • May Tai

TDM Call for Papers: National Courts as a Forum for the Resolution of Disputes under Article 26 Energy Charter Treaty

John P. Gaffney, Dr. iur Richard Happ,
Lucia Raimanova, Anna-Maria Tamminen, Dr. Catharine Titi

  • John P. Gaffney
  • Dr. iur Ricard Happ
  • Lucia Raimanova
  • Anna-Maria Tamminen
  • Dr. Catharine Titi

TDM Call for Papers: International Investment Arbitration - Environmental Protection and Climate Change Issues

Professor Dr A F M Maniruzzaman, Wendy J. Miles QC, Carla Lewis, Dr Stephen Minas

  • Professor Dr A F M Maniruzzaman
  • Wendy J. Miles QC
  • Carla Lewis
  • Dr Stephen Minas

TDM Call for Papers: The African Continental Free Trade Agreement (AfCFTA)

J. Chaisse, J. Górski, E. Laryea, M.M. Mbengue, and K. Olaoye

  • Prof. Julien Chaisse
  • Dr. Jedrzej Gorski
  • Prof. Emmanuel Laryea
  • Prof. Makane Moïse Mbengue
  • Kehinde Olaoye
  • More
  • Contribute

Advance publication

Transnational Investment State Arbitration: A New Game-Changer for Global Climate Change Goals

20 Mar 2023

I.D. Valones

  • I.D. Valones

Summary of Young-OGEMID Symposium No. 14: "International Arbitration and International Commercial Courts: Competitive or Complementary?" (March 2022)

3 Mar 2023

E.S. Delgado

  • E.S. Delgado

Compliance with the AfCFTA: Is There any Room for Hope?

1 Mar 2023

Y. Kouassi

  • Y. Kouassi
  • More
  • Contribute

Stay connected

Sign up for our email alerts.

  • Issues
  • Advance publication
  • News
  • Linkedin
  • Twitter
  • RSS

Join the debate

Want to join OGEMID, the leading on-line discussion platform for international dispute resolution?

Simply fill in the registration form to start your trial membership.

Download the app

  1. App store
  2. Google play

The Transnational Dispute Management Journal (TDM, ISSN 1875-4120) and OGEMID listserv focus on recent developments in the area of (investment) arbitration and dispute management, regulation, treaties, judicial and arbitral cases, voluntary guidelines, tax and contracting. Read our Terms & Conditions here, and our Privacy Policy here.

About TDM

  • Terms & Conditions
  • Contribute
  • Subscriptions
  • Contact
  • Help

Other publications

  • Oil, Gas & Energy Law Intelligence (OGEL)

© 2004 - 2023. Published by MARIS.

  • Home
  • Contribute
  • Subscriptions
  • Contact
  • Help