Data centres are warehouse-like facilities that house the servers and other hardware required for digital activities.
There has been a surge in the construction of data centres to power the growth in artificial intelligence. We now rely on data centres to support cloud storage, 5G, streaming servers, and other digital services, but AI has increased demand for more data centres.
Data centres are critical infrastructure in the UK
Data centres were designated as critical national infrastructure in 2024. That means that they are regarded as essential services, in the same way as water, energy and emergency services systems.
In the UK’s modern industrial strategy, the UK government said that additional data centre capacity “is essential to enabling economic growth and to reap the transformational productivity benefits of digitalisation and the adoption of AI”. There is a focus in the UK on meeting the growing demand of data centre construction.
To that end, data centre projects in the UK will be treated as ‘Nationally Significant Infrastructure Projects’ for the purposes of planning consent. This changes the way data centres are assessed within the planning system, how they are financed, and how delivery risk is underwritten. It also means that operators of data centres can expect greater government support in relation to critical incidents (such as cyberattacks or extreme weather events).
Disputes related to data centres
As is the case with any infrastructure project, the scope for disputes is wide with data centres. Disputes can arise at various stages in the life of a data centre, including:
Investment
Disputes between foreign investors and host states lead to investor state disputes. For example, the host state may change its policy on subsidies and incentives that could affect the value of the investment. More on investor-state disputes below.
Construction
Complex disputes between the project owners and contractors arising from cost overruns or delays in the construction of new data centres.
Operation
Disputes may arise between the data centre owners and its operators, such as disagreements over service level agreements, or how the data centre is managed.
Real estate disputes
Often data centres are built by co-location providers, who construct the physical data centre then rent out space to other companies. Disputes arise under the lease.
Regulatory
Data centres are not currently regulated as a distinct sector. However, more general legislation applies, so data centres must adhere to data protection laws, health and safety laws, and the Network and Information Systems Regulations 2018.
ESG disputes
Environmental concerns are pervasive in the context of data centres, which use a vast amount of energy and consume water for cooling. There is pressure to decarbonise their use to meet climate targets. Failure to meet targets, or operate in a suitably sustainable way, may lead to disputes over their environmental impact.
Investor-state disputes
As data centres attract foreign investment, this is likely to become the subject matter in more investor-state disputes.
States often change their laws, policies and regulation around energy use, infrastructure, licensing, and construction. Disputes can arise if these changes affect the investment that the foreign party has made into the data centre in the state.
If the investment is made pursuant to an investment treaty, then the state offers private investors specific guarantees of protection for investments they make in the state. The two main type of investment treaty are:
- Bilateral investment treaties (BITs): agreements between two states.
- Multilateral investment treaties (MITs): agreements between more than two states (such as the Energy Charter Treaty (ECT) and the North American Free Trade Agreement (NAFTA)).
Guarantees that you might expect to see under these treaties include that the receiving state will not:
- favour domestic investors' interests over foreign investors' interests
- offer better protections to other foreign investors under other investment treaties
- expropriate foreign investors' investments without providing prompt, adequate and effective compensation.
Disputes arising from breaches of the investment treaties are usually referred to the International Centre for Settlement of Investment Disputes (ICSID) arbitration.
The role of arbitration in the growth of data centres
Data centre disputes are often cross-border, involving parties from different jurisdictions. Arbitration offers a neutral and confidential forum in which to hear these disputes. It reduces the risk of bias towards the state, rather than foreign investors that could exist in the local courts of a particular country.
Further, arbitration awards are readily recognised and enforced by signatory states to the New York Convention, which means that it can be easier to enforce an award than it is to enforce a foreign judgment.
At Rahman Ravelli we represent commercial parties and investors in data centre disputes. We can help you navigate the arbitration and achieve a resolution.
