👉Recent years have seen a growing trend of construction disputes being referred to the International Centre for the Settlement of Investment Disputes (ICSID). Construction disputes have accounted for around 15% of new cases registered at ICSID each year since 2017, more than double the previous five years.
👉When construction disputes serve as the basis of treaty claims, it can significantly increase the overall complexity, duration and cost of the dispute.
👉Construction disputes typically involve a high degree of technical complexity specific to the construction industry. Familiarity with the types of contracts commonly used the expert disciplines relied upon in construction disputes and the relevant terminology can be a significant advantage.
👉As the rise of construction disputes in public international law is relatively recent, there is at present a comparatively small pool of arbitrators combining these disciplines.
👉Even where a party has a protected investment and can attribute conduct to the State, it still has to demonstrate a treaty breach. Establishing that alleged conduct amounts to a breach of investment protection standards is a different, and significantly higher, standard than showing a breach of contract.
Treaty standards that are commonly invoked in construction disputes include:
Unlawful expropriation: Investment treaties often prohibit a State from expropriating the rights of the investor without compensation.
There would be an expropriation if, for instance, the State deprived the investor of remuneration under the relevant contract (e.g. Alpha Projektholding GmbH v Ukraine (ICSID Case No. ARB/07/16)), such that the investment is significantly deprived of its value.
Fair and equitable treatment: Investment treaties commonly oblige States to provide investors with fair and equitable treatment. This far-reaching protection may be breached if, for example, the State unexpectedly and fundamentally changed its legislation and regulations applicable to the project (e.g. PSEG v Turkey (ICSID Case No. ARB/02/5)).
Umbrella clause: Certain investment treaties provide a so-called “umbrella clause”. These require that States comply with undertakings entered into with regard to protected investments. Umbrella clauses are usually highly specific, and their effects remain debated.
Certain parties have argued that, if a State breaches its contractual undertakings through the exercise of sovereign power, the umbrella clause may elevate the contractual breach to treaty level, resulting in potential liability under international law (e.g. Malicorp v Egypt), but this view is not universal.
Post note: stakeholders shall do due diligence demonstrating a treaty breach rather than Contractual breach as in the case of Construction Arbitration.
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