Investment disputes and arbitrations in Big Tech and AI

Singapore-based partner Lijun Chui guides us through the legal framework and strategic approaches to international disputes in the tech space.

Resolving international investment disputes involving Big Tech and AI is complex, not least because rapid advances in sophisticated technologies can outpace developments in international and domestic regulation. When you factor in national interests and global economic competition, the landscape for resolution becomes increasingly convoluted and difficult to unravel.

Investor-state arbitrations in tech disputes

Bilateral investment treaties (BITs) and free-trade agreements typically allow investors to pursue arbitration against foreign states. By signing these treaties, the investor state and the host state consent, in advance, to investor state arbitration as a mechanism for resolving disputes.

An investor state arbitration might be invoked where, for instance, a host country bans or restricts a foreign-owned technology from use on its local infrastructure. Such action might be deemed harmful to the foreign tech company's investments in the host state and violate protections afforded by the BIT. Take, for instance, PCCW Cascade's arbitration against Saudi Arabia to recoup its investment after a telco consortium was forcibly liquidated by royal decree.

Though the quantum involved in investor state arbitrations tends to be high, not all will run their course, and will be settled before reaching arbitration.

Treaty protections for investors

Claims brought by an investor against a host state typically challenge four treaty protections.

Unlawful expropriation: Provides protection against outright bans and/or restrictions that are deemed to discriminate and deprive foreign investors of their investments. Compensation for expropriation must be at fair or equivalent market value.

Devas Mauritius Ltd, for instance, licensed to provide high-speed internet services, claimed against the Republic of India for unlawful expropriation of its investment. India cited national security concerns and announced a new contract with another provider.  The international tribunal ruled in Devas' favour, awarding 40 per cent of its investment value, finding India's actions discriminatory and lacking due process.

Fair and equitable treatment (FET): Protects investors where new regulations, or changes to existing regulations, impose obligations that impact their ability to operate in the host state. FET helps to ensure a stable and predictable investment environment for foreign investors. Its core principles include:

• Protection of legitimate interests: Investors can rely on provisions in the host state's legal and regulatory framework at the time investment is made.
• Prohibition of arbitrary or discriminatory treatment: Host states must not engage in actions that are arbitrary, discriminatory or lack transparency.
• Denial of justice: Investors have the right to proper judicial processes. Any denial of justice, bias or corrupt legal systems, may breach FET.

National treatment standard: Requires host nations to treat foreign investors no less favourably than domestic investors. It prevents arbitrary or discriminatory measures, such as forced data localisation requirements; intrusive cybersecurity mandates; disproportionate taxation; censorship/blocking of digital content; nationalisation of assets, etc.

Most-favoured nation (MFN): MFN guarantees that that a foreign investor from one contracting state is treated no less favourably than a foreign investor from another contracting state.

Strategies and considerations for structuring investments in host states

In the same way as investments are structured for tax reasons, they can also be structured to take advantage of investment treaty protections.

• Check the international investment protections available between the home state and the host market and structure your investment to qualify. Don't wait until a dispute arises, or is foreseeable, before restructuring your investment. Restructuring after the event could constitute an abuse of the process and the claim might be deemed inadmissible.
• Assess the treaty's arbitration clauses to understand the types of claims that may be brought, the types of investments that qualify for protection and the jurisdictional requirements in bringing a claim.
• Understand the threshold requirements for protection under the treaty. These may define a qualifying investor and/or investment, qualifying negotiation periods or time limitations. Be aware that dispute exclusions may come into force where emergency measures are required to protect security or national interests.
• Anticipate regulatory changes, especially given volatile geopolitical conditions and the rise of economic isolationism. Such events include elections and regime shifts, or policy changes that restrict investment on national security grounds.

While investor state arbitration affords foreign-tech investors with a mechanism to challenge, seek compensation and protect their investments in host nations, there is a lot at stake.

To increase the chances of a favourable outcome, start with a proper understanding of the financial implications and a realistic expectation of time frames ¾ the average investor state arbitration can take around three years to conclude. Selecting arbitrators with deep tech and international investment law expertise is also essential for delivering fair and effective resolution.