THE AUTHORS:
Gareth Mills, Partner at Charles Russell Speechlys LLP
Jana Billington, Associate at Charles Russell Speechlys LLP
The Middle East has been undergoing a dramatic transformation in digital infrastructure. As demand for cloud computing and artificial intelligence continues to grow, the Middle East has presented a desirable ground for investment in data centres and almost all the Gulf Cooperation Council (“GCC”) economies have placed digitalisation and technology at the centre of their 2030 visions to diversify their economies away from oil.
Whilst security (and cybersecurity) have always been at the forefront of data centre operator concerns, and an issue for regulators and providers at all levels of the data centre ecosystem, the recent conflict in Iran and associated security threats to the region have, however, raised the specific issue of the data centre infrastructure security, with military attacks being carried out on hyperscale cloud providers. This article explores both the traditional disputes that arise in connection with data centre projects and the novel challenges posed by the region’s ongoing security threats, before considering the legal frameworks available for resolving such disputes through international arbitration.
Growth of Data Centres in the Middle East
The Middle East’s data centre market is growing at an unprecedented pace. According to PwC, capacity in the region is projected to triple from 1 GW in 2025 to 3.3 GW over the next five years, driven by a surge in cloud computing and AI, strategic regulatory initiatives, and substantial investments by both global hyperscalers and regional players. The GCC countries are at the forefront of this transformation in the region’s data centre ecosystem.
Several landmark projects illustrate the scale of this ambition. The UAE’s Khazna Data Centres recently unveiled a 100 MW AI facility in Ajman, whilst Saudi Arabia has announced the USD 100 billion Transcendence AI Initiative backed by the Public Investment Fund (“PIF”) and a USD 5.3 billion commitment from Amazon Web Services to develop new data centres. The UAE and United States have also partnered for the 5-gigawatt Stargate UAE AI Campus in Abu Dhabi, which will span 10 square miles and become the largest AI infrastructure project outside the United States.
A number of factors underpin this rapid growth. AI workloads require substantially more power and advanced cooling solutions, creating demand for high-performance facilities. The Middle East has sufficient space, together with lower construction and labour costs, to carry out these projects. Electricity costs in the Gulf are also significantly lower than in Western markets, at between USD 0.05 and USD 0.06 per kilowatt-hour compared to the US average of USD 0.09 to USD 0.15. Governments across the region are also actively fostering a business-friendly environment for data centre investments. For example, Saudi Arabia’s Cloud Computing Special Economic Zone, launched in 2023, provides tax benefits and streamlined processes to attract foreign investment. The regional sovereign wealth funds, such as Saudi Arabia’s PIF, UAE’s Mubadala, and Qatar’s Investment Authority, are also channelling billions into data centre development. These factors, taken together, have made the Middle East a highly attractive market for data centre investment.
Common Data Centre Disputes
The scale and complexity of modern data centre projects make them particularly vulnerable to disputes.
Irrespective of the current conflict and challenges in the Middle East, data centres are inherently high-risk projects subject to a range of disputes.
Construction disputes are among the most prevalent. The combination of aggressive delivery timelines, highly specialised technical specifications, and stringent regulatory compliance obligations makes disagreements over programme, quality, and cost commonplace. The pace of demand frequently outstrips the time available for proper design development, and pressures can be exacerbated by supply chain bottlenecks for specialist components.
Regulatory and administrative disputes present another key category of risk, as data centre operations in the Middle East often fall under the supervision of telecommunications or technology regulators, entailing various compliance requirements. Where emerging markets enact new regulations or requisite approvals, disputes can arise from change-in-law provisions and lead to potential investor-treaty claims.
Power and energy disputes are also likely to become increasingly significant, particularly for AI-focused data centres that require up to ten times more power than traditional facilities. The co-location of data centres with energy generation facilities, including nuclear power plants, gives rise to potential disputes over construction delays, power purchase agreement pricing, force majeure claims, resource adequacy and shared infrastructure costs.
Disputes Arising from Regional Security Challenges
Beyond the traditional data centre disputes, regional conflict has added new challenges to the Middle East’s data centre ambitions. The World Economic Forum has noted that the Middle East conflict is exacerbating cybersecurity risks globally, with threat actors targeting critical data infrastructure to create operational instability.
These security challenges give rise to a range of disputes. Technology disruptions trigger clauses across cloud service agreements, Software as a Service contracts, hosting agreements, and IT services contracts, requiring review of service level agreements, downtime provisions, liability limitations, and disaster recovery commitments. Geopolitical developments may lead parties to invoke force majeure clauses when contractual performance is prevented by circumstances beyond their control, such as data centre unavailability or non-delivery of input services. Whether a force majeure clause applies depends on the specific language of the contract, the governing law, and the ability to prove a direct link between the conflict and the failure to perform obligations. Regional civil law frameworks have been shown to impose strict constraints on the use of force majeure during active conflicts, with the UAE Civil Code only recognising force majeure if the military action makes performance objectively impossible, not merely more expensive or difficult, and most laws in civil law jurisdictions impose “unforeseeability” as a condition. Bespoke explicitly drafted military disruption clauses should be carefully incorporated into contracts to help shift this financial risk.
Investment treaties may offer foreign investors a viable avenue for recourse when their assets are damaged or destroyed during armed conflict. Most modern investment treaties contain the obligation to provide “full protection and security (‘FPS’)” to covered investments, and specific “war clauses” addressing losses owing to armed conflict or states of emergency. However, such protections are subject to limitations. Under war clauses, compensation is often only due where the adverse act was caused by the host State’s government forces or authorities, not by foreign aggressors, and under an FPS clause, the obligation is one of due diligence, not strict liability. That said, such requisite FPS due diligence may render a state liable if it failed to take reasonable protective measures within its capabilities (such as failing to deploy defences). In addition, the obligation to provide “fair and equitable treatment”, which appears in most investment treaties, may afford a further avenue of protection for data centre investors during reconstruction or post-conflict regulatory reforms.
Data localisation mandates add complications as they require certain data to be physically hosted within national borders. When local data centres face disruption, organisations must conduct rapid legal assessments to determine whether their business continuity measures permit data to be transferred offshore, even temporarily, given strict data residency requirements in Middle Eastern jurisdictions.
Resolving Data Centre Disputes: Arbitration and Key Legal Frameworks
International arbitration has established itself as the preferred mechanism for resolving data centre disputes, offering several critical advantages over alternative forms of dispute resolution.
Arbitration provides a neutral forum which is largely independent from local court systems, which is important where parties have different nationalities or where a sovereign counterparty is involved. The process is private and confidential, protecting sensitive commercial and technical knowledge, which is significant in the data centre sector where technology and security arrangements are at stake. Parties can select arbitrators with sector-specific knowledge and technical expertise, addressing the challenge that data centre disputes often involve highly specialised technical issues. Pursuant to more recent issues, parties may want to appoint arbitrators with specialist military-related expertise. Awards issued by an international arbitration tribunal are final, binding, and enforceable in the majority of states, particularly those party to the 1958 New York Convention (which includes all those in MENA, with the exceptions of Yemen, Libya and Somalia).
Within the Middle East, investors frequently choose arbitral seats in the Abu Dhabi Global Market (“ADGM”) or the Dubai International Financial Centre (“DIFC”), which incorporate English common law principles and offer relatively autonomous enforcement mechanisms. In 2024, the UAE broke into the top five arbitral seats globally in the ICC’s arbitration statistics, reflecting the region’s growing importance as an arbitration hub.
Construction disputes in the data centre sector frequently adopt the tiered dispute resolution approach embodied in the FIDIC model contracts, which are the most widely used model contracts for international construction projects. These begin with:
- the Engineer’s determination (who acts neutrally to try to reach an agreement between the parties);
- adjudication before a Dispute Avoidance /Adjudication Board;
- followed by negotiation or mediation, and then
- final and binding arbitration, with a strong institutional preference for arbitration under the ICC Rules of Arbitration.
For investor-state disputes, the option of submitting claims against the host state to a neutral arbitral tribunal, rather than relying on that state’s domestic courts, represents the most effective route to obtaining redress. Importantly, international arbitration remains a viable mechanism for resolving disputes even where facilities have been attacked during armed conflict. As discussed above, foreign investors whose data centre assets have been damaged may invoke investment treaty protections, including FPS and war clauses, and bring claims against the host state, provided the relevant treaty contains appropriate protections. That said, where the destruction results from legitimate acts of war by a belligerent state, private claims face formidable obstacles, as illustrated by the Cuba Submarine Telegraph Company, Ltd. (Great Britain) v. United States arbitration of 1923. Careful structuring of investments so as to benefit from the protections afforded by applicable investment treaties remains a prudent strategy for investors.
Conclusion
Rapid growth in investment in data centres in the Middle East means more contracts, higher stakes, and inevitably more disputes. Regulatory frameworks are evolving quickly, with new data localisation and cybersecurity requirements creating uncertainty and potential grounds for legal claims. Geopolitical instability poses a growing threat at present. Novel questions will be raised about force majeure, investment treaties, and how to allocate risk between parties. International arbitration, with its flexibility, neutrality, confidentiality, and global enforceability, is well positioned to serve as the principal mechanism for resolving these disputes.
ABOUT THE AUTHORS
Gareth Mills is a Partner at Charles Russell Speechlys LLP. He has an international practice, having spent over 10 years working in our Middle East offices, and has been consistently ranked in Global directories for his arbitration and disputes work. Gareth now shares his time between the UK and the GCC and continues to support clients in complex, high-value cases across a wide range of sectors.
Gareth has extensive experience in international arbitration, having represented clients in DIAC, BCDR, LCIA, UNCITRAL, and ICC Arbitration proceedings across a range of jurisdictions. Gareth also advises TMT clients in relation to regulatory compliance acting for operators, regulators and technology companies across the GCC (and wider). Gareth is admitted to practise in England and Wales.
Jana Billington is an Associate at Charles Russell Speechlys LLP. She has a broad commercial litigation practice encompassing claims involving civil fraud, misrepresentation, unfair prejudice, corporate disputes, and breach of contract. Her work regularly involves complex, multi-party matters. Jana’s practice also has an international dimension, including competition law matters in Bahrain and the enforcement of foreign judgments in the DIFC.
Jana trained at Charles Russell Speechlys, with seats in Corporate Restructuring and Insolvency, Commercial Real Estate, Commercial Dispute Resolution, and a client secondment to Actis. She holds an undergraduate degree in Philosophy, Politics and Economics from the University of Oxford and completed the PGDL at the University of Law.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
