The Rising Tide of Legal Disputes on Data Centre Projects: How Legal Finance Can Help

Data centres are emerging as significant assets, drawing attention from private equity firms and corporates alike as the digital economy continues to expand. With their growth comes an inevitable increase in high-value, “high-tech” legal disputes that are different to those arising from your typical infrastructure project. As a specialist in construction and infrastructure disputes funding for Omni Bridgeway, data centre disputes are increasingly landing on my desk.

Here is what you should keep in mind…

Modern data centres cover millions of square metres, house expensive computing equipment, and consume as much power as small cities. They are complex undertakings involving intricate contractual obligations and supply chain interdependencies spanning all industries and economic sectors. With significant financial stakes tied to construction delays, regulatory compliance, service level agreements, intellectual property rights and energy supply, disputes are becoming more frequent and costly. Litigation funding is the perfect tool to alleviate the financial pressures created by data centre disputes and improve the investment returns on these assets.

By financing the costs of a dispute for a fee contingent on the claim’s success, litigation funding not only enables the pursuit of meritorious claims at no net cost, but also optimises investors’ returns by recovering otherwise foregone cash. This can be advantageous for investment portfolios focusing on data centres and other infrastructure assets, where frequent disputes arising from design changes, project delays, contract breaches and patent infringements can be leveraged at scale to improve portfolio performance. Private equity firms in particular should be aware of the potential financial benefits of litigation funding for their portfolio companies.

On the supply side, the benefits of litigation funding are tangible for contractors building and commissioning these data centres, who often have to fight for their contractual entitlements in the face of challenges ranging from mechanical and electrical system design changes to data and platform migration issues. Businesses throughout the supply chain routinely weigh the high cost of legal claims against cashflow pressures and narrow profit margins, often overlooking the fact that if the claims are meritorious these companies can engage a litigation funder to meet the costs.

The commitment of a dispassionate third party who has rigorously analysed the contractor’s claim and risked substantial capital on it can also send a powerful message to the owner or developer, boosting commercial settlement strategies and potentially circumventing full-blown litigation. Indeed, anecdotally, disputes in the data centre sector would appear to enjoy a higher rate of amicable settlement than in some other sectors.

Where formal proceedings are required, jurisdiction is a key risk factor for litigation funders, who prefer disputes with shorter durations and enforceable outcomes. Put simply, stakeholders who acknowledge the litigious nature of data centre projects and therefore concentrate their business on jurisdictions that provide a safe environment for dispute resolution will enjoy better access to litigation funding.

Encouragingly, many of the largest data centre projects are located in regions with robust legal frameworks. The Nordics and the UK, for example, are favoured for their economic and political stability (important for the holding of huge amounts of sensitive data) and colder climates (minimising energy consumption from hardware cooling systems), amongst other attributes. 

The data centre lifecycle involves many of Omni Bridgeway’s specialist areas, from construction to intellectual property, and from international arbitration to adjudication. When it comes to making the most of your data centre dispute, we are the ideal collaborator for law firms, consultants, corporate clients, and investors.

Please contact me if you would like to discuss the challenges and opportunities occupying stakeholders in data centre projects.