What is an International Investment Treaty and what protections do foreign investors have?

Previously we covered the Clean Industry Bonus, an additional stream of revenue available to developers of offshore windfarms through the UK government’s Contracts for Difference (CfD) scheme. In this article, we consider protections available to foreign investors in the context of the Allocation Round 7 (AR7). Results from AR7 have just been announced this month.

In July 2025, Reform UK’s Deputy Leader, Richard Tice, told prominent developers in the UK’s Clean Energy market that Reform UK would strike down all contracts awarded under AR7. Tice further indicated that those who proceed with bidding may be at risk of losing the cost of their investment.

If Reform UK are ever in a position to pass legislation that would have the effect of quashing such contracts, investors would have very limited options under UK law, but they might have scope to use international law remedies.

International Investment Treaty Arbitration

The UK’s doctrine of Parliamentary Sovereignty precludes any government being bound by the acts of a previous one. So any future Reform UK government would be able to revoke or refuse funding or environmental licences or essential planning permissions – actions which would directly impact investments made by foreign investors in the UK.

However, investment treaty arbitration would also be a factor. This is a mechanism for resolving investment disputes between a state and foreign investors, pursuant to either a Bilateral Investment Treaty (BIT) entered into by two states, or a Multilateral Investment Treaty (MIT). Investment treaties aim to incentivise foreign investment through the creation of stable and favourable investment conditions, which could be enforced by an investor directly against the State through the treaty’s dispute resolution provisions.

There are numerous reasons in which claims may arise, including, but not limited to:

Unfair or unjust treatment in the national courts
Interference with the administration of an investment through discriminatory application of the domestic laws or regulation
Arbitrary refusal or non-renewal of environmental or key licences

Importantly, to the extent such claims might arise from conduct such as AR7 contract cancellation, they would not be affected by limitations imposed under domestic law (such as Parliamentary Sovereignty).

As states are responsible for agreeing treaties, each treaty will define its own criteria. Investors will qualify if they meet the definition of an “investor” and/or hold a qualifying “investment” subject to the terms of that treaty. When considering the provisions of an investment treaty, an investor should seek legal advice from a legal expert within the relevant jurisdiction.

Woodhouse Investment Pte Ltd and others v United Kingdom (ICSID Arbitration)

By way of example, an investment treaty arbitration claim has recently been brought against the UK through a UK-Singapore BIT. The claim stems from a dispute regarding a High Court decision that led the UK government to revoke planning permission for a Cumbrian coking coal mine, at Woodhouse Colliery.

The Singaporean investors in the colliery allege that the actions of the UK government (irrespective of the position under UK domestic law) breached its obligations under the BIT. Specifically, that the revocation of planning permission, coupled with imposing new regulatory measures, constituted an unlawful interference with their investment and denied them the protections guaranteed by the treaty. They are citing the provision for fair and equitable treatment, and the protection against unlawful expropriation.

The Energy Charter Treaty

In addition to applicable BITs, AR7 investors concerned about the risk of contract cancellation may wish to consider relying on the Energy Charter Treaty (ECT), an MIT which the UK signed in 1994. Despite the UK having withdrawn from the ECT in April 2025, it is subject to the terms of the treaty for a further 20 years due to its ‘sunset’ clause.

The investor-state dispute resolution provisions in the ECT might provide foreign investors with the ability to challenge a government if they sought to improperly impede an existing investment that formed part of their AR7 application. A key issue would be when the investments were made, and what informed those decisions.

Establishing these facts may be tricky. Expert advice may be required to guide concerned investors through each step, and to understand the impact or extent of the harm or breach caused by a government; the application of the terms of the relevant treaty; and the recourse available thereafter.

How we can help

Investors can protect their investments against unlawful government action in many ways, whether that be in contract law, human rights, or by the provisions contained in international investment treaties. Shepherd and Wedderburn’s legal experts can facilitate discussions that will guide investors through investment protections available to them in the UK.

This article was co-authored by Trainee Angus MacVicar.

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