Investment Claims: Project Finance Lenders Have Rights Too

Investment Claims of Project Finance Lenders

While investment treaties and arbitration clauses have always protected dequity investors, the same has not been the case for Project finance lenders who are known as backdoor stakeholders in a contract. The belief has always been that third-party funders in a contractual investment do so at their own risks and cannot go to the tribunal. However, such stance have become quite shaky with a landmark case that involved Spain.

A recent award in the Portigon AG v Spain case showed that it was possible for project finance lenders to get compensation under investment treaties agreed on in the contract. In this case, the claimant provided financial relief for financing several energy-related projects in Spain. Spain, however, cut out all the remunerations that the claimant could have enjoyed due to new laws. The tribunal Jurisdiction on the 20th of August, 2020 cited the investment treaty in the contract to upheld all benefits to the claimant.

Can Project Finance Lenders Get Protection, and How Can They Get It?

While it is clear that equity investors and direct investors can get major protection through investment treaties, that avenue has not really been provided for Project finance lenders, usually seen as third-party investment lenders with no direct stake in the investment. However, this situation clearly changed in the Portigon AG v Spain and whether the companies and host state involved in similar disputes of like it or not it opens a new opportunity for Investment Claims of Project Finance Lenders.

While they have continued to be relegated to the backstage, Project Finance Lenders’ Rights have always been a source of concern, and the fact that such right may be able to come into play in arbitration is a bright spot in the system and why it will continue to grow. However, while this development is very welcomed, Dispute Resolution in Project Finance Resolution and Project Finance Lenders’ Rights is still a relatively young part of the system.

Investment Claims of Project Finance Lenders

This means that it will only take a high level of understanding to know where Project Finance Lenders’ Rights can be defended against unwholesome practices by host states.

• Host states going against a previously agreed numeration model that may include incentives and other financial benefits that lenders would have gained from the project. These remunerations are normally valid and are established either by law or by a contract.

• Breaching of agreement in contracts entered by host states or state-owned companies can leave the Project finance lender extremely vulnerable, whether as a direct player in the project or as an indirect player (third-party funder)

• Another situation that can make project party funders vulnerable could be unilateral modification, denial, or termination of concessions, licenses, or permits.

Generally, when a state carries out any of these actions, the effect on project finance lenders can be very high as they are rarely compensated like investors. Project finance lenders may suffer significant losses such as loss of finances, debt accumulation due to borrowing, and potential damage to reputation and negotiating power for other deals.

For project lenders to, however, mitigate the propensity of falling into risks, they may have to keep their eyes on a number of key issues:

• Project finance lenders must pay more attention to and evaluate the model of their transactions and contracts. They have to ensure that the availability of an optimal investment treaty that favors them is included in the deal. The extent of protection of an Investment treaty will normally depend on the party identity (nationality) claiming protection.

Making the financing available via the parent firm/company or any of its subsidiaries or branches incorporated in several jurisdictions can also have a major impact on the type of investment protection that can be reached. Therefore, this may require preliminary legal, due diligence on the type and number of treaties available as the best possible option.

• Project finance lenders must ensure they follow up and maintain a detailed record of their relationship and reliance on host states from their position as a third-party player. They must be fully aware of every action and activity of the state and keep all documentary evidence that showed their dependency and reliance on several state commitments. These commitments may include due diligence reports and statements on statutory staff and governmental permits.

All direct interactions of the Project lender with the states can also be used to enhance the lender’s claim in a situation where formal or direct agreements with governmental agencies are not available.

• Project finance lenders must also ensure that when drafting, they do it with the utmost care to ensure that they do not annul the protection offered in an investment treaty.


Understanding Project Finance Lenders’ Rights is important for lenders to know where they stand and how much they can claim against owned state entities or host states where unfriendly policies affect them.

Dispute Resolution in Project Finance Resolution is often tricky, and project finance lenders always seem to be at the receiving end of a contract breach. But as it has been already proven with the Portigon AG v Spain project, financers are not always left open to loss if they can click into the opportunity that investment treaties provide.

However, if you are a financer with a pending case or are looking to finance a project, you will need to be aware of important information that helps secure your interest. It will be a great idea to get a top arbitration firm to help you with the processes and working that you need to secure your claim.
Rattsakuten is a major arbitration firm with some top arbitrators that will help defend your interest and ensure that you get the best protection possible as a Project finance lender. You can call the management for details on how to strut the process of getting the best possible solution to your claim.

About Rattsakuten

Rattsakuten is a leading law firm focused on Commercial Arbitration and Dispute Resolution. Based in Sweden, Rattsakuten handles dispute resolution and Arbitration matters before the SCC (Swedish Chamber of Commerce), ICC, HKIAC, and several other Arbitration tribunals.

Fredrik Jörgensen

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