Funded Investment Arbitration and the Timing Problem for Respondent States

The proceedings in Lansdowne Oil & Gas PLC and Lansdowne Celtic Sea Limited v. Ireland (‘Lansdowne’), ICSID Case No. ARB/26/21, illustrate the significance of procedural timing within funded investment arbitration. In particular, the proceedings expose the relationship between commercial timing and institutional timing during the progression from regulatory dispute to formal arbitral proceedings. 

The Lansdowne proceedings are particularly notable because the underlying regulatory dispute itself reportedly concerned the investors’ financial capability. Ireland refused the Barryroe lease undertaking after concluding that the applicants failed to satisfy applicable financial capability requirements governing offshore petroleum authorisations. Once the dispute progressed into funded ICSID arbitration, however, analogous concerns relating to recoverability and litigation exposure became relevant through procedural mechanisms whose practical operation depended upon subsequent tribunal constitution.

This article does not address whether Ireland breached the Energy Charter Treaty (‘ECT’), nor does it examine the merits of the investors’ allegations concerning expropriation or fair and equitable treatment. Rather, the article examines how funded investor-state arbitration may become commercially and procedurally operational before respondent state protections become practically available.

The Barryroe Dispute and the Transformation of Financial Capacity

Lansdowne arises from the investors’ 20% interest in the Barryroe offshore oil field (‘Barryroe project’) located off Ireland’s southern coast. In 2011, Lansdowne and Providence Resources were awarded Standard Exploration Licence 1/11 (‘SEL1/11’), granting exclusive petroleum exploration rights within the licensed area pursuant to Ireland’s offshore petroleum licensing framework. The licence did not itself confer any right to commercially exploit petroleum reserves absent further ministerial authorisation.

The Barryroe project was regarded as a potentially significant offshore hydrocarbon development initiative. Commercial progression nevertheless depended upon substantial external financing and continued regulatory approval before production could occur. Between 2018 and 2021, the joint venture pursued a series of financing arrangements involving external investors, including APEC Energy Enterprise Limited and SpotOn Energy. Those arrangements ultimately failed after anticipated funding was not secured.

Against that background, the joint venture applied in April 2021 for a lease undertaking as a follow-on authorisation connected to SEL1/11. Under Ireland’s offshore petroleum licensing regime, a lease undertaking may preserve the possibility of future commercial exploitation where petroleum has been discovered, but commerciality cannot yet formally be declared during the licence period. In its 2023 annual report, Lansdowne stated that its 20% interest in the Barryroe project carried a projected net present value of approximately USD 104 million under projected Brent oil price assumptions extending beyond 2027.

Ireland ultimately refused the application in May 2023. The Department for the Environment, Climate and Communications reportedly accepted the technical aspects of the proposal but concluded that the applicants failed to satisfy the applicable financial capability requirements governing offshore petroleum authorisations, including the relevant ‘Investment Cover’ criterion under Ireland’s Financial Capability Assessment Guidance. Following the refusal, Lansdowne fully impaired the Barryroe project, recording approximately £16.4 million in impairment losses, and subsequently initiated proceedings under Article 26 ECT.

Procedural Activation Under Article 26 ECT

Following Ireland’s refusal of the lease undertaking in May 2023, Lansdowne’s legal advisers, Ashurst LLP, issued a notice of dispute pursuant to Article 26(2)(c) ECT requesting discussions with a view toward amicable settlement during the ECT’s three-month cooling-off period. 

The significance of the cooling-off period in the present context lies in the differing practical position of funded and non-funded investors during that interval. Article 26 ECT does not procedurally distinguish between externally funded and non-funded claims, nor does it require successful negotiations before arbitration may proceed. Public reporting surrounding the Lansdowne proceedings indicates that funding discussions and legal coordination progressed during the dispute process. In that respect, the cooling-off period may operate not only as a settlement interval, but also as a period during which a commercially constrained dispute may progress into funded investment arbitration.

The chronology of the Lansdowne proceedings raises a further commercial question concerning the practical function of the cooling-off period in funded disputes. Article 26 ECT formally contemplates an opportunity for amicable settlement before arbitration proceeds. Yet, the reported exchange between the parties consisted principally of correspondence concerning the dispute and Ireland’s alleged obligations under the Treaty, while funding discussions and arbitral preparation reportedly continued in parallel. The commercial utility of the cooling-off period may therefore become attenuated where the dispute is already progressing toward funded arbitration before the respondent state possesses procedural mechanisms capable of practical resolution.

The issue raised by the Lansdowne proceedings is not that respondent state protections are formally unavailable during this period. Rather, funded arbitration may expose the practical significance of the interval between commencement of the dispute process and the stage at which certain protections become capable of tribunal determination. 

Delayed Operational Effectiveness of Respondent State Protections

By the time funded investment arbitration progresses towards formal commencement, the dispute may already be commercially operational and procedurally advanced. The investor may already have undertaken substantial commercial and legal preparation, including funding discussions, strategic coordination, and engagement of arbitration counsel. Once the dispute begins progressing toward formal arbitration, however, the respondent state may be required to react institutionally and legally before possessing procedural mechanisms capable of meaningfully testing recoverability, litigation exposure, or jurisdictional objections. 

This carries significance where the arbitration concerns a state’s first treaty-based investment claim. In the Lansdowne proceedings, the underlying dispute reportedly originated within Ireland’s offshore petroleum licensing framework as a regulatory decision concerning the investors’ financial capability. Once the investor engaged arbitration counsel and the dispute progressed toward formal arbitral proceedings, the respondent state simultaneously assumed reciprocal legal and institutional burdens. The matter expanded from its original regulatory context into a broader sovereign response requiring coordination between legal advisers, administrative departments, and institutional decision-makers responsible for responding to the claim internationally. 

The distinction between commercial timing and institutional timing is illustrated by the parties’ reliance upon the International Centre for the Settlement of International Disputes (‘ICSID’). That choice places ICSID in the position of institutionally administering a dispute that may already be commercially operational before certain procedural protections become capable of substantive resolution. ICSID Arbitration Rule 53 permits a party to request security for costs before the tribunal's constitution. Substantive determination remains deferred until after the tribunal has been constituted, notwithstanding that the respondent state must already participate in constituting the tribunal before such protections become practically available. Similar considerations arise in relation to jurisdictional objections, which likewise remain incapable of adjudicative resolution prior to tribunal constitution. Nor does non-participation by the respondent state suspend procedural progression under the ICSID framework, since tribunal constitution mechanisms continue operating once the prescribed time period elapses.

Conclusion

The Lansdowne proceedings illustrate a procedural issue distinct from broader debates concerning the legitimacy of investor-state arbitration or third-party funding. The significance of the dispute instead lies in the relationship between commercial timing and institutional timing within funded investor-state arbitration.

In Lansdowne, the underlying regulatory dispute reportedly concerned the investors’ financial capability to progress the Barryroe project. Yet by the time the dispute advanced toward formal arbitral proceedings, the respondent state had already assumed reciprocal legal and institutional burdens before procedural mechanisms capable of substantive resolution became practically available.

The issue raised by the proceedings is therefore not whether respondent state protections formally exist within the ICSID framework, nor whether funded investors should be prevented from accessing investment arbitration. Rather, the proceedings illustrate how commercially constrained disputes may progress into funded investment arbitration before procedural mechanisms capable of producing binding procedural relief become practically available to the respondent state.

Tommaso Moneta is a Ph.D. candidate at the University of Innsbruck.