Investment Treaties as Corporate Law: Shareholder Claims and Issues of Consistency

Claims by company shareholders seeking damages from governments for so-called "reflective loss" now make up a substantial part of the investor-state dispute settlement (ISDS) caseload. (Shareholders’ reflective loss is incurred as a result of injury to “their” company, typically a loss in value of the shares; it is generally contrasted with direct injury to shareholder rights, such as interference with shareholder voting rights.) This paper considers the consistency issues raised by shareholder claims for reflective loss in ISDS. The paper first compares the approach to shareholder claims in ISDS with advanced systems of national corporate law (and other international law). ISDS arbitrators have consistently found that shareholders can claim individually for reflective loss in ISDS under typical BITs. This can be seen as a success story from the point of view of consistency of legal interpretation and improves investor protection for potential claimant shareholders in many cases. In contrast, however, advanced national systems and international law generally apply what has been called a "no reflective loss" principle to shareholder claims. Second, the paper analyses the policy issues relating to consistency that are raised by shareholder claims for reflective loss in ISDS. National and international law barring shareholder claims for reflective loss is often explicitly driven by policy considerations relating to consistency, predictability, avoidance of double recovery and judicial economy. Limiting recovery to the company is seen as both more efficient and fairer to all interested parties. In contrast, ISDS tribunals and commentators have generally given limited consideration to the policy consequences of allowing shareholder claims for reflective loss. The third part of the paper addresses the issue of company recovery (including two different existing systems which expand the ability of foreign-controlled companies to recover in ISDS) and its relevance to shareholder claims for reflective loss. The paper also contains a series of questions for discussion and has been discussed by governments participating in an OECD-hosted investment roundtable.