Reforming Shareholder Claims in ISDS

14 Journal of International Dispute Settlement (forthcoming 2023)

Academic Forum on ISDS Concept Paper, 2019/9

19 Pages Posted: 9 Aug 2019 Last revised: 17 Feb 2023

See all articles by Julian Arato

Julian Arato

University of Michigan Law School

Kathleen Claussen

Georgetown University Law Center

Jaemin Lee

Seoul National University - College of Law

Giovanni Zarra

University of Naples Federico II

Date Written: July 25, 2019

Abstract

ISDS stands alone in empowering shareholders to bring claims for reflective loss (SRL) – meaning claims over harms allegedly inflicted upon the company, but which somehow affect share value. National systems of corporate law and public international law regimes generally bar SRL claims for strong policy reasons bearing on the efficiency and fairness of the corporate form. Though not necessitated by treaty text, nor beneficial in policy terms, ISDS tribunals nevertheless allow shareholders broad and regular access to seek relief for reflective loss. The availability of SRL claims in ISDS ultimately harms States and investors alike, imposing surprise ex post costs on States and various corporate stakeholders (particularly creditors), and creating perverse incentives likely to raise the cost of doing business ex ante. The Article sets out the harms caused by allowing ISDS claims for reflective loss, as well as the possible justifications for allowing such claims in this specific context. Concluding that any potential benefits of SRL can be realized through less invasive means, we then canvas a number of plausible reform options, with an eye to their trade-offs.

Keywords: International Investment Law, Arbitration, ISDS, Corporations, Shareholders, Reflective Loss, Derivative Suits

Suggested Citation

Arato, Julian and Claussen, Kathleen and Lee, Jaemin and Zarra, Giovanni, Reforming Shareholder Claims in ISDS (July 25, 2019). 14 Journal of International Dispute Settlement (forthcoming 2023), Academic Forum on ISDS Concept Paper, 2019/9, Available at SSRN: https://ssrn.com/abstract=3433465 or http://dx.doi.org/10.2139/ssrn.3433465

Julian Arato (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

Kathleen Claussen

Georgetown University Law Center ( email )

Jaemin Lee

Seoul National University - College of Law ( email )

San 56-1 Kwanak-gu, Shilim-dong
Seoul, 151-742
Korea

Giovanni Zarra

University of Naples Federico II ( email )

via Cinthia, 4
Naples, Caserta 80126
Italy

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