Reforming Shareholder Claims in ISDS

Academic Forum on ISDS Concept Paper, 2019/9

13 Pages Posted: 9 Aug 2019 Last revised: 29 Sep 2019

See all articles by Julian Arato

Julian Arato

Brooklyn Law School

Kathleen Claussen

University of Miami School of Law; Georgetown University Law Center, Institute of International Economic Law

Jaemin Lee

Seoul National University - College of Law

Giovanni Zarra

University of Naples Federico II

Date Written: July 25, 2019

Abstract

At its 37th session, UNCITRAL Working Group III (WGIII) indicated that it would study shareholder claims as a possible subject of reform. This paper aims to support WGIII and the UNCITRAL Secretariat in this effort, with a particular focus on claims for shareholder reflective loss (SRL).

ISDS stands alone in empowering shareholders to bring claims for reflective loss. National systems of corporate law generally bar SRL claims for strong policy reasons bearing on the efficiency and fairness of the corporate form. Though neither 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 paper first explains ISDS tribunals’ permissive approach to SRL. Second, it sets out the harms caused by allowing ISDS claims for reflective loss. Third, it explores possible justifications for allowing SRL claims in this context. We suggest, however, that potential benefits of SRL can be realized through less invasive means. Fourth, this paper explores how States and tribunals have sought to mitigate problems associated with SRL. While important, these solutions have mostly proven irregular, inconsistent, and incomplete. Fifth, this paper concludes by setting targets for reforming shareholder claims in a balanced manner, taking into account the diversity of interests at stake.

Suggested Citation

Arato, Julian and Claussen, Kathleen and Lee, Jaemin and Zarra, Giovanni, Reforming Shareholder Claims in ISDS (July 25, 2019). 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)

Brooklyn Law School ( email )

250 Joralemon Street
Brooklyn, NY 11201
United States

Kathleen Claussen

University of Miami School of Law ( email )

1311 Miller Dr
Coral Gables, FL 33146
United States

Georgetown University Law Center, Institute of International Economic Law ( 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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