Reforming Shareholder Claims in ISDS

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