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Regulation of Shareholder’s claims in International Investment Arbitration

  • Journal of International Business Transactions Law
  • Abbr : IBT
  • 2020, (29), pp.69-98
  • DOI : 10.31839/ibt.2020.04.29.69
  • Publisher : The Institute for Legal Studies Dong-A University
  • Research Area : Social Science > Law > Private Law > International Commercial Transactions Law
  • Received : March 20, 2020
  • Accepted : April 21, 2020
  • Published : April 30, 2020

LEE, JAE WOO 1

1대한상사중재원

Accredited

ABSTRACT

Most investment treaties provide in its definition clause that the term investment includes shares in and stock, bonds and debentures of, and nay form of participation in, a company. Shareholders in companies can be harmed in two broadly different ways. First, they can suffer direct injury to their rights as a shareholder, such as the right to attend and vote at general meetings. Second, shareholders can suffer so-called ‘reflective loss’ through an injury to the company which usually cause the market value of the shares to decrease. Claims by company shareholders seeking damages from governments for reflective loss make up a substantial part of the ISDS cases. While governments have challenged these reflective loss claims in a number of cases, many ISDS arbitral tribunals have found that shareholders are entitled to recover for reflective loss in ISDS. Courts in advanced systems of national corporate law, however, generally reject shareholder claims for reflective loss for explicit policy reasons relating to consistency, avoidance of double recovery and judicial economy. Shareholders are permitted to bring cases for direct injury, but not for indirect injury(reflective loss). Only the directly-injured company can bring the claim. ISDS arbitrators have generally paid little attention to the policy consequences of allowing shareholder claims for reflective loss. They have considered it unnecessary to consider policy consequences because they think that the issue is resolved by the inclusion of shares in the investment definition. However, shareholder’s claim for reflective loss could give rise to multiple claims by multi-tiered shareholders and domestic company whose shares they have. Those multiple claims could possibly have risk of inconsistent awards and high costs. It might also prejudice the legitimate interests of creditors and other shareholders of the companies. In this context, this article suggests that the investment treaty introduce ‘derivative claim’ as provided in certain domestic laws and treaties. It can be initiated by controlling shareholder on behalf of companies and recovery of damages shall go to the company rather than to shareholder in order to ensure that double recovery for shareholders is avoided and the interests of other stakeholders in the company are duly protected.

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