Towards Higher Coherence in Shareholder Claims for Reflective Losses

Abstract

Shareholder claims for reflective losses are widely discussed in international investment treaty arbitration. The debate arises because tribunals in international investment arbitration commonly grant legal standing for shareholders to claim for reflective losses, whereas municipal corporate laws typically bar such claims. This article seeks to provide a legally sound solution that reconciles the opposing opinions by a flexible concept. Unlike the common approach in international investment treaty arbitration, this article regards shareholder claims for reflective losses not only as a matter of arbitral court jurisdiction but also as part of the admissibility assessment. As a consequence, it should be scrutinized whether and, to what extent, immediate compensation of reflective losses to claiming shareholders is required or justified as appropriate treaty-based investment protection. This article shows that immediate payment to shareholders for reflective losses ought to be limited to cases where the payment of damages to the company is not eligible to provide effective investment protection (i.e. to effectively repair the shareholders` reflective losses). In all other cases, the extent of the shareholder`s right ought to be limited to the entitlement to claim for damages with recovery to the company as actually harmed entity.