Shareholder reflective loss: a bogeyman in investment treaty arbitration?

Abstract

Most advanced national legal systems bar shareholders from claiming the diminution in value of their shareholding in a company arising from wrongful acts committed against the company. In contrast, investment arbitral tribunals consistently allow investors to recover such loss because most investment treaties are formulated broadly to protect investments in the form of direct and indirect shareholding. Despite recent calls for reform by governments and inter-governmental organizations, there is nothing inherently wrong with such dissonance. First, the recoverability of ‘shareholder reflective loss’ is doctrinally in sync with the lex specialis characteristics of investment treaty claims. Second, as recently and rightly recognized by the apex courts of the UK and Singapore, the principle of ‘no reflective loss’ is founded upon separation of legal personality rather than prevention of double recovery. In investment treaty arbitration, the latter concern is sufficiently addressed by solutions ranging from jurisdictional barriers (fork-in-the-road and denial of benefits clauses), procedural devices (consolidation and joinder), and substantive defences (res judicata, collateral estoppel, and abuse of process). Hence, the growing fear of shareholder reflective loss undermining the investor–State dispute settlement system is but a bogeyman that States need not be afraid of.