Shareholder Claims for Reflective Loss in Investor-State Dispute Settlement: Proposing Reform Options for States

The rule against reflective loss claims by shareholders is a fundamental tenet of corporations law, accepted across numerous domestic law jurisdictions and under customary international law. Yet bilateral investment treaties (BITs) have long broken from this conventional approach by allowing shareholders to bring claims for their indirect loss. UNCITRAL Working Group III has identified that this anomalous approach to shareholder claims may be an issue in relation to which reform is desirable. In support of Working Group III’s multilateral reform agenda, this article examines a range of reforms options available to States concerning shareholder reflective loss claims, and suggests that treaty-based derivative claims mechanisms are a suitable choice for reform. Derivative claims mechanisms have been included in a number of international investment agreements (IIAs), although the arbitral practice in relation to such provisions has not previously been the subject of close scrutiny. The examination of this arbitral practice, drawing in particular from past practice applying the North American Free Trade Agreement, reveals that tribunals have not consistently interpreted these mechanisms as precluding shareholder reflective loss claims, indicating that States need to include explicit clarificatory treaty language to render these clauses effective.