Reforming Shareholder Claims in ISDS

Julian Arato, University of Michigan Law School
Kathleen Claussen, University of Miami School of Law
Jaemin Lee, Seoul National University College of Law
Giovanni Zarra, University of Naples Federico II

Work published when author not on Michigan Law faculty.


At its 37th session, UNCITRAL Working Group III (WGIII) indicated that it would study shareholder claims as a possible subject of reform. This paper aims to support WGIII and the UNCITRAL Secretariat in this effort, with a particular focus on claims for shareholder reflective loss (SRL).

ISDS stands alone in empowering shareholders to bring claims for reflective loss. National systems of corporate law generally bar SRL claims for strong policy reasons bearing on the efficiency and fairness of the corporate form. Though neither 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 paper first explains ISDS tribunals’ permissive approach to SRL. Second, it sets out the harms caused by allowing ISDS claims for reflective loss. Third, it explores possible justifications for allowing SRL claims in this context. We suggest, however, that potential benefits of SRL can be realized through less invasive means. Fourth, this paper explores how States and tribunals have sought to mitigate problems associated with SRL. While important, these solutions have mostly proven irregular, inconsistent, and incomplete. Fifth, this paper concludes by setting targets for reforming shareholder claims in a balanced manner, taking into account the diversity of interests at stake.