Reversely, this kind of claims for reflective loss are traditionally recognized under international investment law within the hundreds of bilateral investment treaties (BITs) that have been concluded during the last decades. The origin of and the difficulties and imbalances stemming from this dichotomy are subject to research between international investment law and domestic corporate law, and will - as far as necessary – define possible solutions.
The level of the conflict between domestic corporate law and international investment law with regard to shareholder claims for reflective loss (i.e. losses incurred through a decrease of the value of their shares) are increasing.
In general, advanced corporate systems law apply a ‘no reflective loss’-principle to shareholder claims. Of course, shareholders are able to claim for direct injury to their rights as a shareholder. They are, however, not permitted to do it for reflective losses suffered as result of harm caused to their company. Only the company can claim for compensation for such a loss.
In contrast, most of investment arbitration tribunals in ISDS (in investor-state dispute settlement) seem to conclude that shareholders are able to recover reflective losses based on the protection provided by a BIT (bilateral investment treaty).
It is important to understand the issue of shareholders’ reflective loss in certain BITs en how these rules are applied in ISDS-cases. This approach under international investment law is to be compared with the way in which is dealt with derivative actions in Azerbaijan including some of the leading national corporate law systems (US, UK and Germany). What concerns the analysis under international investment law, arbitral tribunals traditionally find that shareholders’ claims for reflective loss are available under a BIT.
In order to get a clear insight into these decisions, it is, however, important to analyse, first, the right of companies to claim for compensation in ISDS on their own behalf. Subsequently it will be possible to focus on the possibility of a derivative action by (foreign) shareholders of the loss suffering company.
Secondly, the interaction of the different shareholder and company recovery regimes with certain treaty provisions and policy issues concerning consistency that do stem from the issue of shareholder claims for reflective loss in ISDS should be analyzed. Policy considerations that are to be dealt with in particular are consistency, predictability and avoidance of double recovery. The problem of overlapping claims is also necessary to research.
Thirdly, the different objections against shareholders’ derivative actions that are traditionally used under domestic corporate law regimes should be scrutinized. This will allow to examine the remarkable contrast between the policy of national courts to limit claims for reflective loss in advanced systems of corporate law on the one hand and the focus of international arbitral tribunals on the definition of “an investment”, thus allowing shareholders’ claims for reflective loss on the other hand.
The important steps in this overcoming problem are the followings;
1) To scrutinize the world’s leading corporate law systems with regard to shareholders’ claims for direct injury and reflective loss and to find and assess the legal and economic rationale for these policies.
2) To anaylse typical BIT provisions allowing shareholders to claim for compensation for reflective losses.
3) To find the reasons for the contrast between the national court decisions limiting shareholders’ claims for reflective loss on the one hand, and the provisions in this respect in BITs as applied by international arbitral tribunals on the other hand,
4) To suggest and justify effective and efficient solutions for the actual contradiction
By analyzing the above mentioned, the below mentioned questions may be answered;
-To what extent do the principles of national corporate law that deny shareholders the right to claim for reflective losses conflict with the provisions in this respect in bilateral investment treaties (BITs) and – if any - how can this conflict be solved?
-What are the objections against shareholders’ derivative claims under the leading corporate law regimes and are there justified from a legal and economic perspective?
-What are the rationales behind the traditional allowance of derivative actions by shareholders under BITs as applied in ISDS and are these well-considered?
-Do the ISDS-practices regarding reflective shareholder losses interfere with the rules on shareholder claims under national corporate law?
- How can and should be dealt with this possible interference by national courts, international arbitral tribunals and legislators in general?
For the purpose of legal certainty, governments are supposed to consider and address the conflict between national company law and international investment law as sketched before in order not to disrupt investor expectations. Taking into account the substantial importance of corporate law and international investment law, the issue of derivative actions by shareholders in ISDS should be subject to academic policy analysis. This will be helpdful in the development of an optimal framework for international investments. Furthermore, the solution shall clearly fill an important gap in legal literature by combining the insights from traditional company law with insights from international investment law.
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