| When the fundamental rights of shareholders,such as the right to dividends,are affected by the host government’s misconduct,shareholders can assert their legitimate rights and interests by filing claims against the host country through diplomatic protection or by instituting remedial proceedings directly under international law.However,when a company’s rights and interests are violated by an act of the host government,the availability of remedies for the indirect rights and interests of shareholders,such as losses suffered by shareholders as a result of the diminution in the value of shares due to a mistake that reduced the value of the company’s assets,i.e.,manifested as a diminution in the value of the shares held by shareholders,is a hotly debated issue in international investment law today and it is also one of the priorities of the ISDS reform that UNCITRAL is currently promoting.With the increasing number of cross-border investments,traditional diplomatic protection has increasingly highlighted its limitations,and more and more claimants are choosing to pursue remedies for their rights and interests through international investment arbitration.The original purpose of IIAs was to promote and protect investment in order to achieve greater trade and investment liberalization.This article examines shareholder relief for reflective losses in international investment treaties and arbitration and the issues and responses it raises.In international investment treaties and arbitration,shareholder relief for reflective losses has its own practical basis and policy considerations.There are three main reasons in favor of allowing shareholders’ remedies for reflective losses under international investment law: first,the legislative philosophy is that international investment law is more oriented towards protecting foreign investments;second,shareholder derivative actions as a remedy for primary shareholder rights do not provide complete and direct relief for shareholders’ reflective losses;and finally,there are situations where shareholders’ reflective losses are not protected by other remedies.In contrast,the arguments against international investment law allowing shareholders to make reflective loss remedies focus on inconsistencies with domestic corporate law and customary international law.Shareholders are barred from relief for their reflective losses under both domestic corporate law and customary international law.Domestic company law for policy reasons,to comply with the company’s independent personality system,that the company has a legal personality independent of shareholders,the company is infringed by others,only the company itself has the right to seek relief from the infringement in its own name,as long as the rights of shareholders to participate in the company is not infringed by the act,then shareholders do not have an independent right to sue.Customary international law,on the other hand,relies primarily on diplomatic channels for the protection of shareholders.The Barcelona Traction case of ICJ laid the foundation for the prohibition of shareholder relief for reflective losses,i.e.,that shareholders and corporations are separate entities,that shareholders cannot claim against the corporation’s property while the corporation survives,that only the corporation is the proper subject of relief,and that shareholders are not entitled to relief for reflective losses sustained by them.The need for international investment law to allow shareholders to seek relief for reflective losses raises questions about the lack of clarity in the definitions of "investment" and "investor" in most contemporary international investment agreements.For example,is there a legal basis in international investment law for allowing shareholders to pursue reflective loss remedies? What are the specific cases in international investment arbitration practice? What is the attitude of the arbitral tribunal?Allowing shareholders to make reflective loss relief has its legal basis in international investment law.First,the shareholder’s shareholding meets the currently well-recognized "Salini Test" and is considered an investment under Article 25 of the ICSID Convention.Second,in an IIA,the shares qualify as investments under the IIA,while the shareholders qualify as investors under the IIA.The ElPaso Energy International arbitration case is one of the classic cases on the issue of shareholders’ reflective loss,which shows that the definition of "investment" in international investment agreements includes shareholders’ equity and that shareholders’ reflective loss has its legal basis in international investment law.The Orascom arbitration was the focus of a case in which an arbitral tribunal declined to exercise jurisdiction in accordance with the abuse of rights doctrine.The Claimant,Orascom,initiated a parallel investment arbitration against the same measures taken by Algeria for the same investment,thus leading to an abuse of rights,and the Tribunal therefore dismissed the Claimant’s claim as inadmissible.The Eskosol arbitration is one of the latest cases in which an arbitral tribunal has allowed shareholders to pursue reflective loss relief,which may explain the specific incidental issue of shareholders’ reflective losses.The case was complex and involved the injured company Eskosol,the company’s shareholder Blusun,and the Italian government.It is clear from this case that there are indeed some problems with the shareholders’ reflexive loss remedy,such as parallel proceedings and damage to the interests of the company’s creditors and other shareholders,which will be discussed next.These three cases can reflect different aspects of the shareholder reflected loss regime in international investment law to deepen the exploration of the reflected loss regime.Although international investment law allows shareholders to make reflective loss relief can largely compensate shareholders for their losses and protect their legitimate rights and interests,it also means that the host country is subject to a lot of pressure from shareholder claims.Allowing shareholders to seek relief for reflective losses and giving them the right to indirect claims would also allow shareholders at different levels of the same company to remedy their rights by resorting to arbitration,potentially leading to abuse of rights,a large number of multiple claims,and increasing the likelihood of parallel proceedings arising.The occurrence of parallel programs can be reduced by setting up a merge mechanism.In addition,when shareholders obtain indirect protection through the local company’s remedial procedures,the problem of double remedies arises.A waiver clause can be set in the IIA with reference to NAFTA,but the waiver clause will accordingly create risks for shareholders.In addition,allowing shareholders to seek relief for their reflective losses could also harm corporate creditors and other shareholders and make it more difficult for the host government to respond to lawsuits,in this regard,effective solutions still need to be further explored in the future. |
