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Investment Treaties and Shareholder Claims for Reflective Loss: Insights from Advanced Systems of Corporate Law

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  • David Gaukrodger

    (OECD)

Abstract

Corporate law in advanced domestic legal systems on the one hand, and typical treaties for the protection of foreign investment on the other hand, treat claims for damages by company shareholders differently. Advanced domestic systems generally bar shareholders from claiming for reflective loss – loss that arises from injury to "their" company (such as a decline in the value of shares). The claim for the loss belongs to the injured company and not to its shareholders. In contrast, shareholder claims for reflective loss have been widely permitted under typical investment treaties over the last 10 years. Ongoing OECD-hosted inter-governmental dialogue on investment law is considering whether there are policy reasons justifying the different approaches to shareholder claims for reflective loss. This paper examines shareholder claims for reflective loss under investment treaties in light of comparative analysis of advanced systems of corporate law. The paper considers the impact of allowing shareholder claims for reflective loss on key characteristics of the business corporation. The paper also explores possible responses by different categories of investors to the availability of shareholder claims for reflective loss under investment treaties.

Suggested Citation

  • David Gaukrodger, 2014. "Investment Treaties and Shareholder Claims for Reflective Loss: Insights from Advanced Systems of Corporate Law," OECD Working Papers on International Investment 2014/2, OECD Publishing.
  • Handle: RePEc:oec:dafaaa:2014/2-en
    DOI: 10.1787/5jz0xvgngmr3-en
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    File URL: https://doi.org/10.1787/5jz0xvgngmr3-en
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    Keywords

    access to justice; agency costs; arbitrators; bilateral investment treaties; board of directors; business corporations; company law; comparative law; competitive neutrality; consistency; consistency of arbitral decisions; corporate law; creditors; creditors’ rights; derivative action; derivative injury; derivative loss; domestic impact of investment law; entity shielding; foreign investment; international arbitration; international economic law; international investment; international investment agreements; international investment law; investment arbitration; investment treaties; investor-state dispute settlement; judicial economy; level playing field; limited liability; loan covenant; reflective injury; reflective loss; separate legal personality; settlement; shareholder claims; shareholder remedies; shareholder rights; shareholders; stockholder remedies; stockholders; transferability of shares; treaty shopping;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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