Shareholder Claims for Reflective Loss in Investor-State Disputes and Reform Options

Since 2017, UNCITRAL has been considering a number of reform options to improve the investor-State dispute settlement (ISDS) system. During the deliberations, multiple proceedings as well as shareholder claims for reflective loss were identified as concerns and areas where reform would be desirable. This article examines the situation where foreign shareholders of a local company raises claims against a State for reflective loss. It provides an overview of the issues relating to reflective loss claims by analysing relevant case law of ISDS tribunals and treaty-based measures taken by States to respond to reflect loss claims. The paper concludes by examining the wide array of reform solutions under consideration by Working Group III of UNCITRAL and suggests the possible way forward, including the development of model clauses and procedural tools as well as the preparation of guidance to tribunals faced with reflective loss claims. The paper emphasizes a balanced approach taking into account the fact that reflective loss claims provide an effective remedy for foreign shareholders and at the same time, pose a number of concerns to States as well as relevant stakeholders.