ICSID Review – Foreign Investment Law Journal Blog Series

Based on the article 'Shareholder Claims for Reflective Loss in Investor-State Dispute Settlement: Proposing Reform Options for States

By Anuki Suraweera


The rule against shareholders reflective loss claims is a fundamental tenet of corporations law, widely accepted across domestic jurisdictions and under customary international law (CIL). However, bilateral investment treaties (BITs) have long allowed shareholders to bring claims for their reflective loss. Numerous tribunals have accepted that shareholders are entitled to bring claims for indirect harm that they suffer, irrespective of any claim made by the injured company.

This issue has become a subject of concern for UNCITRAL Working Group III (WG III), which has been examining investor-state dispute settlement (ISDS) reform since 2017. In my recent article published in the ICSID Review, I consider the reform options and propose that treaty-based derivative claims mechanisms are the most suitable option for implementation by States.

Shareholder reflective loss in ISDS

The advantages of adopting a permissive stance towards reflective loss for shareholders are evident. Foreign investors may find themselves in a precarious position where, as was the case in the SAUR International SA v Republic of Argentina dispute, the respondent State is also a controlling shareholder of the injured corporation. Another persuasive consideration in favour of allowing these claims is the prohibition against claims being brought against a State by its own nationals under CIL. Shareholder reflective loss claims provide an important avenue for shareholder recovery and enforcement of States’ obligations under investment treaties.

However, the approach of permitting shareholder reflective loss claims in ISDS is an anomaly for a reason. It poses challenges for other parties involved in the shareholder’s claim, including creditors and non-claimant shareholders who receive no benefit from a successful outcome. These challenges are particularly salient for the respondent State, which is exposed to the risk of multiple claims, inconsistent findings, and potential double recovery by shareholders at different levels of the corporate structure.

Derivative claims mechanisms

While a number of options for reform exist, none are a clear solution to the issues posed by SRL claims. Any reform demands the careful balancing of competing interests and selecting one approach is not necessarily to the exclusion of all others. My article considers a range of reform options and identifies treaty-based derivative claims mechanisms as particularly suitable for multilateral implementation in the course of UN WG III’s work.

Derivative claims mechanisms allow shareholders to bring claims for reflective loss, but require that the proceeds of a successful claim are returned to the injured corporation. The derivative claims mechanism under NAFTA articles 1116 and 1117, which has since been replicated in a number of subsequent treaties, was the earliest mechanism of this kind and offers a promising model for broader implementation. A key component of this model is NAFTA article 1135 which provides that where an award of damages is made, the proceeds are mandatorily returned to the injured company rather than the claimant shareholder. This avoids many of the issues that stem from breaching the corporate form, which include prioritising the covered shareholder above creditors and non-covered shareholders.

The key weakness of the NAFTA model is that tribunals have repeatedly interpreted NAFTA’s derivative claim provisions as a non-exclusive remedy, which shareholders can access in addition to direct claims for their reflective loss. This approach contradicts the view expressed by the NAFTA parties themselves in submissions that shareholder reflective loss claims are not intended to be admitted under article 1116. Modifying the NAFTA model to make it clear that derivative claims take the place of shareholder reflective loss claims would remedy this and make such mechanisms a valuable reform option for UN WG III.


The benefits of shareholder reflective loss claims are undeniable for shareholders, who might otherwise be obstructed from accessing any kind of remedy for breaches of their rights by a host State. However, the point remains that the permissive approach to SRL claims in ISDS poses a number of challenges to non-claimant shareholders, creditors and respondent States as well as basic corporate governance principles. It is a favourable sign that States are turning to give serious consideration to this issue, and that WG III may in due course provide reforms in this area. Treaty-based derivative claims mechanisms in line with the NAFTA model offer a particularly promising avenue for multilateral reform.

About the author: Anuki Suraweera is a graduate lawyer, Allens Linklaters, Australia.

The opinions expressed in this blog are those of the author. They do not purport to reflect the opinions or views of ICSID.