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M. Ben Burnham

Managing Associate - Addleshaw Goddard LLP


M. Antolín Fernández Antuña

Arbitrator & Counsel, Managing Partner - Antuña & Partners

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Minority shareholders

I. Definition


This Note addresses the rights of investors to bring claims under investment treaties on the basis of their holding an investment comprising a minority or non-controlling interest, held directly or indirectly, in a locally-incorporated legal entity. It addresses questions of standing, the ambit of substantive protections available to such investors, as well as the scale of available compensation.

II. Standing of minority shareholders to bring claims under investment treaties


The consistent practice of investor-State tribunals supports the proposition that there is no requirement, distinct from the language of the treaty under which a claim arises, that in order to qualify for protection a claimant investor must hold a majority, controlling, or otherwise specified stake in a given investment (typically, a local-incorporated company).1 Whether protection encompasses not only "direct" but also "indirect" participation in a given investment depends on the treaty in question. See further Direct Claims and Indirect Claims


The relevant considerations concerning shareholder claims in these contexts apply equally in the case of minority shareholders and are unaffected by the size of an investors' shareholding. The ruling of the International Court of Justice in Barcelona Traction,2 which has long been subject of debate and must be read in light of the subsequent ELSI case,3 has no bearing on shareholders' rights to claim against a State where both the substantive rights invoked as well as the expression of a State's consent to jurisdiction arise under a legal instrument such as a treaty rather than customary international law.4 

III. Scope of substantive protections available to minority shareholders


While there is little controversy that minority shareholders are able to bring claims under investment treaties, arbitral practice demonstrates that the scope of substantive rights enjoyed by minority shareholders may be restricted in certain circumstances depending on the particular facts of the case.5 For instance, tribunals have refused to entertain both claims by minority shareholders of nationality-based discrimination against the locally-incorporated company in which they hold shares,6 and claims brought under an umbrella clause in respect of contractual arrangements entered into between the host State and the locally-incorporated company.7 This is simply a function of the fact that tribunals in these circumstances have permitted investors to bring claims only in respect of their protected investment, i.e. their shareholding in a locally-incorporated company.8 

IV. Scope of compensation available to minority shareholders


Arbitral tribunals have consistently held that compensation available to minority shareholders for breach of States' treaty obligations is limited to damage caused to the protected investment, i.e. the diminution in value of investors' shareholding and/or reduction in anticipated future dividends.9 In ascribing a value to a minority shareholding, it has been argued that tribunals ought to apply a so-called "minority discount" in order to properly reflect the fair market value of the shareholding for lack of control.10 Such a valuation technique has not, however, found broad acceptance in practice, with tribunals in several publicly-available awards rejecting such an approach on the facts of the case.11

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