Investments often take the form of a participation in a legal entity established in the host State. While the ICJ’s Barcelona Traction judgment, despite criticism,¹ still stands for the position that shareholders can bring claims only in respect of their, often limited, direct rights with respect to corporate matters under customary international law, shareholding as such is a protected investment under many investment treaties.² Shareholders as investors are therefore entitled to advance their own claims in treaty-based investment arbitrations. Investment tribunals have regularly allowed shareholder claims both in relation to the shareholder’s direct rights (such as for seizure of shares) and for reflective loss claims (claims for loss in share value due to injuries to the local entity). 

Under customary international law³ as reflected in the Barcelona Traction⁴ and the Diallo judgments,⁵ a State can endorse the claims of a shareholder having its nationality only in respect of the shareholder’s own direct rights.⁶ Such rights can encompass, e.g., the right to take part and vote in shareholder meetings, to receive dividends, to appoint management and to monitor corporate governance.⁷ Their existence and scope are determined by the law governing the legal entity.⁸ Generally, however, shareholding does not create a right to the property of the company or legal entity.⁹ The ICJ emphasises the distinction between the shareholder’s and the company’s property, even where there is only one shareholder.¹⁰

This is in line with the position under many domestic systems of corporate law where shareholders are only entitled to bring direct claims while reflective loss claims are barred. However, a number of tribunals have specifically distinguished the Barcelona Traction case as pertaining only to diplomatic protection.¹¹

Investment tribunals have consistently accepted direct shareholder claims¹² in reliance on the applicable investment treaty and in particular the definition of shareholding as investment. Also corporations may be protected shareholders, given that juridical persons qualify as investors under presumably all investment treaties. See further Jurisdiction ratione personae.

Arbitral jurisprudence further does not differentiate between majority and minority shareholding.¹³ Minority and majority shareholders can even “submit their own distinct claims in connection with the same events.”¹⁴ A differentiation is likewise not made between direct – immediate – shareholding and indirect shareholding.¹⁵ Many treaties expressly cover indirect investments,¹⁶ but tribunals have generally also not taken issue with indirect shareholdings absent such an express qualification.¹⁷

Distinct questions arise, however, where the local subsidiary itself initiates legal proceedings,¹⁸ which it is considered to be entitled to independently from the shareholders’ actions,¹⁹ or the shareholder seeks to bring a claim on behalf of the local subsidiary. See Indirect loss claims.

The extent of the direct claim that a shareholder can bring is not equally straightforward. It depends on the applicable treaty’s specific wording and the relevant facts of each case.²⁰ As a result, a small number of tribunals has viewed the shareholder’s protection under the relevant applicable BIT, much as under customary international law, as limited to instances where the host State interferes with the shareholder’s direct rights.²¹ However, many tribunals have generally accepted that a shareholder is entitled to the reflective losses corresponding to the depreciation in value of the shareholding where the domestic entity was harmed.²² See further Indirect loss claims.

Finally, tribunals have taken diverging positions as to whether or not shareholders can pursue claims directly with respect to assets of the local entity in which the shares are held. Some tribunals held that shareholders are only entitled to claim for reflective losses resulting from an interference with the assets or contracts of the entity in which they own shares.²³ Other tribunals have recognized that shareholders could also file claims in relation to the local entity’s assets or property.²⁴

The possibility for shareholders to initiate arbitral proceedings in their own right means that multiple sets of proceedings relating to the same measure could be initiated by different shareholders as well as the domestic company itself²⁵ and raises potential issues of double recovery.²⁶ In this respect, e.g. Articles 1116 and 1117 NAFTA draw a distinction between claims that are brought by an investor on its own behalf or on behalf of a local entity. While NAFTA establishes different mechanisms depending on the type of claim (including consolidation of proceedings under Article 1117 (3) NAFTA), this is not the case under the majority of today’s investment treaties.

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Alexandrov, S.A., The "Baby Boom" of Treaty-Based Arbitrations and the Jurisdiction of ICSID Tribunals – Shareholders as "Investors" under Investment Treaties, The Journal of World Investment and Trade, 2005.

Clodfelter, M.A., and Klingler, J.D., Reflective Loss and its Limits under International Investment Law, in Beharry, C.L. (ed.), Contemporary and Emerging Issues on the Law of Damages and Valuation in International Investment Arbitration.

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Laird, I.A., A Community of Destiny – The Barcelona Traction Case and the Development of Shareholder Rights to Bring Investment Claims, in Weiler, T. (ed.), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law, 2005.

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Orrego Vicuña, F., The Protection of Shareholders under International Law: Making State Responsibility More Accessible, in Ragazzi, M. (ed.), International Responsibility Today: Essays in Memory of Oscar Schachter, 2005.

Pellet, A., The Case Law of the ICJ in Investment Arbitration, ICSID Review - Foreign Investment Law Journal, 2013.

Schreuer, Ch., Shareholder Protection in International Investment Law, in Dupuy, P.-M., and Others (eds.), Common Values in International Law – Essays in Honour of Christian Tomuschat, 2006.

Skjold Hansen, J., “Missing Links” in Investment Arbitration: Quantification of Damages to Foreign Shareholders, The Journal of World Investment and Trade, 2013.

Valasek, M.J., and Dumberry, P., Developments in the Legal Standing of Shareholders and Holding Corporations in Investor-State Disputes, ICSID Review - Foreign Investment Law Journal, 2011.

Vanhonnaeker, L., Shareholders' Claims for Reflective Loss in International Investment Law, 2020.