Shareholders’ Action to Claim for Indirect Damages in ICSID Arbitration

Abstract

International Centre for Settlement of Investment Disputes (ICSID) tribunals have consistently admitted claims by foreign shareholders based on the varying definitions of investment which often include shares and other forms of economic participation. The agreements referring to shareholdings as covered investment usually limit themselves to just that without further specification. The question may therefore arise: how far does protection accorded by the investment agreements extend? Does this protection allow the shareholder to claim for loss incurred by the local company in which the shareholder holds shares? Evidently, the mere inclusion of shares in the scope of protection of an investment agreement does not, per se, grant protection to the shareholder interests in a local company. The protection therefore remains limited to the "shares" in themselves as an economic unit and not to the underlying enterprise. However, some treaty rights, as applied by ICSID tribunals, may have this effect. Conversely, shareholders’ protection could generate multiple claims and a risk of double recovery. Given that shareholders are protected indirectly through the local company’s actions the shareholder would receive double protection. This risk is furthered by the fact that both direct and indirect shareholdings may be protected. This article seeks to analyze all these issues and more in greater detail.