"Shareholder Claims by Substitution for Companies" - The Scope and Status in International Law Post Diallo

Abstract

The rule of substitution was first introduced in the Barcelona Traction as a relief under equity and could be continued to be defended as a manifestation of equity, i.e. a general principle under art. 38(1)(c) of the ICJ Statute. However, subsequently in Diallo, the ICJ ignored the equity ground and restricted itself to finding if the traditional notion of substitution has reached the status of customary international law. Post Diallo, mostly, the scholars have focused merely on Art. 11 of the DADP to define the content of the rule; or have focused solely on determining the status of such a rule in customary international law. This is clearly not the best route to take. With already established reasons in equity, the development of the rule under art. 38(1)(c) of the ICJ Statute is desirable. It, in fact, makes the application easier – as one will not have to take an elaborate assessment of its customary status (or even work towards progressive development). Further, it also avoids the unnecessary exclusion of shareholders who cannot establish that incorporation of the company was a precondition of doing business in the host state from any possible remedy. It is perhaps the ILC’s efforts in the progressive development of the customary status of art.11 (b) that has been the reason for the ICJ and scholars to not explore alternative sources to back the rule of substitution. A serious re-consideration of the rule’s status is thus welcome.