Shareholder Claim for Reflective Loss Status and ISDS: Between North American Free Trade Agreement and Central America-Dominican Republic Free Trade Agreement Practices

Abstract

Consistency and the certainty of law have always been expected to be preserved. However, a disparate decision may still occur, especially regarding interpretation. Investor-State Dispute Settlement Arbitration tribunal faces the same issues, especially when interpreting the derivative claim provision to determine whether losses or damage requirements limit SRL claims under the International Investment Agreement. This article will analyze the disparate decision relating interpretation of derivative claims between NAFTA ISDS cases and DR-CAFTA ISDS cases and the interpretation of derivative claim provisions under IIA to determine the limitation of a claim for SRL in ISDS Arbitration. The objective of this article is to find out how the derivative claim provision under IIA correctly to be interpreted by the law of interpretation. NAFTA tribunal’s ISDS Arbitration has interpreted Articles 1116 and 1117 by considering the following correlated articles to find the context of the treaty, which limits a claim for SRL to be submitted in ISDS Arbitration. However, this interpretation is not found by the Tribunal in DR-CAFTA cases where it held that the other following correlated provision did not lead to limit SRL in ISDS Arbitration. Considering interpretation in NAFTA and DR-CAFTA cases, interpretation of derivative claim provisions shall be conducted carefully and aligned with the rule of interpretation. The treaty text manifests state parties’ intention towards the applicable legal rule under IIA. As such, the existence of derivative claim provision and waiver as preconditional to submission and awarding shall be deemed to limit the claim for SRL in ISDS Arbitration to be submitted directly by the shareholder and prevent the risk of multiple simultaneous proceedings, double recovery and jeopardizing the creditor’s right.

Keywords: Investor-State Dispute Settlement, Foreign Direct Investment, International Investment Agreement, Shareholder Claim for Reflective Loss

DOI: 10.7176/JLPG/135-13

Publication date:August 31^st 2023