The Admissibility of Shareholder Claims

327 Pages·2017·2.19 MB·English

by  Gabriel Bottini

The Admissibility of Shareholder
Claims: Standing, Causes of Action,
and Damages

Gabriel Bottini
Darwin College
University of Cambridge

This dissertation is submitted for the degree of Doctor of Philosophy

September 2017
To Teté, Simón, Ana, and León.
To Cristina and Gustavo.
Declaration

This dissertation is the result of my own work and includes nothing which is the outcome of
work done in collaboration.
It is not substantially the same as any that I have submitted, or, is being concurrently
submitted for a degree or diploma or other qualification at the University of Cambridge or
any other University or similar institution. I further state that no substantial part of my
dissertation has already been submitted, or is being concurrently submitted for any such
degree, diploma or other qualification at the University of Cambridge or any other University
or similar institution.
This dissertation, including footnotes, does not exceed the prescribed word limit.

Gabriel Bottini
10 September 2017
Summary
The Admissibility of Shareholder Claims: Standing, Causes of
Action, and Damages
Gabriel Bottini

This thesis addresses risks of multiple recovery, prejudice to legitimate interests of third
parties, and inadequate consideration of the applicable law in shareholder claims in
investment treaty arbitration. It challenges the application by investment tribunals of two
basic premises: i) that shareholders are entitled to claim for damages vis-à-vis measures
against the company in which they hold shares and ii) that ‘contract claims’ are to be
distinguished from ‘treaty claims’. The central argument is that the failure to recognize
substantive overlaps between shareholder treaty claims and contract claims risks more than
one recovery, potentially prejudices third parties, and can lead to an incomplete application
of the applicable law.
The foundations of standing and the cause of action in shareholder treaty claims
involve two complementary ideas of independence, i.e., independence of shareholder treaty
rights vis-à-vis the local company’s contractual/national law rights and independence of
treaty claims vis-à-vis contract claims. However, the substance of shareholder treaty claims,
defined as the state measure and particularly the losses involved, is often identical to or at
least overlaps considerably with related contract/national law claims. Prevailing ideas on
shareholder standing and the cause of action in international investment law have provided
useful conceptual tools for jurisdictional determinations. Yet they have not allowed tribunals
and the literature to fully consider the implications of shareholder indirect claims.
The thesis argues, first, that investment tribunals should acknowledge substantive
overlaps between contract and treaty claims. Second, shareholder claims may be inadmissible
when such overlap exists and there is a risk of double recovery or prejudice to third parties.
Third, the substantive coincidence of treaty and contract claims calls for an integrated
approach to the applicable law, where proper weight is given not only to IIA provisions but
also to general international law and the national law governing the investment.
With gratitude and admiration: Michael Waibel, for his superb
academic supervision and vital personal support since before I began,
Georges Abi-Saab, Raúl Emilio Vinuesa, Philippe Sands, Mónica
Pinto, the Faculty of Law of the University of Buenos Aires for always
supporting my international endeavours, Veronica Lavista for so much
reading and honest feedback, Alejandro Chehtman, Alejandro Turyn,
James Crawford, Christine Gray, Roger O’Keefe, Benedict Kingsbury,
Hayk Kupelyants, Lesley Dingle, Cameron Miles, María Cecilia Brusa,
Jonathan Ketcheson, and Nicolás Grosse.
Note

An earlier version of part of Chapter 3 was published in Bottini, Gabriel, ‘Indirect
Shareholder Claims’ in Kinnear et. al. (eds.), Building International Investment Law. The
First 50 Years of ICSID (Alphen aan den Rijn: Kluwer Law International, 2016) 203.
Table of contents
1 Introduction ......................................................................................................................... 1
I. SHAREHOLDER TREATY CLAIMS: INDEPENDENCE AND OVERLAP ............................................ 3
A Protection of assets under IIAs ......................................................................................... 5
B Problems deriving from concurrent entitlements .............................................................. 7
1 Multiple recovery risks ................................................................................................. 9
2 Prejudice to third parties ............................................................................................ 11
II. ADDRESSING SUBSTANTIVE OVERLAPS ................................................................................. 12
A The admissibility approach ............................................................................................. 12
B Other possible approaches .............................................................................................. 16
1 Confronting the problem at the quantum phase .......................................................... 17
2 Coordination of parallel claims .................................................................................. 20
(a) Res judicata and lis pendens...................................................................................... 21
(b) Treaty provisions on coordination ............................................................................ 23
III. SCOPE AND STRUCTURE ....................................................................................................... 25
2 Admissibility in International Investment Law ................................................................. 29
I THE ADMISSIBILITY CONCEPT ............................................................................................ 31
A Overview ........................................................................................................................ 31
B Definition of admissibility .............................................................................................. 32
C Delimitation of admissibility vis-à-vis jurisdiction and merits ....................................... 36
1 Admissibility and jurisdiction ..................................................................................... 37
2 Admissibility and the merits ....................................................................................... 40
D Investment tribunals’ powers as regards admissibility decisions .................................... 42
1 Inherent power ........................................................................................................... 43
2 Tribunals’ powers and party autonomy ...................................................................... 47
3 Reviewability of decisions .......................................................................................... 48
II ADMISSIBILITY CRITERIA RELATING TO STANDING AND THE CAUSE OF ACTION IN
SHAREHOLDER CLAIMS .............................................................................................................. 50
III CONCLUSION .................................................................................................................. 55
3 Mixed Claims Commissions and the Origins of Central Concepts................................... 58
I MIXED CLAIMS COMMISSIONS ........................................................................................... 60
A Mixed claims commissions in general ............................................................................ 61
B The Venezuelan and Mexican Commissions .................................................................. 62
1 Overview ......................................................................................................................... 62
2 Government claims and underlying private rights ........................................................... 64
3 Relationship to national proceedings .............................................................................. 67
4 Applicable law ................................................................................................................. 71
II SHAREHOLDER STANDING, CAUSES OF ACTION, AND DAMAGES BEFORE CLAIMS
COMMISSIONS ............................................................................................................................ 73
A Shareholder claims ......................................................................................................... 74
1 Early arbitral decisions .............................................................................................. 74
2 The Venezuelan Commissions..................................................................................... 77
3 The Mexican Commissions ......................................................................................... 80
4 Decisions of the commissions and tribunals after World Wars I and II ...................... 83
B Contract claims and treaty claims ................................................................................... 84
1 The distinction before Woodruff ................................................................................. 84
2 Woodruff and other relevant decisions of the Venezuelan Commissions .................... 86
3 Contract claims before the Mexican Commissions ..................................................... 89
4 Choice of Forum Clauses ........................................................................................... 92
C Damages corollaries ....................................................................................................... 95
1 Private losses and international claims ...................................................................... 96
2 Double recovery ......................................................................................................... 98
III CONCLUSION .................................................................................................................. 99
4 Admissibility and Shareholder Standing ......................................................................... 102
I. SHAREHOLDER RIGHTS AND THE ICJ ............................................................................... 104
A Barcelona Traction ....................................................................................................... 104
1 The Barcelona Traction case .................................................................................... 104
2 Corporate personality and shareholders’ rights ....................................................... 107
3 Piercing of the veil and equitable considerations ..................................................... 111
B ELSI, Diallo, and the Barcelona Traction principles .................................................... 114
1 Overview of the decisions ......................................................................................... 114
(a) ELSI ........................................................................................................................ 114
(b) Ahmadou Sadio Diallo ............................................................................................ 115
2 Relevance of Barcelona Traction for international investment law .......................... 116
3 Shareholder rights and overlapping claims in ELSI ................................................. 121
(a) Overview................................................................................................................. 121
(b) The significance of the Chamber’s findings in investment arbitration .................... 123
4 The role of general international law and national law ........................................... 125
II SHAREHOLDER STANDING BEFORE INVESTMENT TRIBUNALS .......................................... 129
A Development of the prevailing concepts....................................................................... 129
1 The position before the Argentine cases ................................................................... 130
2 The corporate entity in the jurisdictional decision in CMS ...................................... 132
3 The object of shareholders’ claims ........................................................................... 135
B The merits of the claims ............................................................................................... 138
1 Distinguishing between shareholder and company rights ........................................ 139
2 Obligations without privity? ..................................................................................... 143
III. CONCLUSION ................................................................................................................ 145
5 Damages in Shareholder Treaty Claims .......................................................................... 148
I. DAMAGES AND SHAREHOLDER STANDING ....................................................................... 150
A Overview ...................................................................................................................... 150
1 Injury to the company’s assets .................................................................................. 151
2 Injury to the share value ........................................................................................... 154
3 Protection of value? ................................................................................................. 155
(a) Standards of compensation and equity valuation .................................................... 156
(b) Damage valuation under IIAs ................................................................................. 159
B Recovery and the corporate structure ................................................................................ 162
1 The Enron and Sempra cases ........................................................................................ 163
2 Determining who should recover................................................................................... 165
C Third party interests .......................................................................................................... 168
1 The company’s creditors ............................................................................................... 169
2 Other potentially affected third parties ......................................................................... 171
II. DAMAGES AND THE CAUSE OF ACTION ............................................................................ 172
A Contract damages and treaty damages? ............................................................................ 172
B Claims for the same damage before different jurisdictions ............................................... 176
III. CONCLUSION ................................................................................................................ 180
6 The Contract-Treaty Distinction ...................................................................................... 183
I THE CAUSE OF ACTION IN INTERNATIONAL INVESTMENT LAW ....................................... 186
A Breach of contract and breach of treaty ........................................................................ 186
B The distinction between contract and treaty claims ...................................................... 189
1 The modern foundations of the distinction ................................................................ 190
(a) The Vivendi I award ............................................................................................... 190
(b) The Vivendi I annulment decision .......................................................................... 191
2 The fundamental basis and the substance of the claim ............................................. 194
(a) Definition ................................................................................................................ 194
(b) Distinguishing between contract and treaty bases ................................................... 195
(c) The claims’ substance ............................................................................................. 199
3 From contract to treaty ............................................................................................ 201
II. FROM JURISDICTION TO ADMISSIBILITY ........................................................................... 204
A Decisions on jurisdiction and the fundamental basis of the claim ................................ 205
B The impact of contractual forum selection clauses on admissibility ............................. 208
C Competing claims ......................................................................................................... 214
III. INTERACTIONS BETWEEN TREATIES AND CONTRACTS ................................................. 218
A The role of contracts in treaty claims ............................................................................ 219
B Umbrella clauses .......................................................................................................... 223
C Privity without obligations?.......................................................................................... 227
IV. CONCLUSION ................................................................................................................ 231
7 Applicable Law ................................................................................................................. 234
I. APPLICABLE LAW IN INVESTMENT ARBITRATION ............................................................ 236
A The sources of international investment law................................................................. 236
1 Overview .................................................................................................................. 236
2 Article 42 of the ICSID Convention .......................................................................... 238
3 Applicable law provisions in investment treaties ...................................................... 241
B The role of national law before investment tribunals .................................................... 243
1 Jurisdiction ............................................................................................................... 243
2 The substance of the claims ...................................................................................... 245
(a) Rights under national law ........................................................................................ 246
(b) Breaches of national law ......................................................................................... 250
C The law applicable to the admissibility of shareholder treaty claims ............................ 252
II. CONCLUSION .................................................................................................................... 254
8 Conclusion ....................................................................................................................... 257
Bibliography ........................................................................................................................... 261
Articles, Books, Chapters, Theses, and Papers ................................................................ 261
Other sources ...................................................................................................................... 286
Court and tribunal decisions ................................................................................................. 288
Investor-state arbitrations ................................................................................................. 288
Permanent Court of International Justice ........................................................................ 303
International Court of Justice ........................................................................................... 303
Mixed Claims Commissions............................................................................................... 305
European Court of Human Rights .................................................................................... 309
Other international proceedings ....................................................................................... 309
Domestic cases .................................................................................................................... 311
Treaties and other instruments ............................................................................................. 311
Treaties................................................................................................................................ 311