Document Type

Article

Publication Title

Virginia Law Review

Abstract

The treaty-based international investment arbitration (IIA) system is undergoing a major crisis as governments denounce the unfairness of IIA while the resolution of claims becomes increasingly inconsistent. This crisis threatens the future of much foreign investment and thus the rate of global economic growth. The acceptance by arbitrators of both direct and indirect claims by minority shareholders contributes to the discontent with IIA. This doctrine allows each minority shareholder separate rights under treaty to file a claim against host governments even if the company in which it has invested has filed a claim under the same facts. Forum shopping, multiple recovery, inconsistent results, multiplicity of litigation, and other problems result. Replacing the current claims doctrine with derivative doctrine (IIA forms of derivative actions, class actions, and compulsory joinder) inspired by American corporate law would mitigate or solve some of the problems plaguing IIA, and thus decrease the perceived unfairness and inconsistency of the current system. In addition, derivative doctrine would improve protections for less active and informed minority shareholders, such as increasingly important portfolio investors. Adopting derivative doctrine could avert a future crisis, similar to the one currently threatening IIA, in international portfolio investment. It would also increase market efficiency as it decreases market distortions caused by differing legal regimes and conflicts among international investment law institutions. Since international investment law allows private parties to bring claims against foreign governments directly and governments are then bound to pay awards as determined by international arbitrators, IIA is a very powerful system of international law.

First Page

177

Last Page

230

Publication Date

3-2012

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