I.

THE ARBITRAL TRIBUNAL DOES NOT H AVE THE JURISDICTION T O ARBITRATE THE CURRENT DISPUTE

Claimants assert that that AEW being a shareholder cannot bring claims for the damages suffered by the company (A). Allowing such a claim can lead to the problem of double recovery (B). Arguendo, the corporate veil should not be lifted to decide the nationality of the controllers (C). A. AEW being a shareholder of AIH and ASPDC cannot bring claims for the damages suffered by the company. AEW is barred from customary international law to bring claims for damages against the measures which have affected the company (1). Further, no right of the shareholder has been infringed (2). Shareholders can only claim for a decrease in the price of their shares (3). 1. AEW being an indirect shareholder of ASPDC and a direct shareholder of AIH is barred by customary international law to bring claims on behalf of the companies. The position under customary international law is clear as to the inadmissibility of claims by or on behalf of a shareholder in relation to damages suffered by the corporation when shareholders espouse claims in relation to measures affecting the rights of the company.1 Since "an important principle of customary international law should [not] be held to have been tacitly dispensed with, [by an international agreement,] in the absence of any words making clear an intention to do so," 2 the admissibility of indirect claims should be expressly provided for to allow a Tribunal's acceptance. Under these principles, the fact that shares are among the protected investments in the Aspatria-Sumaliland B.I.T. is far from enough evidence to admit indirect claims. 2. No right of the shareholder has been infringed, only an interest has been affected which will not give a direct cause of action to the shareholders A distinction must be drawn between a direct infringement of the shareholder's rights, and difficulties or financial losses to which he may be exposed as the result of the situation of the
1

Case Concerning Ahmadou Sadio Diallo (Rep. Guinea v. Dem. Rep. Congo), 2007 I.C.J. 103, para. 89 (Diallo). 2 Elettronica Sicula S.p.A. (ELSI) (U.S. v. Italy), 1989 I.C.J. 15, 42, Para 50 (ELSI).

company. Though a wrong done to a company frequently causes prejudice to its shareholders, but the mere fact that damage is sustained by both company and shareholder does not imply that both are entitled to claim compensation.3 Whenever an interest of the shareholder is affected by an injury to the company, though both the entities have suffered from the common wrong, only one entitys rights have been infringed.4 The I.C.J. has affirmed that "even if a company is no more than a means for its shareholders to achieve their economic purpose, so long as it is in existence it enjoys an independent existence."5 It is only when the company has ceased to exist from a legal standpoint, and therefore the shareholder is deprived of any remedy through it, that the latter can institute action in respect of measures affecting the company's rights.6 A differentiation between direct rights of shareholders such as participating in board meetings etc. and measures which affect mere interests of the shareholders was also upheld in Guinea case. The court upheld the customary principle of international law that, an exception in customary international law allowing for protection by substitution is available "only in the event of the legal demise of the company" can "an independent right of action" arise for the shareholders.7 Shareholders have an independent right of action only "whenever one of his direct rights is infringed8. A shareholder does not have a right of action in regard to "difficulties or financial losses to which he may be exposed as the result of the situation of the company."9 3. Shareholders can only claim for a decrease in the price of their shares and not the damages suffered by the company In accordance with the A.A.P.L. v. Sri Lanka10 Tribunal's reasoning, that since an investment according to the treaty has been made in the form of shares, an investor pursuing an indirect action can only seek damages for a decrease in the value of its shares 11 that resulted from a

Barcelona Traction, Light and Power Company, Limited (Belg. v. Spain), 1970 I.C.J. 3, para. 45 (Feb. 5) (Barcelona Traction) 4 Id. 5 Id. Para 66 6 Id. 7 Id. 8 Id. Para 47 9 Id. 10 Asian Agricultural Products Ltd. (AAPL) v. Sri Lanka, ICSID Case No. ARB/87/3, Final Award, 4 ICSID Rep. 245,251, para. 3.
11

Problem File, Para 48

measure attributable to the host state and that violated the applicable B.I.T. It cannot directly seek damages, for example, for losses suffered by the local company on its own investments although this, in turn, would probably have an impact on the value of that company's shares. The right of shareholders in indirect claims is questioned in the current case because they are trying to enforce the rights of the company. Whenever a measure, is directed against the company and its activities, it will generally affect the rights of the company and not those of its shareholders.12 The economic links that may exist between the companies do not matter here. Thus, a parent company cannot claim payments due under contract to a subsidiary, even if that subsidiary is totally dependent on the parent company, unless there are very particular circumstances in play that have not been alleged in this case. 13 The Tribunal expressly negates the possibility of a controlling company claiming payments for a wholly-owned subsidiary.14 B. Arguendo, the corporate veil cannot be lifted to determine the nationality of the controller In Amco,15 the tribunal, refused to look beyond the parent of a controlling subsidiary i.e. , to take care of a control at the second, and possibly third, fourth, or fifth degree.16 As Schreuer notes, "the search [for foreign control] should be pursued until foreign control by nationals of a Contracting State can be established. Once the appropriate foreign control has been found, the search should end." C. Double Recovery as a consequence of allowing shareholder to recover for injury caused to the company Whether the locally incorporated company may further claim for the violation of its rights under contracts, licenses or other instruments, does not affect the direct right of action of foreign

12

Compania de Aguas del Aconquija S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment, 6 ICSID Rep. 340, para. 98. 13 Consorzio Groupement L.E.S.I.-Dipenta v. Algeria, ICSID Case No. ARB/03/08, I, para. 37(iv). 14 Id. 15 Amco Asia Corporation and Others v. The Republic of Indonesia ICSID Case No. Arb/81/1, Resubmitted Case, Decision on Jurisdiction, (1988) 3 ICSID Rev.- FILJ (ICSID Review- Foreign Investment Law Journal). 16 Id.

shareholders under the B.I.T. for protecting their interests in the qualifying investment.17 If the shareholder is exercising an indirect claim, a claim by the company in relation to the same measures will inevitably lead to the state paying twice for the same damage. A tribunal recognized the danger of "double-dipping," or "double recovery" if two shareholders in different levels of the corporate chain are compensated for the same harm. 18 Tribunal makes an important admission when it states that it is "theoretically correct" that "if the right of shareholders to claim when only their interests are affected is recognized it could lead to an unlimited chain of claims" 19 of "double recovery for the same harm, one as a result of domestic contract-based action and the other as the outcome of an international arbitral award", if compensation is granted to the shareholder on the basis of the reduction in the value of the company as a result of a measure that affected the latter's future revenues. 20 The Tribunal specifically addressed the possible double recovery "resulting from, on the one hand, the compensation which the investor would receive as a result of arbitration and, on the other hand, the compensation which the company would receive in the context of a renegotiated adjustment of tariffs or some other mechanism." 21 The fact that such damage has been asked by the shareholder under the BIT entitles the shareholder to keep such money and further lead to the problem of double recovery when the same cause of action is pleaded by the company under the contract.22

17

Enron Corp. v. Argentine Republic, ICSID Case No. ARB/01/3, Decision on Jurisdiction, 11 ICSID Rep. 273, para. 49 (Jan. 14, 2004) 18 Id. Para 34 19 Sempra Energy Int'l v. Argentine Republic, ICSID Case No. ARB/02/16, Decision on Objections to Jurisdiction, para. 77 (Sempra) 20 CMS Gas Transmission Co. v. Argentine Republic, ICSID Case No. ARB/01/8, Award, paras. 418-68 21 Sempra, Supra n. 19, para 395 22 SAUR Int'l v. Argentine Republic, ICSID Case No. ARB/04/4, Decision on Objections to Jurisdiction, para.92 (Feb. 27, 2006).