QUANTIFICATION OF DAMAGES IN INVESTMENT TREATY ARBITRATION
CD: Could you outline the key challenges involved in initially defining and assessing potential damages in an investment treaty context?
Senogles: The fundamental challenges are threefold. First, to gain a deep understanding of the claimant’s business and the ways in which it has been impacted. Second, to understand the real causation for the incurred damages in situations where it supplements or differs from the alleged causation. Finally, how to communicate your opinion most effectively to the arbitral tribunal – empathy for the tribunal members should be a prerequisite for an effective quantum expert witness. Since an assessment of damages in international treaty cases often involves quantifying the intrinsic value of a business to a strategic owner, a perspective of understanding and valuing businesses by someone who themselves was a strategic long-term owner of multiple businesses becomes very valuable. In addition, gaining an understanding of a claimant’s business sounds straightforward and can be made to look effortless. For example, spend half an hour talking with the owner or manager of a business that they have established and built over a decade or so. Their intimate knowledge of all the ‘moving parts’ of their business will be clear for all to see and also appears to be instinctive, as well as sounding authoritative and convincing. However, we have found that a business owner often focuses on just a few aspects of the story. In many cases, a deeper investigation of the market and company data and deeper questioning of the owner and operating management is required. This can lead to uncovering strong, additional angles that had not been considered by the business owner and legal team previously. Thus, in situations where the multi-sector expertise available may be insufficient to ensure the necessary depth of analysis, a quantum expert witness can choose to work jointly with specific sector specialist experts, professionals who have routinely spent their entire careers in the relevant sector. For example, we have found that such collaboration is extremely valuable in helping companies to understand global trade flows in commodities, commodity cost curves and cost structures of individual producers, existing long-term supply and offtake agreements, pricing structures and supply chain logistics. Using these insights, a tribunal can take a necessary step back, so as to see and understand the bigger picture and the multitude of factors affecting a business, and then more reasonably value the business or contract.
Jul-Sep 2020 issue
Senogles & Co