Procedural Issues

Introduction

Expediency of proceedings and flexibility for the parties are two of the pillars of arbitration, and it is essential that every element of an arbitration is designed both to ensure the proceedings are dispatched quickly (and, therefore, at lower cost) and to maintain the balance of flexibility and control of proceedings for the parties. In all elements of an arbitration, proper organisation and a well thought through, thoroughly planned procedure are key to the smooth running of proceedings. The procedure for the arguments relating to, and allocation of, damages is no exception. Damages are often intrinsically linked to the complexity of a case, therefore the quick identification of, and solution to, procedural issues relating to damages is key. A robust framework for addressing those procedural issues is essential to an expedient arbitration, leading to reduced costs for the parties and the best chance of an accurate damages award. This chapter sets out certain of the procedural issues that may arise, and the tools that may be deployed, in relation to damages in international arbitration.

Bifurcation

What does it entail and when might it be appropriate to bifurcate a case?

One of the issues that may arise early in an arbitration is whether it is appropriate to bifurcate the proceedings. Bifurcation entails splitting the arguments in a case into two phases, which are typically either (1) jurisdiction and liability, or (2) liability and damages. If there is concern about whether the tribunal has jurisdiction to hear all (or part) of a claim, the parties may choose to bifurcate proceedings and for the tribunal to make an initial decision as to whether it has jurisdiction. The parties may also choose to bifurcate proceedings between liability and damages. Typically, the tribunal would first decide on liability and then hear the parties on damages, but it is also possible for the tribunal to hear the parties on damages first. The latter option would usually be appropriate only, for example, if the decision as to whether a party had suffered loss or was otherwise entitled to damages was not intrinsically intertwined with the question of liability, and a decision that a party has no entitlement to damages would vitiate the need for a decision as to liability (on either all, or a significant portion, of the claims).

Bifurcation is provided for in some but not all the major arbitral rules used by commercial and state parties. However, it is unusual for the rules specifically to address bifurcation in respect of one element of the claim. Typically, when bifurcation is addressed, it is set out as a general concept to be used by the tribunal as appropriate. For example, the International Chamber of Commerce (ICC) Rules of Arbitration 2021 simply provide that the tribunal may bifurcate the proceedings, or issue a partial award, ‘when doing so may genuinely be expected to result in a more efficient resolution of the case’.[2] Similarly, the tribunal has wide discretion with respect to bifurcation under the Rules of the London Court of International Arbitration (LCIA), which provide that the tribunal may determine ‘the stage of the arbitration at which any issue or issues shall be determined, and in what order’.[3]

These rules allow the tribunal wide discretion to bifurcate proceedings, including to hear damages separately (either before or after a liability phase). Conversely, the Arbitration Rules of the United Nations Commission on International Trade Law (the UNCITRAL Arbitration Rules) do not address bifurcation save in respect of jurisdiction, which may be considered either as a preliminary question or in an award on the merits.[4] Similarly, the Rules of the International Centre for Settlement of Investment Disputes (ICSID) do not provide for bifurcation save in respect of jurisdictional matters;[5] nevertheless, a number of ICSID arbitrations have been subject to bifurcation of the merits from the quantum phase. There is a convention, therefore, of bifurcating damages and merits, but it is not a procedural phase that is addressed in great detail in the major arbitral rules. In Working Paper 4: Proposals for Amendment of the ICSID Rules, issued in February 2020, ICSID included proposals for a stand-alone bifurcation provision. The proposed revision provides a full procedure for a request for bifurcation, requiring that, inter alia:

  • the request be issued as soon as possible with the question or questions to be bifurcated;
  • the tribunal issue any decision within 30 days of the final written or oral submission on bifurcation;
  • the tribunal shall, when making its decision, take into account all relevant circumstances including whether (1) bifurcation would materially reduce time and costs, (2) bifurcation would dispose of all or a substantial portion of the dispute, and (3) the questions to be addressed are so intertwined with the remainder of the proceedings as to make bifurcation impractical; and
  • if the tribunal orders bifurcation, it shall suspend the proceeding with respect to any questions to be addressed at a later stage unless otherwise agreed by the parties or the tribunal considers this is not justified.

If the proposed revision is adopted, the tribunal would also have discretion to decide that any question should be addressed in a separate phase of a proceeding. This procedure for bifurcation would still leave the parties significant flexibility in respect of bifurcation proceedings, but is an express recognition of parties’ ability to make a request for bifurcation for any appropriate reason.

A key obstacle in reviewing the commonality of procedural issues in arbitration is the lack of available information, including awards. ICSID made available its findings from a study into the efficiency of arbitration proceedings in September 2018. As part of this study, ICSID found that the average duration of an arbitration was three years and seven months from constitution of the tribunal to the final award. Of the 63 cases reviewed, 29 were bifurcated into jurisdiction and merits phases. If a case was dismissed as a result of a finding of no jurisdiction, the arbitration was concluded within two years on average but if the arbitration was bifurcated and the case was not dismissed, the average length of the arbitration was more than five years (and, on average, 550 days longer than an award issued in a proceeding that combined jurisdiction and the merits).[6] Anecdotally, it appears that the length of a case can be reduced significantly (and, therefore, the costs reduced) if a party is successful in having all claims dismissed at the jurisdiction phase, but the arbitration is likely to be significantly longer if the claims go ahead notwithstanding the bifurcation. The review of arbitration cases carried out by ICSID also shows that bifurcated proceedings that lead to an award on the merits take almost two years longer than the average time for a blended hearing.[7] Parties should be careful, therefore, to properly consider whether bifurcation of damages has a significant likelihood of leading to either the dismissal of all or the majority of claims, or may increase the likelihood of early settlement, prior to issuing a request for bifurcation. In the event that a party requests that damages are assessed prior to the merits, the parties and tribunal must take due care to ensure that damages can be properly separated from the merits arguments and that an award concerning damages does not require any prejudgment of the merits.

The key benefit to bifurcation of liability and damages phases in an arbitration is the potential to increase efficiency of proceedings and, therefore, reduce costs. As the research carried out by ICSID highlights, a bifurcation phase that leads to dismissal of all claims can significantly reduce the length of an arbitration.[8] However, the split between damages and liability may be less cut and dried than between jurisdiction and liability and there is a risk that work will be duplicated and costs increased through bifurcation, for example if fact witnesses are required to attend two separate hearings to give evidence. In addition, if the proceedings are bifurcated and the level of damages (if any) is assessed prior to the merits hearing, there is the possibility that a low level of damages may dispense with the need for a full arbitration. Bifurcation may also promote early settlement if one party realises that it may not succeed on all claims and wishes to compromise on all or certain claims before incurring the expense of a full arbitration, particularly if the partial award contains adverse findings on the strength of their claims. This could result in significant cost savings for the parties if, following an award on liability, the case is settled and there is no requirement for a damages phase. For example, in the ICC arbitration Brazil v. YPF (Argentina’s state-controlled energy company), bifurcation of liability and damages was granted and the arbitral tribunal ultimately held YPF liable.[9] The only outstanding question was the measure of YPF’s exposure. This allowed the parties to negotiate a settlement without preparing protracted submissions on the determination of damages.

Bifurcation will not always be appropriate, and will need to be determined case by case. One example of when it might be appropriate is when the quantification of, and arguments surrounding, damages are particularly complex and require substantive submissions. By dealing with the question of liability first, a party may not be required to incur costs on extensive submissions and expert quantum evidence if a claim (or claims) are dismissed on liability. It may be appropriate if damages are easily segregated from the liability issues in dispute. If damages are intrinsically linked to liability, then it may not be cost-efficient to bifurcate proceedings, as parties may be forced to restate certain arguments and elements of the case, and have separate hearings on issues that would be best heard together. Finally, it may be appropriate to bifurcate damages if it would increase the likelihood of early settlement of the claim (or claims). Once a decision on liability has been made, parties might return to the negotiating table and settle the case, without incurring the potentially significant costs of a damages phase in the arbitration.

Fundamentally, it will be for the parties and the tribunal to consider whether bifurcation is appropriate for any particular case but the risk of slowing down proceedings rather than creating expediency (thus, saving costs) should be carefully considered prior to making any application.

Witness evidence

Witnesses of fact

In arbitration, witnesses of fact and expert witnesses have different, but equally important, roles in assisting the tribunal with assessing the merits of a claim. In respect of damages, witnesses of fact are key in bringing context to any damages evidence. Typically, these fact witnesses would be employees in the financial departments of the relevant party, have a role in the financial negotiation of relevant contracts (including at director and board level) or work in the accounting department of the company or as their statutory accountants.

One of the key factual elements that a tribunal may need to take into account so as to understand and assess a party’s damages claim is the financial structure of that party, and fact witnesses will often be put forward to assist the tribunal with the context of the corporate and financial structure of the party. An employee in the accounting department may be able to provide important context to the invoicing, payment and general financial procedures used by the relevant party or parties, which could be particularly relevant when there are disputes as to the timing of payments, whether a party was responsible for any delayed payments (or whether it was the fault of a third party, such as the bank) and to provide context about why certain decisions may have been made around payments (or withholding the same). The accounting team may also be able to provide helpful context about any irregularities with the accounts, or payment processes, and any issues with payments on a project or in relation to the contract in dispute. The financial advisers on a particular project or contract, whether internal or external, may be able to provide the tribunal with guidance as to the calculations made by a party when pricing a project or choosing to enter into a contract, and how this affects the calculation of loss suffered by a party. The advisers may also be able to provide context about how a party had calculated any damages contemporaneously.

Witnesses of fact are unlikely to be appropriate to prepare an independent quantification of damages but the background they can provide to the decisions made by the party during a project, or the negotiation, prior to execution, of a contract, for example, may provide much-needed context about the contemporaneous documents retained by either party.

Quantum experts

In contrast to witnesses of fact, quantum experts act as independent expert witnesses and are typically engaged to calculate or assess the damages claimed by the claimant or counter­claimed by the respondent (or to assess the damages claimed by the opposing party). They will not have been contemporaneously involved with the underlying facts at issue in the arbitration. Either the tribunal or the parties may appoint quantum experts, though typically the parties will each appoint their own. If the parties do not appoint a quantum expert, or the tribunal considers, for example, that the quantum experts have not addressed all relevant issues, then the tribunal may choose to appoint its own expert. The parties may also, to save on costs, agree to a jointly appointed expert.

The role of a quantum expert

As with any expert in arbitral proceedings, independence and non-partiality is key to the role of a quantum expert and the parties should be careful to inform their chosen expert of the need for independence (notwithstanding that one party may be paying the expert). The expert should also be careful not to take an adversarial position and to consider all relevant evidence, including whether the evidence would change their view and have a negative effect on their instructing party’s case. In arbitration, there is generally an assumption of independence; therefore, any experts must be careful to disclose any possible links to the parties that could affect that impression of independence and ensure that they are always working on the basis of assisting the tribunal and not of assisting either of the parties towards a successful outcome.

It is key for the parties and, where appropriate, the tribunal to ensure that any quantum expert is engaged early in the proceedings. Indeed, the claimant in an arbitration may wish to engage an expert to assess the level of damages prior to submitting its claim. This would enable the claimant to identify viable claims and avoid submitting claims that have little to no prospects of success, saving costs for all parties. Either party could choose to utilise financial experts that had been involved in the project or contract, if relevant, as a starting point. Although these experts are unlikely to be seen as independent enough for the purposes of testifying, they may be able to provide an initial assessment of damages based on their background knowledge of the project, saving on the costs that are likely to be incurred in instructing a new expert, who is unfamiliar with the background facts and will be required to review all the materials relating to the dispute. These experts may also be useful as fact witnesses, as set out above.

Early engagement also allows quantum experts to provide input on relevant fact evidence, which may not only ensure that the necessary factual evidence is put before the tribunal but also make the document production process more expeditious, as the experts will have considered which documents are likely to be relevant, both in relation to requesting documents and producing them. Engaging a quantum expert to conduct an early assessment of the claims value should also increase the likelihood that the damages claimed are accurate and capable of substantiation. This should reduce the need for protracted expert reports and expert testimony, which in turn should lead to quicker proceedings and lower costs for the parties.

Risks with party-appointed experts

One issue that is frequently encountered with party-appointed experts is that each expert will have different instructions, which can lead to them simply being ‘ships passing in the night’ and not actually calculating damages on the same basis. Proceedings will be less cost-effective if the experts are not on the same page in terms of the assumptions made and the questions they are asked to address. Another issue with party-appointed experts is that they will have different access to information prior to the document production phase and, thus, there is no equality of arms. One expert may be able to prepare a model based on, for example, project-specific data while the other is working off market rates and assumptions.

There are a number of procedural tools that may assist in ironing out these issues and improve the efficiency of proceedings. As set out above, it is key to engage experts early in the process and this can be encouraged by addressing the provision of expert reports in the procedural timetable. The choice between memorial style and pleadings style for an arbitration should be considered in each case and there are pros and cons for each, but the eventual choice will affect when and how the expert damages evidence is submitted by reference to the parties’ submissions and any witness evidence. The parties should also ensure any expert testimony is carefully considered in the pre-hearing protocol.

With time at a premium in a hearing, it is essential that the parties allocate sufficient time to hear expert evidence on damages and allow the tribunal to ask any questions that it may have. Damages are often dealt with at the end of a (potentially lengthy) hearing and overrunning fact witness evidence can come at the expense of the time allocated for the experts’ testimony. Robust time management is critical to minimise any slippage. For the sake of expediency, particularly in a short hearing, the parties may wish to agree with the tribunal that any initial questions are submitted to the expert either prior to or after their testimony, to be addressed in post-hearing briefs. The tribunal may even wish to submit calculation-specific questions directly to the experts, independent of parties and counsel.

Another increasingly common technique to increase expediency in expert examination in arbitration is the use of witness conferencing or ‘hot-tubbing’. This involves the experts being questioned at the same time and allows the tribunal to hear from both experts on specific points of interest, and may serve to narrow the issues in dispute between the two experts. In a virtual environment, care must be taken when planning a hot-tubbing session to ensure that the experts do not end up talking over each other, preventing the parties and the tribunal from understanding their answers and creating difficulties for the transcribers. A carefully considered virtual-hearing protocol can reduce the likelihood of these issues arising.

Preparation of a joint expert report, typically following submission of the Statement of Rejoinder, or the occurrence of joint expert meetings, is likely to narrow the gap between the experts’ respective positions and reduce the points of dispute in respect of damages. These meetings, and the preparation of the joint expert report, should ideally be held independently of counsel. They provide an opportunity for the experts to discuss any points of disagreement and assess whether it may be possible to agree on some, or all, of the elements of the damages claim. This in turn may reduce the need for long periods of cross-examination of the experts, saving both time at the hearing and costs of preparation. It should also make the tribunal’s assessment of damages more straightforward, particularly if the experts can agree on a method or formula for calculation (such as a calculation of a delay rate that can simply be applied to the days of delay, if any, or an appropriate discount rate in the case of a discounted cash flow calculation).

Tribunal engagement with quantum experts

The tribunal may choose to appoint its own expert if it deems it necessary or useful for its determination of the claims, or if the parties agree with the tribunal that it appoints the only quantum expert to assess the damages claimed. This may not only save costs, as just one expert’s fees are payable, but may also cause the expert to be viewed as more independent than party-appointed experts. Indeed, among other things, Article 21 of the LCIA Rules, Article 25(3) of the ICC Rules of Arbitration and Article 29 of the UNCITRAL Arbitration Rules contemplate the appointment of experts by the tribunal. In the event that the tribunal chooses to appoint a damages expert, it will be key to ensure that a proper protocol is in place to ensure the parties retain their autonomy and the ability to present their case as they best see fit.

There are a number of risks in taking what may be a more cost-effective approach, by the tribunal appointing one expert. For example, it may result in a later appointment of the expert, as the tribunal may wish to review the first round of submissions prior to issuing detailed instructions. Although the tribunal could request assistance from the parties in providing instructions, it may be difficult for the parties to agree on the instructions and this could create inefficiencies in the proceedings. The parties and the tribunal would also need to agree on a protocol for the disclosure of relevant documents to the expert, taking into account all necessary confidentiality restrictions. There is a risk that the autonomy of the parties is affected by not having the guidance of their own expert in preparing document production requests of a technical nature. The unilateral appointment of an expert by the tribunal may also present a risk to enforceability of any final award. Any procedural order would need to ensure that both parties had equal rights to cross and re-examine any expert. The risks of challenge to an award may be reduced by agreeing on the appointment of an expert with the parties, including coordinating with the parties on the identity of the expert and the scope of the instructions.

The tribunal may also elect to explore its own damages calculation, for example inserting a different interest rate into a methodology proposed by one of the parties. In respect of tribunal-led calculations of damages, such as taking an unconventional approach or an approach taken that was not put forward by either party, there is also a risk of challenge. In November 2020, the Commercial Court at the High Court of England and Wales set aside the quantum findings in a US$50 million investment treaty award made in favour of a Canadian mining company, World Wide Minerals Limited (WWM), against the Republic of Kazakhstan (TRK), after ruling that the state was not given a fair opportunity to address damages.[10] WWM presented a ‘rolled-up claim’ based on the assumption that all their allegations would succeed and that the effect of them together amounted to expropriation of their investment. The investors further made no effort to individually identify the losses associated with each of TRK’s alleged actions. TRK had provided three separate bases for quantum calculations but all were based on a finding that it had expropriated WWM’s assets. The tribunal did not find that there was any expropriation and, therefore, none of the quantum calculations, or underlying methodology and assumptions, applied to the judgment reached by the tribunal. In view of the lack of options, the UNCITRAL tribunal decided the case on the basis of a ‘loss of a chance or opportunity’, which had not been argued for by WWM and, in fact, was not in line with either counsel’s approach during the hearing. This approach ultimately grouped all the costs together but was not on a basis contended for by WWM or the subject of arguments before the arbitrators from either party. The court concluded that the tribunal’s decision to award damages based on a methodology that had not been argued for by either party was a serious irregularity, which resulted in a substantial injustice to TRK, under Section 68(2) of the UK Arbitration Act 1996. The court ruled that the relevant paragraphs of the award relating to quantification of loss should be set aside and that the quantum issue be remitted back to the tribunal for determination. The tribunal may wish to put questions about alternative calculation methods to the parties prior to using them in the final award, to lower the risk of a challenge.

Document production

The document production phase of an arbitration is particularly important to the assessment of damages, as financial information is rarely disclosed to an opposing party prior to an arbitration. The lack of full and clear information can lead to either inflated, or under­estimated, damages claims, which could be solved by early disclosure of relevant information and cooperation between the parties. The relevance of financial information will depend on the factual matrix and type of claim. A backward-looking claim for damages may require the review of invoices, payslips, remittances and any other evidence of payments made or costs incurred, alongside market data and relevant ancillary information such as budgets, the structures of the company and evidence of cash flow (including within any corporate group structure). Conversely, a forward-looking claim may involve financial models, internal budgets and forecasts, a review of any relevant long-term financing agreements, information delivered to shareholders and market data. The risk with a forward-looking claim is that it necessarily requires a greater use of assumptions, which leads to less certainty as to the level of damages that should be awarded. An example of a forward-looking claim that can be difficult to quantify is a claim for lost profits.

Parties may be reticent to disclose certain documents, particularly financial documents, on the basis of commercial sensitivity, which will typically be increased when the opposing party is a competitor. However, any reluctance to disclose documents may risk not only affecting the accuracy of the damages calculations but also slowing down the proceedings with protracted submissions on the relevance, materiality and availability of documents. The majority of arbitrations are conducted confidentially, with third parties unable to review submissions or attend hearings; however, the position on confidentiality in arbitration is not always clear cut and may be subject to change. As of 1 January 2019, any award issued under the ICC Rules shall be automatically published two years after the date of the award unless one of the parties objects.[11] This puts the onus on the parties to object to publication of the award, rather than an automatic presumption that the award will remain confidential. It remains to be seen how other arbitral institutions will react to this move towards greater transparency in arbitration.

In relation to confidentiality, the ICC Rules do not provide for the automatic confidentiality of proceedings, but rather provide that, upon request from any party, the tribunal may ‘make orders concerning the confidentiality of the arbitration proceedings or of any other matters in connection with the arbitration and may take measures for protecting trade secrets and confidential information’.[12] This is in contrast to certain other arbitral rules, which provide for greater, automatic confidentiality restrictions. For example, the LCIA Rules provide for the confidentiality of the arbitration proceedings and of all materials in the arbitration created for the purpose of the arbitration and all other documents produced by another party in the proceedings not otherwise in the public domain, subject to certain exceptions.[13] The Arbitration Rules of the Hong Kong International Arbitration Centre, the Singapore International Arbitration Centre and the Dubai International Arbitration Centre similarly provide for a general agreement of confidentiality with respect to the arbitration.[14]

A party may attempt to rely on the International Bar Association’s (IBA) Rules on the Taking of Evidence in International Arbitration to resist disclosure of commercially sensitive documents, in view of concerns it may have about confidentiality. This is particularly likely with information requested in relation to the calculation of damages, as financial information (particularly pricing structures) is generally commercially sensitive. Similar concerns would also arise in relation to proprietary technical information or in intellectual property disputes. Pursuant to Article 9 of the IBA Rules, the tribunal may, either of its own volition or at the request of a party, exclude any document, statement, oral testimony or inspection on the grounds of ‘commercial or technical confidentiality’ that it deems compelling. If the tribunal finds the arguments that the information should be excluded on this basis compelling, but also considers that the information is likely to be relevant, it could choose to review the information itself, or appoint an independent expert to review the information, and assess whether it should be disclosed. In addition, the tribunal could consider the disclosure of redacted information. However, in relation to quantum, it is likely that the most relevant information is also the most commercially sensitive and, therefore, any redaction is likely to neutralise the usefulness of the documents or information. An alternative, as set out below, is for the parties to agree to a confidentiality regimen (including the option to limit access to certain documents to just counsel, experts and the tribunal).

The inconsistent approach to confidentiality in arbitral rules does not need to be a reason for parties to refuse to disclose commercially sensitive documents, as the flexibility of arbitration allows the parties to agree to a confidentiality club or non-disclosure agreement to ensure protection from any unauthorised disclosure of information. The parties have full discretion as to the breadth of their confidentiality agreement and may decide that the confidential documents (and any arguments relating thereto) can be accessed only by all parties to the arbitration, or only counsel and experts, or even purely the experts and the tribunal. The risk with limiting access to just counsel and experts is that the parties will not be able to provide input on the context of the documents and the significance of the information they contain. This risk is further increased by restricting access to just the experts, who may not be able to properly assess the correlation between financial information and the parties’ respective legal positions. An alternative (or additional) restriction, which may give the parties peace of mind without restricting their ability to properly present their case, is to restrict access to the documents to viewing rights only (except for counsel and experts).

Whatever the decision, a protocol will need to be prepared if the parties agree to a confidentiality club, to include all restrictions of the relevant information. The parties may wish to include a naming convention for confidential exhibits and pleadings, to ensure there is no accidental disclosure of confidential information. This delineation will also make preparation of the hearing bundle easier, particularly if a virtual platform is used. In view of the move towards more virtual hearings, and generally to the use of virtual bundles, the parties should include a protocol for storage of confidential information on any data management site and restriction of log-in access to only those with access rights under the confidentiality agreement. The confidentiality club protocol should also address issues that will arise at the hearing, such as the sequestration of witnesses and, if relevant, other experts from the hearing during confidential portions and how the confidential portions of the transcript can be easily identified by the transcribers. The use of a confidentiality club is likely to increase costs, particularly because either separate or redacted submissions may be required, but may be a suitable solution if it allows more accurate calculation of damages through the disclosure of relevant information.

Case management and cost considerations

As has been set out in this chapter, addressing quantum early is key to ensuring that hopeless claims are identified, experts have access to necessary documents to assess damages accurately and the parties can properly present their claims (and counterclaims and defences) to the tribunal, saving both time and costs. By engaging in a damages protocol at the same time as the procedural timetable is agreed, the tribunal and parties may be able to improve the efficiency of proceedings. The damages protocol might address issues such as:

  • the type of damages claimed;
  • whether the parties will be addressing mitigation of loss;
  • any application of contractual limitation clauses (or limitation under law);
  • the format of any expert submissions, including any methodology and underlying calculations to explain the ultimate quantum claimed (or disputed);
  • a good faith estimate of any damages claimed; and
  • the guidelines for presentation of expert evidence at the hearing.

However, the parties should be ready to review the protocol as the case evolves and the presentation of early views on damages should not prevent a party advancing different arguments on damages as more evidence is presented. Each case will present its own unique procedural requirements and challenges but, as has been set out in this chapter, certain tools may be deployed to save costs.

Settlement of an arbitration can save parties significant costs, particularly if settlement occurs early in the arbitration timetable. Distinct damages claims with proper evidence and fully detailed financial models will typically make it easier for parties to assess whether they can reach a compromise voluntarily on any compensation to be paid. Settlement offers are also relevant to damages claims when they can be made available to the tribunal in relation to costs awards, to demonstrate the reasonableness of the parties’ behaviour. Generally, across the major arbitral institutions, the tribunal has wide discretion as to how to allocate the costs of the arbitration, and can consider not only the relative success of the parties but also their conduct during the proceedings. As part of this wide-ranging discretion, the tribunal may also take into account settlement offers made. In the English courts, parties may make a ‘Calderbank offer’ (i.e., an offer made without prejudice save as to costs). A party may choose to utilise this type of settlement offer in an arbitration, which, if it is not accepted, can be disclosed to the tribunal in the costs phase. If a successful claimant fails to beat a respondent’s settlement offer, for example, the tribunal may choose to take this into account in the costs award and penalise the claimant for failing to accept a reasonable settlement offer, resulting in unnecessary arbitration costs being incurred. There is no obligation on the tribunal to take any settlement offer into account, but parties should carefully consider the potential costs consequences when making, or receiving, an offer without prejudice, save as to costs.

In sum, it is key for the efficiency and cost-effectiveness of proceedings that damages are addressed clearly, fairly and accurately. Each case will turn on its facts and there is no one-size-fits-all approach to the procedural issues in relation to damages. The flexibility of the arbitration process allows the parties, in conjunction with the tribunal, to carefully craft the procedures around damages to fit the unique issues of the case, and to adapt them as the case evolves.


Notes

[1] Louise Woods is a partner, Ciara Ros is a senior associate, and Elena Guillet and Edward Wilson are trainee solicitors at Vinson & Elkins RLLP.

[2] International Chamber of Commerce [ICC], Arbitration Rules (2021), Appendix IV, a).

[3] London Court of International Arbitration [LCIA], Arbitration Rules (2020), Article 14.6 (iv).

[4] United Nations Commission on International Trade Law (UNCITRAL Arbitration Rules) (2013), Article 23.

[5] International Centre for Settlement of Investment Disputes [ICSID], Arbitration Rules (2006), Article 41(2).

[6] ‘Proposals for Amendment of the ICSID Rules – Working Paper’, Volume 3, (ICSID Secretariat: 2 August 2018), pages 900 to 905, available at https://icsid.worldbank.org/sites/default/files/publications/WP1_Amendments_Vol_3_WP-updated-9.17.18.pdf.

[7] Although the ICSID review predominantly focused on bifurcation on the basis of jurisdiction and liability, the findings may be equally applicable to an arbitration that is bifurcated into damages and liability phases.

[8] ‘Proposals for Amendment of the ICSID Rules – Working Paper’, Volume 3, (ICSID Secretariat: 2 August 2018), pages 889 to 902, available at https://icsid.worldbank.org/sites/default/files/publications/WP1_Amendments_Vol_3_WP-updated-9.17.18.pdf.

[9] YPF, S.A. v. AES Uruguaiana Empreendimentos, S.A., Companhia de Gas do Estado do Rio Grande do Sul and Transportadora de Gas del MERCOSUR, S.A., ICC Case No. 16232/JRF/CA.

[10] The Republic of Kazakhstan v World Wide Minerals Limited and Paul A Carroll QC [2020] EWHC 3068 (Comm).

[11] Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration, D – Publication of Awards, (ICC: 2019), pages 7 and 8, available at https://cdn.iccwbo.org/content/uploads/sites/3/2017/03/icc-note-to-parties-and-arbitral-tribunals-on-the-conduct-of-arbitration.pdf.

[12] ICC Arbitration Rules (2021), Article 22.

[13] LCIA Arbitration Rules (2020), Article 30.

[14] Hong Kong International Arbitration Centre, Arbitration Rules (2018), Article 45; Singapore International Arbitration Centre, Arbitration Rules (2016), Article 39; Dubai International Arbitration Centre, Arbitration Rules (2007), Article 41.

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