Reviewed by Baiju S Vasani, Partner, Jones Day
Featured in GAR Magazine Vol 12 Issue 5
For many practitioners and arbitrators alike, damages can be the most daunting aspect of the arbitration process. Despite how crucial damages are to the overall proceedings, it can be difficult to understand, let alone explain persuasively to a tribunal, the highly technical and complex theories and calculations that precede the figure at the conclusion of a damages report. Many practitioners instead rely heavily on their chosen experts, referring to a report’s use of discounted cash flow, weighted average cost of capital, or regression analysis, but without elaborating on the details. Many arbitrators sit through hours of expert testimony and read hundreds of pages on the issue of damages, and then only briefly discuss issues of quantum in their awards.
This lack of true mastery is ultimately to the detriment of arbitration’s users. To fully represent their clients’ best interests, practitioners must be able to strategically employ and effectively explain the various principles and methodologies that support or refute a damages claim, cross-examine the opposing side’s expert with a level of understanding that will likely bear fruit, as well as challenge their own expert during the preparation of the reports to ensure his or her conclusions are as sound as possible. Similarly, effective dispute resolution requires accurate and reasoned arbitral awards, which in turn depends upon tribunal members fully understanding and correctly applying the relevant principles and methodologies.
The Guide to Damages in International Arbitration provides a much-needed resource for all of those who seek to grasp the intricacies and complexities of damages claims. John Trenor has assembled dozens of contributions from counsel, legal academics, damages experts, and economic and financial academics.
As Mr Trenor notes in his introduction, not all of the Guide’s authors agree, just like not all damages experts agree. The book helps the reader understand why disagreements relating to damages claims occur, which is vital for effective advocacy and effective dispute resolution. Counsel who can effectively explain to the Tribunal why the parties disagree on a damages figure can then effectively explain why their proposed figure should be adopted. Arbitrators must be able to understand why the parties disagree to issue a reasoned ruling on issues of quantum, particularly when the trend for damages claims and defenses is that there is rarely any agreement between the two sides’ experts.
The book’s contributions are divided into four main parts. In Part I, leading practitioners and academics cover the legal principles applicable to damages claims, including requirements and principles for damages in both civil and common law systems, damages principles from the Convention on Contracts for the International Sale of Goods, the impact of contractual limitations on damages awards, the applicable principles for reducing damages, and damages principles applicable in investment arbitration.
Part II addresses procedural aspects of damages claims, including when to seek a bifurcated damages phase, how to use documentary and witness evidence, and strategic considerations relating to the use of experts. The practical tips contained in these chapters are aimed at practitioners making strategic decisions about the best ways to present a case for damages, including advice for tribunals on when and how to be proactive in arbitrating the damages elements of a claim.
Part III provides helpful explanations of the various methods used to assess and quantify damages. In addition to providing basic background information, the chapters explain complex accounting and damages methodologies in a clear and concise manner. There are explanations of the various methods for calculating fair market value, the different approaches used to create a discounted cash flow and how those are applied to damages assessments, and when to use a comparables approach. These chapters provide an invaluable reference for practitioners who either lack quantitative backgrounds or are trying to explain these complex concepts to others.
Part IV provides industry-specific information on the different valuation standards and methodologies used in several different fields, including energy and natural resource arbitration, construction arbitration, financial services arbitration, life science arbitration, M&A and shareholder arbitrations, intellectual property arbitration, and competition and antitrust arbitration.
This book will undoubtedly become a frequently used desktop reference for dispute resolution practitioners and arbitrators seeking to better understand issues of quantum. In addition, the book is recommended for in-house lawyers, students and expert witnesses who, in the words of the Mr Trenor, seek to “further the common objective of assisting arbitrators in rendering more accurate and well-reasoned awards on damages.”