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Premium article - 11 December 2017

Issues regarding pre-award interest arise in most cases where damages are awarded. Typically, tribunals assess damages as at a date in the past, and interest is applied to this amount up to the date of the award. Because the entire arbitration process (from the   totalled US$87.3 million and pre-judgment interest totalled US$85.5 million, close to 50 per cent of total damages (principal + interest). In case ARB(AF)/99/1, principal damages totalled 9.5 million Mexican pesos and pre-judgment interest totalled 7.5 million pesos – 44 per cent of the total.

Market Approach or Comparables

Premium article - 07 December 2017

Introduction This chapter discusses the market or comparables approach to valuation, also referred to as the relative valuation method because it estimates the value of an asset relative to the observed values of similar assets, typically called ‘comparable assets’ or simply ‘comparables’. When the value of comparable assets is based on observed transactions (e.g., prior acquisitions of companies in the same industry), the approach is also referred to as the guideline transaction method.[2]

Asset-Based Approach and Other Valuation Methodologies

Premium article - 07 December 2017

Asset-based valuations: Valuation floor or flawed valuation? Synopsis Asset-based valuations, such as ‘book value’, are often applied in one of two ways: (1) as a floor or cross-check for values assessed using discounted cash flow (DCF) or market-based approaches; or (2) to value assets not reflected in a DCF or market valuation, such as non-operating assets. However, the utility of these applications is sometimes misjudged because of misunderstandings about the content of financial statements – in particular, because the requirements (or ‘financial reporting standards’[2]) governing the preparation of financial statements have changed and become more complex in recent decades.

Country Risk

Premium article - 07 December 2017

One of the most frequent and difficult tasks in valuation is to assess how an asset’s value is affected by its location in a foreign country. This effect, commonly known as country risk, is a reflection of the potentially adverse effects of the political, economic and financial risks of operating in a country. There is a wide supply of services providing investors with qualitative measures of country risk.[2] For example, the International Country Risk Guide by Political Risk Services (PRS) provides country-by-country measures along the lines of risk of expropriation, repatriation restrictions, corruption and risk of political unrest, and provides helpful maps with indicators for government stability, socio-economic conditions, investment profile, internal conflicts, external conflicts, corruption, military in politics, religious tensions, law and order, ethnic tensions, democratic accountability and bureaucracy quality. Other sources may include indicators for regions within countries or be specific to certain industries, such as the Fraser Institute mining survey.

Taxation and Currency Issues in Damages Awards

Premium article - 07 December 2017

Summary This chapter describes some of the issues that can contribute to the distortion of the value of awards received by claimants arising from the treatment of taxes and currency, and explores some possible approaches to reducing or eliminating potential distortions from an economic point of view.


Premium article - 07 December 2017

Introduction The legal and other costs of resolving international disputes by arbitration are regularly substantial given the often significant amounts at play, arbitration’s nature as a privately funded process and the ever-increasing technical and legal complexity of the cases. Cost awards exceeding US$1 million have become ordinary and can amount to tens of millions in ‘big-ticket’ arbitrations.[2] From the parties’ perspective, cost recovery builds part of the total compensation they are seeking as damages, as the arbitrators’ cost decision often becomes a significant factor in the overall outcome of a case. Yet, a lack of uniformity as to the standards applied by arbitrators when deciding on costs impacts on predictability of the outcome and thus on the parties’ faculty to make an informed choice whether to invest in litigation or to settle.

The Use of Econometric and Statistical Analysis and Tools

Premium article - 06 December 2017

While writing this chapter, we asked a number of lawyers we have worked with what they would like to know about econometrics or regression analysis (the two terms are largely synonymous for our purposes). One particularly colourful response captured the general mood: ‘even the words “regression analysis” send a chill down my spine!’

Damages in Energy and Natural Resources Arbitrations

Premium article - 05 December 2017

The importance of energy and natural resources matters in arbitration According to the 2016 ICSID caseload statistics report, 26 per cent of currently registered cases are related to disputes in the oil, gas and mining sectors.[2] Similarly, a look at the ICC caseload data reveals that the energy sector made up the largest segment of arbitrations in 2014, comprising 18.6 per cent of the entire ICC caseload in that year.[3] It is no coincidence that about one-quarter of total treaty and commercial arbitration cases are related to energy and natural resources. These sectors share at least two key economic attributes that make them susceptible to disputes: their output prices are subject to substantial volatility and their investments soon become sunk (i.e., cannot be easily moved to alternative uses). These features make energy and natural resources assets particularly vulnerable to opportunism, where the parties with an economic stake in their generation of profits (private or public) are likely to seek to change terms to their favour.

Damages in Gas and Electricity Arbitrations

Premium article - 05 December 2017

Introduction The nature of damage in the electricity and gas sectors can be quite disparate depending on the part of the value chain in which the dispute has arisen. Damage can relate to competitive parts of the value chain such as generation (electricity) and supply (electricity and gas). It can also relate to regulated activities such as transmission, distribution or support for generation from renewable energy sources. It would be too wide-ranging to try to cover the full breadth of our experience in electricity and gas disputes, so in this chapter, we have chosen to focus on the estimation of damage related to competitive parts of the value chain.


Premium article - 05 December 2017

There are three types of arbitrators: those who understand numbers and those who don’t.