Expert-led Damages Assessments in International Arbitration
On September 21st, 2020, CanArbWeek 2020 presented a “Panel on Damages assessment in International Arbitration”.
The panel consisted of three sophisticated speakers who brought a diversity of perspectives to the discussion: Larry Andrade (Deloitte LLP, National Dispute Advisory Services), Scott Davidson (Duff & Phillips), and Stephanie Cohen (Independent Arbitrator, Cohen Arbitration). Donny Surtani (Independent Arbitrator and Mediator, London Crown Office Chamber), moderated the session.
The session began by exploring the increasing complexity and uncertainty in damage assessments. Surtani observed that innovative and complex methodological expert approaches are becoming commonplace in international arbitration. The panel largely agreed with this proposition, and discussed how “financial engineering” has posed new challenges for how tribunals understand damage assessments. Because these assessments have become more mathematically complex, the burden on experts to make them comprehensible to tribunals has increased. Cohen, who represented the “arbitrator’s perspective” on the panel, noted the difficulty which often ensues when trying to win a tribunal over and convince them of the efficacy of a given methodology. Cohen suggested the use of multiple experts by a party, so that the persuasiveness of the claimed damages does not rest on a single expert’s ability to distill complex methodologies for the tribunal’s understanding.
The panellists then addressed how to deal with experts whose methodologies or conclusions are at odds with one another, as often arises when each party retains its own damages expert. Davidson noted the importance of following the market despite differing legal approaches, and thus advocated for following the business experts’ opinions (over the opinions of accountants, when these conflict), due to their intimate industry knowledge. Cohen remarked on the difficulty such a situation can pose for the tribunal’s decision-making process. For instance, the tribunal’s considerations may vary depending on whether the experts are from the same or different fields. Differences between the quantum findings of experts from the same background can often be elucidated through simple inquiry; however, the same cannot be said where the experts are not even “speaking the same language” due to different professional backgrounds. Cohen therefore suggested that the parties are best served by agreeing to both retain experts who come from the same fields.
The next issue the panel explored was whether tribunals decide damages assessments from “their gut” and then refer to expert reports more to justify their intuitions than to inform their decision-making. If they do, then it makes more sense for parties to couch their arguments on quantum in emotional appeals rather than to advance broad swaths of data. The panel discussed how arbitrators who have been practicing for years will often have developed a sense of the quantum of damages and may use expert reports to anchor instincts in fact, while less experienced arbitrators may rely more on the expert reports as sources of information. Either way, however, an element of human bias will always come into play. The panel agreed that the information or arguments that are most persuasive will vary depending on the tribunal. No blanket propositions can be sustained.
Advocacy, therefore, is key—from experts no less than from counsel. Andrade noted how it is often counsel’s failure to present information succinctly in front of a tribunal that leads to a negative outcome. Accordingly, the panel analyzed some of the key considerations that counsel should take into account when preparing an expert for live testimony. The panelists agreed on the importance of briefing experts about what has already unfolded in the proceedings, so that the expert is aware of any prior developments which may affect their testimony, and can adjust accordingly. However, panelists cautioned against “over-rehearsing” experts, which can ruin an expert’s perceived impartiality.
The last topic covered by the panel was the relative effectiveness of party-appointed versus tribunal-appointed experts. The panel noted that, while statements made by a party-appointed expert are sometimes taken with “a grain of salt”, neither is seen as more favorable overall. However, it is important for counsel and experts to be transparent about the instructions given to experts, so that the facts on which each expert’s opinion is based are clear to the tribunal, without which the tribunal will be unable to fairly compare duelling experts’ opinions.