Valuing damages in investor-State arbitration

With any investor-State arbitration, the valuation of damages plays a critical role in determining the financial outcome of the parties’ dispute. Different tribunals apply varying economic and legal methodologies, often balancing compensation principles with issues of causation and foreseeability.

Discussions amongst leading arbitrators, counsel and experts have highlighted the increasing sophistication of these approaches and the very close interplay between legal reasoning and models of financial valuation. Investors prefer income-based valuation methods, with the discounted cash flows (DCF) approach probably being the most often used. States, on the other hand, prefer to resort to costs or investment valuation approaches, the sunk costs analysis being the well-known example. Experts have previously discussed the possibility (or otherwise) of using the DCF analysis for startup companies or, more generally, companies lacking reliable records of profitability. The DELC method (damnum emergens – direct costs, plus lucrum cessans – expected profits) has been described as the second-best method of valuation. Specialists in the field have also noted that the increased amount of data points which have emerged over the last two decades has contributed significantly to the polarisation of quantum experts’ positions.

Gherson advises clients on complex international disputes where quantum experts’ evidence and treaty interpretation are central to the assessment of damages.

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Gherson’s Litigation and Arbitration Team are highly experienced in advising on international commercial litigation and arbitration matters. If you have any questions arising from this blog, please do not hesitate to contact us for advice, or send us an e-mail. Don’t forget to follow us on X, Facebook, Instagram, or LinkedIn to stay-up-to-date.

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Source: “Alternative Approaches to Valuing Damages in Investor-State Arbitration”, panel discussion with leading arbitration practitioners and quantum experts (Washington Arbitration Week 2023).