How wide is the gap in assessing loss between claimants and respondents? How much of a difference do experts make? What are the most common criticisms levelled by tribunals and how does this influence the amount they award in damages? How gender diverse is the pool of expert witnesses?
These were some of the questions addressed in analysis of 180 International Chamber of Commerce (ICC) Arbitral Tribunal awards, which was carried out by researchers from Queen Mary University of London’s School of International Arbitration.
The PwC-sponsored study provides valuable input into the debate over the assessment of loss and the use of expert witnesses in arbitration. Looking at the findings and their implications, our International Arbitration team has highlighted four key points for consideration by parties involved in arbitration proceedings.
Criticisms made by tribunals of the claimant’s approach to loss
Mind the gap
The study highlights a gulf in the assessment of loss between claimants and respondents. Respondents quantify damages at an average of only 12% of the amount claimed.
Interestingly, the gap doesn’t appear to reflect the involvement of experts, as it’s just as wide on average whether they’re involved or not. It’s also remarkably similar between commercial arbitration, which was the focus of this study, and investor-state arbitration, which was covered by PwC in previous research.
With parties poles apart, the burden falls on tribunals to navigate a path through the opposing positions. At 53% of the amount claimed, the average amount awarded by tribunals might seem to indicate that tribunals more or less split the difference. Yet behind this average figure is a massive spread, with commercial arbitration tribunals often coming out at either end (0% or 100%).
The findings raise questions about whether tribunals are equipped to bridge such a big divide without more support from claimants and respondents. Would the users of arbitration benefit if the gap was narrowed and what procedural innovations might achieve this goal? Could we see more experts appointed by tribunals or directed to work within agreed parameters?
Pitfalls to avoid
Claimants are frequently criticised by tribunals for their approach to quantifying loss. By far the most common complaint is a lack of evidence, followed by wrong or unconvincing underlying assumptions and speculative claims.
The fact these are the top three is unsurprising. What’s more interesting is that these criticisms are levelled in more than half (51%) of cases. And where there is this kind of pushback, awards are much lower on average than when there is not.
These problems underline the importance of claimants, and their advisors, taking a realistic and well-evidenced approach to claims quantification.
Arms race in expert support
The analysis showed that the tipping point, at which claimants are more likely than not to use an expert, is for claims for loss of between $10 million and $25 million.
In those cases where the claimant appointed an expert, the analysis shows that the respondent fared significantly better when also appointing an expert.
Tribunals awarded on average 69% of the amount claimed when there was a claimant expert engaged, but no respondent expert. This reduces to an average of only 41% when there are both claimant and respondent experts, which is a much better outcome for respondents.
These statistics highlight the risks of going through arbitration proceedings without expert witness support.
However, there are cases where the tribunal came out fully on the side of the claimant even when the respondent employed an expert. This shows that appointing an expert is no guarantee of success. In our experience, the use of an expert is more successful when the expert is engaged from the outset of that matter and provided with instructions that fully address the other party’s arguments.
How long can we wait for diversity?
Only 11% of experts are women. And the lack of gender balance is mirrored in other areas such as ethnicity. Lack of diversity not only reduces the available talent pool: it could also raise questions about the potential for unconscious biases within arbitration.
Yes, claimants and respondents want experts with a track record of testifying successfully, especially in the most valuable cases. It may therefore take time for a more diverse community of experts to acquire that level of experience. However, this shouldn’t be an excuse for feet dragging on diversity.
We at PwC are facing a lot of the same challenges and still have a way to go in addressing them. What we’ve learned from our experience is the importance of ensuring that diversity is recognised as a strategic priority.
The equal representation in arbitration pledge has made a positive difference to gender diversity in the selection of arbitrators and offers a model for improving gender diversity amongst experts. This includes fair representation of females on lists of potential experts, a step up in mentoring, greater transparency over selection criteria and giving upcoming experts more opportunities to appear alongside experienced colleagues.
How we can help
Our dedicated international arbitration team helps clients to investigate, assess and prepare for commercial and treaty-based claims, working closely with them at each stage of the dispute resolution process to:
- Conduct an early case assessment and develop the strategy
- Value and quantify damages, lost profits or opportunities
- Prepare detailed economic and market analysis
- Investigate accounting and tax issues relating to claims
- Provide expert reports and testimony
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