Arbitrator’s Quantification of Damages

1. Arbitrator’s Quantification of Damages Dr. Witold Jurcewicz Partner Of Counsel Methods which allow arbitrators to decide on the quantum of damages and sometimes avoid taking a decision on this matter

2. Introduction The ‘Split the Baby’ Concept The ‘Baseball’ Arbitration (Final Offer) Concept Using the Expert’s Opinion in Order to Establish the Real Value in Question Bifurcation Others

3. The ‘Split the Baby’ Concept (I) Basic assumption: The parties usually try to take an extreme position, exceeding what is reasonable. By establishing the amount of the compensation in between (in the middle of) the position of the claimant and the defendant, the arbitrators are likely to find a reasonable compromise.

4. The ‘Split the Baby’ Concept (II) Practical consequences: Parties – assuming such approach – try to come up with the highest possible demands (with the hope that when the arbitrators apply this concept, the final result will be satisfactory for the party). In the situation where the party has a prospect for a clear and undisputable claim, it may be unwilling to choose arbitration as the appropriate forum, being afraid that the Tribunal may try to look for a compromise despite their undisputable claim (for example, the position of banks in loan agreements, which prefer State courts rather than arbitration).

5. The ‘Split the Baby’ Concept (III) Comments: This is not an appropriate method for quantifying damages. Even if the final result is somewhere between the amount suggested by the claimant and the amount suggested by defendant there must be justification based on substance rather than relying on the ‘Golden Mean’. (Possible exception – when the Tribunal is allowed to make its decision based on the ex aequo et bono concept). Despite the quite common view held that arbitrators apply this concept, the results of empirical research do not confirm that this is the case in actual practice.

6. The ‘Split the Baby’ Concept (IV) • See the analysis made by Stephanie E. Keer and Richard W. Naimark published in Journal of International Arbitration Vol. 18, No 5 (2001); • They have analyzed 54 cases of which 17 (31%) were awarded 0% of the claim, and in 19 others (35%) 100% of the claim was awarded; • In the remaining 34% of the cases the results were widely distributed with awards from 10% to 90% of the amount claimed. This would imply that arbitrators as a rule make decisive awards and do not „split the baby”; • They also make a reference to another study where 4,479 cases were analyzed of which approximately 42% were awarded 0 – 20% of their original claim amount and 30% were awarded 81-100% of their original claim amount.

7. The ‘Baseball’ Arbitration (Final Offer) Concept General idea – to force each party to take the most reasonable position in its claim or defense (to avoid extreme, unreasonable requests/defenses). Each party submits its own proposal for the award (offer) and the Tribunal is supposed to chose the one which in its view is more realistic, without the right to make any amendment in the proposal which has been chosen. Scope of application: • most common in situations where the Tribunal is supposed to establish (amend) certain elements of the contract (such as a price in the long term agreements due to the market changes); • most likely also possible (upon the consent of the parties) to establish a quantum of compensation in the situation where both parties agree that the liability for the breach exists, however controversy exists surrounding the scope of the compensation for the breach.

8. Using the Expert’s Opinion in order to Establish the Real value in Question • Useful documents: • IBA Rules on Taking the Evidence in International Commercial Arbitration (2010); • Protocol for the Use of Party-Appointed Expert Witnesses in International Arbitration issued by Chartered Institute of Arbitrators (2007). • When is the expert appropriate for determining the amount of damages? • The initiative to appoint the expert (party, Tribunal). • Can the Tribunal appoint the expert despite the will of the party(s). If not – what are the possible solutions? • Determining the scope of the expert’s opinion (role of the parties, Tribunal and the expert in determining the scope of the opinion). • Requirement of the expert’s impartiality (party appointed and appointed by the Tribunal). • Methods of verifying the expert’s opinion (cross examination, conference of experts).

9. Bifurcation • When it is recommended? • Who makes the decision? • When the decision is not allowed? • Possible results: • end of procedure after the first phase (regarding liability); • settlement; • second phase on quantum.

10. Others Information for the Parties (upon their consent) on the direction which the Arbitrators may go in the award.