NERA Experts Contribute to Latest Investment Treaty Arbitration Review

08 June 2018
Erin B. McHugh, Dr. Jeff D. Makholm

In the past few years, there has been a dramatic increase in the number of international investment treaty arbitrations, many involving multi-billion dollar claims. In an environment where new awards and decisions are published weekly, The Investment Treaty Arbitration Review provides a useful guide on the most recent developments, as well as the debate and context behind those developments. In the latest edition of The Review, NERA Managing Director Dr. Jeff D. Makholm, and Associate Director Erin B. McHugh—the only economists to contribute to the book—write about the benefits of using economic and statistical tools to value damages and establish causation.

Causation by Former Managing Director Dr. Chudozie Okongwu and Erin B. McHugh

In investment treaty arbitrations, establishing causation or a “causal link” between the wrongful act and the harm claimed is a critical element in a damages determination. In their chapter on causation, Dr. Okongwu and Ms. McHugh explain that they expect to see increasing use of economic and statistical tools in investment treaty arbitrations. They discuss the fact that the reliance of these methods on empirical data—in contrast to potentially subjective opinion—and their ability to specify a known rate of error, provide arbitral tribunals with important information when considering issues of both factual and legal causation. Ultimately, these tools will allow both claimants and respondents to make a quantitative case for their positions regarding causation.

The Discounted Cash Flow Method of Valuing Damages in Arbitration by Dr. Jeff D. Makholm

In this chapter, Dr. Makholm outlines the strengths of assessing damages associated with enterprise lost profits in international arbitration using the discounted cash flow (DCF) method. Dr. Makholm compares DCF to two other widely accepted methods of valuing an enterprise during a dispute and explains why the DCF model works well in industrial and institutional settings, as well as for disputes involving regulated enterprises; toll road privatization efforts; and oil, gas, and LNG transport markets—while taking industrial and country risks into account. A number of recent assessments of the DCF model have been made available to the audiences of legal practitioners in the field of international arbitration. The ultimate attraction is that the DCF model links together finance and economic theory in an uncertain world in a highly effective way.

Accreditation: These chapters are an extract from the third edition of The Law Reviews’ The Investment Treaty Arbitration Review, published in June 2018 and edited by Bartom Legum. The whole publication is available here.