NERA Experts Bring Economic Insights to the Latest Investment Treaty Arbitration Review

11 July 2019
Erin B. McHugh, Dr. Jeff D. Makholm, Dr Laura T.W. Olive

The Investment Treaty Arbitration Review, edited by Barton Legum, provides a current perspective on the quickly evolving topic of investment treaty arbitrations. The biggest challenge for practitioners and clients over the past year has been to keep up with the flow of new developments and jurisprudence in the field. To help navigate these complex issues, NERA Managing Director Dr. Jeff D. Makholm, Associate Director Erin B. McHugh, and Senior Consultant Dr. Laura T.W. Olive describe the benefits of using economic and statistical tools to establish causation and value damages.

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

For most 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, former Managing Director Dr. Okongwu and Ms. McHugh explain that in the future we will see the increasing use of economic and statistical tools in investment treaty arbitration. They explain that these tools rely upon accepted models and empirical data—in contrast to subjective opinion—thereby providing 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 with regard to causation.

The Discounted Cash Flow Method of Valuing Damages in Arbitration by Dr. Jeff D. Makholm and Dr. Laura T.W. Olive

The discounted cash flow (DCF) model is a widely used and effective method for valuing enterprises. As such, it is useful for assessing damages associated with enterprise lost profits in international arbitration. In their chapter, Dr. Makholm and Dr. Olive explain how, far from being unduly abstract or restrictive as a model of investment behavior, the DCF model usefully links finance and economic theory in an uncertain world without making claims about what is known about future business conditions. It has a demonstrated track record among administrative agencies, courts, and arbitral tribunals for whom objectivity is of paramount importance. The DCF model represents an objective method focused on the essential underlying elements that spur arbitrations—the interruption of stable, going-concern profitability.

Accreditation: These chapters are an extract from the fourth edition of The Law Reviews’ The Investment Treaty Arbitration Review, published in June 2019 and edited by Bartom Legum. The whole publication is available here.