Valuation in International Arbitration
The value of a business or other asset depends on the expected future benefits from holding that asset and the uncertainty associated with those benefits. An expert valuer must often form an opinion on value based on their assessment of future benefits and uncertainty at a given date. This is a challenging task for many assets. It is often particularly challenging in the context of international arbitration.
In this article, we set out our views on how experts and tribunals should approach the valuation question in international arbitration given these challenges. We start with some fundamentals: what do we mean by value, and how do we define the valuation question, and what are the valuation standards frequently encountered in international arbitration. We then consider the application of common valuation methods and the ways in which a valuer can seek to navigate the uncertainty that can exist in valuing businesses and other assets.
In investment treaty arbitration, the standard of compensation is often referred to in the relevant treaty. This can set the parameters for determining value, and assessing damages, in contexts such as lawful expropriation.1 In commercial arbitrations the parameters for determining value may be less clear and can be contingent upon the governing law if not specified in the contract between the parties.
1 Other considerations relevant to determining value and damages may be relevant in unlawful expropriations, but are not considered in the scope of this article.