The crucial role of experts in arbitration

By relying on their technical capabilities and experience, they offer an independent perspective that can help resolve disputes

By EY
Updated: Jun 24, 2016 11:08:43 AM UTC
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Experts can provide an expert opinion on the technical matters which require simple and easy deciphering for consumption of the legal counsels or Arbitrators. (Photo: Shutterstock.com)

The way of doing business has evolved over the years, keeping pace with the technological and geopolitical environment. Businesses are moving towards faster, efficient and economical ways of doing things. This has also reflected in the dispute resolution mechanisms with multiple Alternate Dispute Resolution (ADR) mechanisms coming into the picture - be it mediation, conciliation or arbitration. Over the years, there have been efforts by the business community, professionals and regulators to improve and strengthen these forums. Evolving the role of an ‘expert’ in arbitration proceedings is a testimony to this, with more and more arbitrators and parties engaging experts at various stages to strengthen and make the arbitration process more efficient and effective.

Who is an ‘expert’? An ‘expert’ may be any professional having an in-depth understanding of the subject matter; these may include technical experts such as architects, engineers, scientists or researches. They can provide an expert opinion on the technical matters which require simple and easy deciphering for consumption of the legal counsels or arbitrators. Experts also include financial experts who have widespread knowledge of business conditions, valuation methodologies and finance and accounts. They are instrumental in providing a view on the quantum of damages or losses incurred due to alleged breaches which are being arbitrated. We would limit the discussion to the role of the accounting expert in this article.

Role of an expert
The expert is usually appointed by the respective parties and in some cases, the arbitration tribunal would make the appointment. Irrespective of the mode of appointment, the duty of the expert is toward the tribunal and his report is used to decide on the quantum of damages to be paid to the damaged party. Experts may sometimes also give an opinion on a dispute matter of accounting position or financial assertion.

An expert may also be appointed inter-alia to critically examine and rebut the experts’ report of the counter-party. In such cases, an expert has to ensure that his or her comments are technical in nature, and comments and criticisms of the assumptions and methodology used by the expert and not that of the counter parties’ expert himself or herself.

For the purpose of making an expert report for the use of the arbitration, he or she has to rely on the technical capabilities and experience, coupled with the knowledge of the relevant sector and markets. Market research and bench-marking using acceptable and reliable sources are an integral part of the workings. An expert should also take care to differentiate between valuations for a dispute matter and valuations done for other purposes such as mergers and acquisition. Mitigation factors should also be considered while determining the damages caused. Although each case and circumstances are different and there may be various valuation methodologies which can be used, the most common and acceptable approach is using the “but-for” approach. In this, the damaged party is put in the same position, had the breach or the damaging event not taken place.

Key considerations
An expert has to be an independent professional and should carry out proper due diligence to ensure that he/she, or the firm represented does not have any kind of relationship with the parties involved in the dispute as this may impair objectivity and independence. Guidelines for various professional and governing bodies such as the International Ethics Standards Board for Accountants, Chartered Institute of Arbitrators, American Institute of Certified Public Accountants (AICPA) provide the protocols and independence requirements for an expert.

An expert has to be factual and base this report on the facts of the case and refrain from making assumptions which are unsubstantiated or biased. He or she should also avoid taking an advocacy position during the arbitration.

Evolving participation of experts in commercial dispute arbitrations has enabled the arbitrators to be well informed and get an independent perspective, to form an opinion, while giving the award. The increased complexities, cross-border transactions and evolving technologies have made the role of an independent expert more relevant and necessitated. These changing trends would make dispute resolution more effective, efficient and cost effective.

-By Yogen Vaidya, Partner, Fraud Investigation & Dispute Services, EY India

The thoughts and opinions shared here are of the author.

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