UK: Damages: An Expert's Perspective

Last Updated: 7 November 2017
Article by Vannin Capital

Authored By Ermelinda Beqiraj Partner, Pwc And Michal Piasecki Senior Manager, Pwc

Similarly, when an investor decides to pursue business opportunities in a particular jurisdiction, the protections offered by any relevant bilateral treaties may be considered when determining the feasibility and risks of the investment.

Rather than solely seeking justice, commercial claims seek to deliver to the claimant an outcome which they allege they are entitled to as a result of commercial decisions executed by willing parties.

Any claim needs to be considered in the broader commercial context of the claimant's ongoing operations, such as:

  • Management time to oversee the claim;
  • Maintaining a continuing business relationship with the defendant (in many instances the parties will continue to trade together whilst in dispute);
  • The availability of capital to fund the claim process to its conclusion; and
  • The duration of the claim and likely award.

In light of such a complex matrix of interdependent considerations, any business contemplating the pursuit of a meritorious claim would do well to apply a process similar to that associated with an investment assessment in determining whether to pursue a claim. Such an appraisal would consider the potential return (in the wider commercial context) on resources invested in a claim, taking into account the risks associated with any claim process. In this regard the requirements of both a claimant and funder should be well aligned, with a robust assessment.

RELEVANCE OF DAMAGES

Mindful of the wider commercial ramifications, claimants will look at the implications of jurisdiction, liability, quantum, enforcement, duration and cost, when considering the merits of a claim.

The determination and quantification of damages is core to assessing the likely quantum of any award. In addition, it can also have a significant impact on costs and potentially the duration of the dispute process.

For a comprehensive assessment of the merits of a claim, and in parallel to any legal assessment of liability or enforceability, it is therefore important for a claimant to consider the range of likely damages and how that might translate into an amount to be recovered. Only a combined analysis of liability and quantum can provide a comprehensive view on the merits of pursuing a claim.

The costs associated with quantifying and supporting the damages claimed, whether as the result of discovery, the need for staff to commit time investigating historic issues, or due to the need for independent experts, may also be an important factor in assessing whether a claim should be pursued, particularly if, as is often the case, the matters surrounding the dispute have already had a negative impact on the claimant's cash flow and working capital reserves, or relate to facts many years in the past.

We often find that the quantum expert is involved at the latter stages of the dispute process. However, in our view, a robust initial assessment of the scale of damages, including identification of key sensitivities and the evidence that is required to prove the claimed losses, should be a core part of the overall strategy for the claim. In the event that a funder's involvement is sought, this assessment will be crucial to the funder's evaluation of whether any claim is a viable funding opportunity. Anecdotally, our conversations with funders suggest that, when submitting funding applications claimants tend to focus on liability, providing a comprehensive view of the legal arguments, with limited assessments of the range of quantum and key variables impacting the size of any recovery. Whilst such an approach is understandable, given initial analysis is likely to focus on the legal basis for a claim, insufficient consideration of the ultimate recovery could make the funder's appraisal more difficult and potentially impact funding terms.

Just as an investor will want to scrutinize the likely profitability of a business prior to any investment, likewise, a claimant should have a robust assessment of likely future rewards and whether they compensate for costs and risks associated with pursuing a claim.

QUANTIFYING DAMAGES

A claimant will understand their business more closely than any external expert. This familiarity can be used to its full advantage in identifying the various heads of claim and evidence available to quantify damages. However, the claimant is often not best placed to determine a realistic spectrum of damages. This can be due to lack of familiarity with appropriate approaches and methodologies, or vested interest with the disputed matter. Even with the best intentions it can be difficult for a claimant to remain objective. The desire for retribution can impact the decisions of even the most rational parties.

Calculating damages in the context of a dispute often differs from similar exercises conducted in a commercial context. Whilst many of the underlying methodologies applied may be the same, the increased level of scrutiny that applies in a litigious context impacts the assessment. Likewise, the range of sensitivities may focus on variables not regarded as critical in a commercial context.

Assessing damages is at times more akin to an art than science. A degree of professional judgement has to be applied in estimating the quantum (often a range of values) of a claim. It is this very experience that courts and tribunals are looking for. Experts will often look at alternative methodologies and calculations to derive their assessment, and assess key sensitivities impacting the quantification of damages. These are directly relevant in forming a view as to the likely damages award.

ESTIMATING DAMAGES VERSUS LIKELY AWARD

Seasoned practitioners will know that the value of damages assessed by any quantum expert will very rarely equal the value of the ultimate award. Our recent International Arbitration research, which reviewed 95 arbitration awards published over a period of 25 years, identified that tribunals awarded more than 80% of the amount claimed in only a very small proportion of cases, often where the damages being sought were straightforward (e.g. an unpaid loan). On average tribunals awarded only 37% of the amount claimed in the cases that we reviewed. The amount awarded by tribunals, relative to the amount claimed, often will be influenced by the tribunals' own assessment of the legal, factual and quantum issues debated by the parties. Whilst it can be difficult to predict with any degree of certainty at the early stages of a claim how those issues will unfold, a robust early assessment of quantum can assist claimants to have a much better informed view of the potential outcome.

In summary, in our view, early assessment of damages can provide real benefits to claimants, both from a case management and funding perspective. They lead to a better informed cost benefit analysis and decision of whether to take a claim forward or not (including if a funder is involved) and the terms of any funding arrangements that are obtained. Early assessment of quantum issues can also inform the overall strategy and approach to pleadings and provide for a better management of evidence and a more realistic assessment of costs of the claim process.

Originally published in Funding In Focus, Issue 4: 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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