International arbitration: would a single set of global valuation standards assist parties in testing expert valuation evidence?


Financier Worldwide Magazine

October 2013 Issue

October 2013 Issue

The International Valuation Standards Council (IVSC) has recently expanded its mandate to include creating a single set of high quality, valuation standards and a globally recognised, respected valuation profession. In this article, we consider potential implications of these developments within the context of international arbitration proceedings. In particular, we examine whether global valuation standards would be of benefit, by assisting arbitral tribunals in testing expert evidence; or whether such standards would be unhelpful by restricting the necessary discretion and professional judgement that clients and arbitral tribunals require from independent expert witnesses. 

Companies are increasingly choosing to settle disputes through arbitration rather than in national courts. The reasons for this are well known and include the privacy of the arbitral proceedings, neutrality of the arbitrators (as compared with national courts in certain jurisdictions), and the speed and efficiency of the process. Expert witnesses have an important role to play in the arbitration process; providing their expert opinion to the arbitral tribunal, which would otherwise not be available from the witnesses of fact or the disclosed documentation. An expert is under a professional obligation to express their independent professional opinions to the tribunal, rather than act as an advocate for the party paying their fees. The most frequently instructed expert witnesses are those who opine on damages, usually involving the valuation of particular assets or the assessment of lost profits. 

In many professions there is a single set of standards. For example, International Financial Reporting Standards (IFRS) are becoming a single set of globally-accepted accounting standards providing a high-quality, common language for financial reporting. This assists users of financial information by providing transparent and comparable information. The vision of IFRS has been publicly supported by many international organisations, including the G20, World Bank, IMFand Basel Committeeand there has been a very high uptake, particularly by listed companies. 

The valuation profession has developed as a specialism practised by professionals in diverse fields, such as economists, accountants, surveyors and tax advisers. As a consequence, there may be concerns about the analytical consistency between valuation practitioners. An example of this lack of analytical consistency was illustrated on a recent arbitration involving the valuation of German assets on behalf of UK debt holders. An opposing expert disputed our adjustment to a discount rate on the basis that “it was not the accepted methodology for valuing this particular asset in Germany”. The core disagreement between the experts on this issue was which standard valuation formula should be deemed relevant – German standard or internationally accepted. 

A question that arises is whether the desired privacy of most commercial arbitral proceedings unwittingly restricts holding an expert to account for their stated opinions. That is, an expert witness may be able to express seemingly contradictory views in two different matters, but because both matters are private the (apparent) inconsistency would not be identified or tested under cross-examination. There may be valid reasons for expressing different views, based on the specific facts of each matter, but the expert would not be questioned on such reasons. 

As valuation standards converge, the result should be greater consistency in valuations across geographies and disciplines. There is no obvious reason why an accounting valuation for financial reporting purposes should be materially different from a litigation valuation or a taxation valuation, if they are prepared for the same assets as at the same date, under the same basis and using the same data. Ultimately, global standards would mean that the scope of valuers to pick and mix different approaches, sources and methodologies would be restricted. 

A current difficulty facing arbitral tribunals is that extreme expert witness opinions can be difficult to expose and may simply appear to arbitrators to be an equal argument between two ‘opposing’ experts. In the context of international arbitration, opposing counsel would thus be able to cross examine an expert on their methodology by reference to a single set of authoritative, global standards rather than considering a vast array of often conflicting textbooks and national guidance. If necessary, the expert witness would need to explain where and why their analysis departs from established norms. As such, global standards could provide a useful benchmark against which to assess such expert evidence. 

One recent development of note concerns the increasing transparency in investment treaty arbitrations (administered by ICSID World Bank). For example, in a recent claim brought by The Renco Group Inc. from New York against Republic of Peru, the tribunal has very recently ordered that the proceedings, hearing transcripts and awards all be published. In addition, hearings in several treaty or regional trade agreement arbitrations administered by ICSID have been held in public and with live video broadcasts. Whilst this trend in treaty disputes is not as ground-breaking as would be the case in a commercial dispute, it suggests that arbitrators recognise the value of public scrutiny in matters involving sovereign states. 

Another recent development for testing expert opinions, colloquially referred to as ‘hot-tubbing’, involves the tribunal hearing expert evidence from more than one expert witness simultaneously. In our experience, the utility of this process depends on the active engagement of counsel, experts and tribunal, and the retention of firm control by the tribunal. Where the parties are well prepared, and are prepared to engage, hot-tubbing can be a valuable means of exploring the real issues identified between the experts. Global valuation standards could provide a useful technical benchmark for counsel and the tribunal during hot-tubbing sessions.

One argument against attempts to ‘standardise’ the technical methods used in the valuation profession is that valuation is ‘an art not a science’; implying that a valuation is merely a subjective judgement regarding the amount that a buyer would be prepared to pay for an asset. However, the existence of a ‘human’ element in the process does not in any way mean that the accumulation of valuation evidence, data research and financial analysis should be disregarded; a rigorous, evidence-based approach should always inform an expert’s opinion. Applying a single set of global standards could assist in limiting any subjective element to a minimum. 

Another argument against the use of international standards is that they may stifle the necessary discretion, which experts exercise in complex and challenging assignments. Whilst valuation standards may move forward as ideas develop, the pace of revising standards may lag behind the development of new, novel valuation concepts. However, when justified there is nothing to prevent an expert expressing a view contrary to the established orthodoxy; simply, the existence of global standards provides a consistent framework for the evaluation of such evidence. 

In commercial arbitration, the parties are free to decide how and where to conduct disputes – usually in private. Whilst this confidentiality has obvious commercial benefits for the parties, one drawback is that expert evidence may be subject to a lesser degree of scrutiny than is possible, for instance, in national courts. Global valuation standards may assist arbitrators and counsel in scrutinising valuation evidence against established norms. However, the key to realising such benefits is the availability and general acceptance of a single set of valuation standards across the majority of valuation practitioners and users. The authors of this article intend to follow future developments in the field, and their application within international arbitration, to see whether the ambitious goals discussed above will be realised.


Geoffrey Senogles is a vice president and Phil Hersey is a principal at Charles River Associates (CRA). Mr Senogles can be contacted on +41 22 360 8090 / +44 (0)20 7664 3700 or by email: Mr Hersey can be contacted on +44 (0)20 7664 3700 or by email:

© Financier Worldwide


Geoffrey Senogles

Charles River Associates

©2001-2019 Financier Worldwide Ltd. All rights reserved.