Originally from:
The Practice of International Litigation - 2nd Edition - Looseleaf
The Practice of International Litigation - 2nd Edition - Electronic
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Damages in International Arbitration
Lawrence W. Newman and Michael Burrows
If a jury goes haywire and awards excessive damages, the judge may
take steps to modify the verdict. In arbitration, however, there is little that
can be done after an award that is excessive – even grossly excessive. With
international arbitration frequently involving more complex, “big ticket,”
matters, parties and arbitrators alike need to be especially mindful of the
potential that exists for disasters or bonanzas, depending on one’s point of
view. But, in their efforts to establish or defeat liability, the parties may give
a lower priority to issues of damages. The allocation of such lower priority
is probably unwise, however, from the point of view of both the claimant
and the respondent.
Arbitrators are often willing to let the parties present their cases as
they wish, without being assertive in requesting information early in the
proceedings as to the parties’ positions regarding damages. Should
arbitrators be more active in seeking disclosure of the party’s positions on
damages? The recent thinking of a group of international arbitration
practitioners, professors and arbitrators reflects a concern that there should
be earlier disclosure and discussion of damages issues in arbitration
proceedings, in the interests of clarity and efficiency. The International
Institute for Conflict Prevention and Resolution (CPR) has, through its
Arbitration Committee,1 recently issued a draft “Damages Protocol,” which
has as its purpose guidance to arbitrators (and correlatively to parties’
advocates) with respect to dealing fairly and efficiently with damages issues
in arbitration.
Early Consideration of Damages Issues
The Damages Protocol focuses on a number of issues with respect
to damages that it recommends that arbitrators address. One of the
Protocol’s major recommendations is that arbitrators make a point of
having the parties consider damages issues at the initial scheduling
conference, which precedes other proceedings in virtually all international
arbitrations. By raising damages issues at this early stage, the arbitrators will
oblige the parties to focus on their contentions with respect to the basis for
damages – or the absence of damages – and how those issues will be
addressed in the course of the proceedings.
One of the approaches that is sometimes taken to damages is to
separate those issues from the merits, through bifurcation of the
proceedings. This is an approach that frequently appeals more to
respondents than to claimants. Claimants may oppose bifurcation because
they sense that they will have a more persuasive case if they can show not
only the wrongful conduct of the respondent but the harm that that
conduct has caused. Conversely, the respondent may well favor bifurcation
because he or she hopes to defeat the claimant’s case on the merits and
never have to address the issue of damages. Possible bifurcation of the
proceedings should, in appropriate cases, be one of the topics to be
discussed among the parties and the arbitrators early in the proceedings.
Having a discussion on damages early on helps to give the arbitrators
a sense of various aspects of the damages aspect of the case, including: (1) the
strength of the evidence that the claimant will present on liability – in
particular, whether the claim appears to be sufficiently meritorious for there
to be a likelihood that damages will have to be awarded; (2) the extent to
which the liability evidence is organically linked with evidence of damages and
(3) the theories presented by the parties as the bases for their positions on
damages. The arbitrators’ objective in this discussion should be to obtain at
least a fundamental understanding of the factual and theoretical bases for
the damage claims and the opposition to them.
Lawrence W. Newman has been a partner in the New York office of Baker & McKenzie since 1971, when, together with the late Professor Henry deVries, he founded the litigation department in that office. He is the author/editor of 4 works on international litigation/arbitration.
Michael Burrows, Formerly, Of Counsel, Baker & McKenzie, New York.
