ASA Conference, Geneva, 3 February 2017

Transcription

1 Shaping Arbitral Proceedings to Deal with Claims where Quantum Depends on Information Possessed Solely by the Respondent: the Expert s View ASA Conference, Geneva, 3 February 2017 John Biggart, Director, Deloitte AG

2 I. Introduction The challenge in quantifying damages depends on amount and reliability of information available How to test the reliability of information? What information to request from the Respondent? What to do if information is not received from Respondent? How to enable disclosure of confidential information? 2

3 II. Assessing reliability of information Example methods used by the Expert to test the reliability of the information provided by the Respondent Reconciliation (e.g. audited Financial Statements; third party data) Ratio analysis Actual vs budget trend Seasonality pattern Benchmarking against competitors/industry information Sampling (judgemental or statistical) Data analytics 3

4 III. What information to request from the Respondent? Example 1: Royalty dispute Sample sales information Orders, shipping, invoices Sales information Detailed sales data Shipment information A schedule of all product shipments made by Licensee whether invoiced or not IP information Access to the IP usage tracking databases/ worksheets Inventory records Inventory records regarding IP articles Financial Statements Audited Financial Statements and management accounts for the dispute period 4

5 III. What information to request from the Respondent? (cont`d) Example 2: Earn-out disputes Earn-outs: Deferred consideration based on future performance of the business; Often used to incentivise the seller when they stay on in the business Information the quantum Expert may request from Respondent Actuals vs budget; Change in accounting policies; Management estimates; Audited Financial Statements; Earn-out disputes Typically disagreement over one of: whether prerequisites met; reasons why prerequisite not met; Calculation of earn-out Monthly management accounts; Treatment of group costs; Intra-group trading; Details re one-off transactions. Common performance indicators used in earnout clauses Financial: Revenue, EBITDA, EBIT, net profit and cash flow from operating activities; Non-Financial: official product approval or licensing, total incoming orders for a certain product or number of customers, regulatory filing or regulatory approval. A Closed Deal is not a Done Deal An earn-out may just defer a current disagreement over price to a future arbitration/ litigation. 5

6 IV. What to do if information not received from Respondent? Can make it very difficult, but use best efforts Published accounts, if available Competitor comparables General industry statistics Published accounts, if available Public media information Site visit Data available in the opposing Expert s report If information lost or destroyed, then perhaps secondary record held elsewhere Application of discounts for uncertainty 6

7 V. How to enable disclosure of confidential information? Some approaches Who will check that redactions are appropriate? Claimant s counsel; Tribunal; Redaction Tribunal s secretary; Independent third party Confidentiality Advisor ; Verification Expert. Restricted access Confidentiality Clubs; Restricted inspection; Restricted references in written material, with separate Confidential submission. Governance: Damages Expert`s Procedural Rules, Terms of Reference (ToRs), NDA; ToRs cross refer to Expert s engagement letter, which is addressed to parties and Arbitrator. Role: Third party Neutral or Expert Parties submit confidential information to the Expert, instead of to the Tribunal or other party; Expert prepares report, answering specific questions put by the parties and / or the Tribunal; If needs to give explanations that contain confidential information, refers to Tribunal for guidance. 7

8 VI. Conclusion Takeaways Reliability of information The reliability of the information on which the Expert counts on in the quantum computation can be tested in different ways Limited information Use best efforts based on information available Information request Information requested depends on: 1. Type of dispute 2. Quantum methodology Confidential information Many ways to handle confidential information 8

9 Thank you! 9

10 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited ( DTTL ), a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of DTTL and its member firms. Deloitte AG is a subsidiary of Deloitte LLP, the United Kingdom member firm of DTTL. Deloitte AG is an audit firm recognised and supervised by the Federal Audit Oversight Authority (FAOA) and the Swiss Financial Market Supervisory Authority (FINMA). This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte AG would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte AG accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication Deloitte AG. All rights reserved.