Damages & Forensic Investigations Matters
Our portfolio reflects decades of international experience providing expert opinions in Commercial and Treaty Arbitrations as well as in National Courts and regulatory bodies. The following is a representative sampling of our engagements to provide greater insight into the depth and breadth of our capabilities.
Aeronautics Industry / Wasted Cost Assessment
Nature of dispute: The Claimant, a manufacturer of engine components for the aeronautics industry, invested in the development of a production line in North America for a new aircraft program at the request of a client (the Respondent). Following numerous delays and issues with the qualification process, the production line never received the required certification to begin production. The Claimant initiated an ICC arbitration to seek compensation for its losses.
Assignment: Secretariat professionals were engaged by the Claimant to provide expert testimony on the losses incurred. Our assignment included identifying the boundaries of the claim and quantifying the losses incurred. The losses consisted mainly of sunk costs including the value of time spent by employees and management in the project and pre-award interest.
Outcome: Our expert testimony allowed the Claimant to obtain a favorable award in compensation for its losses with only minor adjustments to our calculation. The award also stipulated that 100% of the tribunal expenses and 70% of the legal and expert fees paid by the Claimant should be supported by the Respondent.
Chemical Manufacturing / Invoice Analysis and Wasted Cost Assessment
Nature of dispute: The Claimant was engaged as part of a rebuild of a chemical plant seriously damaged by fire. The Claimant performed a substantial amount of work but then the rebuild was cancelled as the owner abandoned the rebuild project and shut the plant down permanently. The Claimant’s last invoices were not paid by the owner and the Claimant initiated arbitration proceedings against the owner. The owner counterclaimed for lost profits and wasted costs as a consequence of the partial rebuild.
Assignment: Secretariat professionals were engaged by the Claimant to provide expert testimony in the ICC Arbitration in Scandinavia on its claim for non-payment of invoices and in respect of the counterclaim for lost profits and wasted costs.
Outcome: We analyzed the Claimant’s invoices which contained a very large volume of elements running into tens of thousands of rows of data. We performed data analysis to identify a suitable sample to review which provided sufficient coverage of the monetary amount and specifically critically analyzed the Respondent’s reasons for non-payment. The counterclaim involved a detailed assessment of costs and project appraisals including determination of what was known or knowable at various critical stages of the project.
Construction / Delay Cash Flow Assessment
Nature of dispute: A Concessionaire entered into a private public partnership (PPP) road building project in Central Europe. The project was delayed through no fault of the Concessionaire, but as a result of these delays the Concessionaire didn’t receive payments on time resulting in cash flow problems, resulting in a risk of insolvency and an inability to complete the project.
Assignment: Secretariat professionals were appointed to provide expert services in an ICC Arbitration in Central Europe, instructed on behalf of the Concessionaire to opine on the impact of the cash flow delays.
Outcome: We analyzed the complex PPP financial model and assessed how delays caused by the Public Authority impacted the revenues of the Concessionaire. We supported our client with its preparation of an application for interim measures required to ensure the viability of the Claimant through the main arbitration. This involved a detailed review of cash flows within a very complex financial model, taking into account for example, contractual provisions, the timing of tax payments in the local jurisdiction, capital expenditure timings, and how each cash flow was impacted by delays to the project.
Construction / Cartel Assessment
Nature of dispute: The Respondent, a construction company, was accused by the government of colluding with other construction companies in tendering for public infrastructure projects in order to fix higher prices.
Assignment: Secretariat professionals were appointed to form an opinion as to whether allegations that cartel collusion had occurred were supported by the evidence or whether there were other explanations for the pricing of bids submitted by the contractor.
Outcome: We were instructed to respond to the Claimant’s expert report which involved a detailed analysis of tender costs and the bidding process for construction projects. Secretariat damages professionals collaborated with a Quantity Surveyor colleague (who assisted with knowledge of the industry and the interpretation of evidence underlying the tender) to assess whether the bid data from the contractor and bid data from the other tenderers demonstrated that there was a cartel.
Construction / Overheads Assessment
Nature of dispute: Loss of overheads contribution and profits in a construction dispute in the hospitality sector where a contractor claimed that a delay to a construction project caused them a loss of contribution to head office overheads and profits.
Assignment: Secretariat professionals were appointed to provide expert services in an adjudication claim in respect of loss of overheads contribution and profits and to opine of the reasonableness of the application of the Hudson formula, the Emden formula and the Eichleay formula.
Outcome: Secretariat damages professionals, working alongside a quantity surveyor colleague, evaluated the Claimant’s calculation prepared using the three Hudson, Emden and Eichleay formulae widely used in construction delay claims and compared them to a reasonable assessment derived from our own knowledge of overhead and profit assessments. The work involved a detailed review of the Claimant’s financial statements to determine returns which the Claimant would have achieved during the delay period and a re-calculation of the loss of overheads contribution and profits using a more appropriate methodology.
Energy and Natural Resources / Contractual Dispute
Nature of dispute: An Operating Agreement dispute as to what specific costs could be charged to the Joint Account in respect of a North Sea oil field following a corporate transaction that changed the cost structure of the Operator.
Assignment: A Secretariat Managing Director was appointed as the Expert Determiner to determine what amounts could be charged by the Operator to the Joint Venture.
Outcome: We considered the submissions from both sides setting out legal and accounting arguments, including legal pleadings, factual witness statements, expert accounting evidence and documentary evidence. We instructed a QC to provide an opinion on the legal matters and then applied the QC’s opinion and our accounting opinion to determine the amounts that could be charged to the Joint Venture. This required detailed analysis of large volumes of cost and accounting data and working with complex legal issues.
Financial Services / Loss of Profit Assessment
Nature of dispute: Calculation of potential damages to a Company resulting from its involvement in a tax shelter.
Assignment: Secretariat professionals were engaged by a Major Wall Street Investment Bank in a dispute with a Fortune 500 Corporation resulting from a tax shelter provided by the Bank and to assess the alleged damages claimed by the Corporation.
Outcome: The analysis required an understanding of two foreign partnerships, including the flow of funds, profits and losses, nature and characteristics of the financial instruments bought and sold, economic relationship between the partners, use of interest rate swaps as hedging strategies employed by the individual partners, ability of the partnerships to hedge certain business risks and ultimately damages. The results of our analysis led to a successful settlement for our client.
Financial Services / Accounting Procedure and Valuation Assessment
Nature of dispute: Assessing the Lehman Brothers Bankruptcy.
Assignment: Secretariat professionals were appointed to provide financial advice to the Lehman Brothers bankruptcy examiner, Anton Valukas.
Outcome: We investigated breaches of fiduciary duty with regard to firm risk management and reporting, as well as investment in residential mortgages, and co-led teams investigating Lehman’s solvency and the valuation of Lehman’s assets.
Gaming / Assessment of the Loss of Value Due to Government Expropriation
Nature of dispute: The Claimant was a large privately-owned gaming company that had acquired an exclusive license to operate casinos, slot machine halls, and lottery activities in the Respondent’s jurisdiction, and it operated these businesses for over a decade. The Respondent ultimately revoked the Claimant’s gaming license based on its position that the Claimant had allegedly violated the regulatory framework in place in its jurisdiction.
Assignment: Secretariat professionals were engaged by the Claimant to quantify the economic damages it allegedly sustained in connection with its ICSID claim against the government that revoked its gaming license.
Outcome: We prepared a valuation of the Claimant’s gaming license as at the revocation date using the discounted cash flow method, based on a robust financial model that incorporated the forecasted revenues, costs and economic assumptions in 2013. We also considered market-based valuation methods to test the reasonability of our conclusions under our primary valuation approach. We testified on valuation and economic damages issues at a hearing held at the ICC in Paris.
Manufacturing / Loss of Profit Assessment
Nature of dispute: A manufacturer in the wood panel sector suffered lost production when its power plant failed. The manufacturer received payments from its insurer in respect of a business interruption claim and the insurer initiated the lost profits following a disruption of power supply.
Assignment: Secretariat professionals were appointed to provide expert services on behalf of the Respondent in the LCIA Arbitration to assess the business interruption lost profits derived from the loss of power, net of any mitigation.
Outcome: We carried out a detailed analysis of the opposing expert’s analysis of lost production, increased energy costs and ensuing lost profits and costs of mitigation. Finding the Claimant’s model to be unreliable and cumbersome we produced our own model and made our own assessment of the losses suffered as a result of the interruption to self-generated power.
Mining / Assessment of the Loss of Value Due to Government Expropriation
Nature of dispute: The Claimant was a publicly traded junior mining company that owned a development stage gold mine in a foreign jurisdiction. The Claimant alleged that its mining concessions were wrongfully terminated by the government of that jurisdiction.
Assignment: Secretariat professionals were engaged by the Claimant to quantify the economic damages it allegedly sustained in connection with its ICSID claim against the government that terminated its mining concessions.
Outcome: We prepared a valuation of the gold mine using the discounted cash flow method, based on a robust financial model that incorporated the forecasted revenues, costs and technical aspects of the mine, as well as the economics of the gold market at the valuation date. In addition, we considered various market-based valuation methods to test the reasonability of our conclusions under our primary valuation approach.
We also filed a report in connection with the jurisdictional hearing, whereby we analyzed the date at which the Claimant’s investment in the gold mine became substantially worthless, based on our detailed review and analysis of financial data and public disclosures. The Claimant was ultimately successful at its jurisdiction hearing.
We testified on valuation and economic damages issues at a hearing held at the World Bank in Washington, D.C.
Medical Device / Loss of Profit Assessment
Nature of dispute: The Claimant was a distributor of the Respondent and the Claimant claimed to be inappropriately terminated.
Assignment: Secretariat professionals were required to develop an understanding of how the sales quotas in the contract were calculated and to assess and provide rebuttal testimony regarding the damages claims made by the terminated distributor.
Outcome: We analyzed the markets in the relevant sales territories, assessed historical and projected performance of the distributor, and determined company and product level financial performance. We ultimately provided a damages report that was relied upon in preference to the Claimant’s damages expert in awarding damages.
Nuclear / Loss of Profit Assessment
Nature of dispute: The Claimant was a supplier of nuclear fuel under a long-term supply agreement with an energy provider (Respondent).
Assignment: Secretariat professionals were appointed to analyze the economic impact of a breach of the supply agreement.
Outcome: The Claimant had presented a claim for over $700 million based on their expert’s interpretation of the supply agreement. Our experience suggested that the contract should be analyzed from a different point of view with resultant damages of $40 million. The arbitral tribunal agreed completely with our analysis which was presented at the hearing.
Oil & Gas / Loss of Profit Assessment
Nature of dispute: The Claimant was the operator of a natural gas and crude oil gathering system initiated arbitration proceedings to collect a balloon payment in excess of $200 million, even though the contract did not contain the concept of a balloon payment.
Assignment: Secretariat professionals were appointed to provide expert testimony on behalf of the non-operator on industry custom and practice related to negotiation of gathering and processing fees, methodologies related to the calculation of such fees and to provide an opinion of whether the methodology described in the gathering agreement was being followed.
Outcome: The client relied on our long term industry experience to educate and provide insights into the importance of having clear documentation in gathering contracts, and to follow the terms as they are written. The panel agreed with the expert testimony, quoting the expert in the award, stating “we have expert testimony indicating that the rate language of a gathering agreement is the most intensely negotiated language.” The panel rendered a unanimous “take nothing” decision on behalf of our client.
Oil & Gas / Loss of Profit Assessment
Nature of dispute: The operator of a natural gas gathering system in one of the US Shale Plays was not fulfilling its role in the appropriate calculation and assessment of natural gas gathering fees. Under a Joint Operating Agreement and Ancillary Facilities Agreements there were clear guidelines for the calculation of fees.
Assignment: Secretariat professionals worked with the non-operator in defining the damages and developing the basis of the claim is arbitration. Calculation of damages was the primary focus, but additional industry expertise was required in the form of expert testimony on industry practices for development of gathering rates.
Outcome: The client relied on our extensive industry expertise in the calculation of long-term gathering fees, providing clear understanding of industry practice related to the obligation of operators in developing gathering fees correctly and in accordance with industry practice. Further, we assisted the client and the panel in the correct calculation of damages and communication of the correct message related to industry practice. The panel issued an award in favor of our client, and then asked us to calculate the final damage award.
Oil & Gas / Valuation Assessment
Nature of dispute: A party to a Farm-in Agreement alleged a breach of the agreement.
Assignment: Secretariat professionals analyzed the Farm-in Agreement to determine the economic consequences of the alleged breach.
Outcome: The Claimant had presented a claim for approximately $1 billion based on their technical and economic expert’s opinion. We worked with a technical expert and prepared an expert report that determined the Oil & Gas property subject to the Farm-in Agreement had no commercial value at the valuation date. We presented our evidence to the arbitral tribunal who agreed completely with our analysis.
Oil & Gas / Valuation Assessment
Nature of dispute: Breach of Share Purchase Agreement warranties following the sale by an oil major of its operations in Sub Saharan Africa to a private equity buyer.
Assignment: Secretariat professionals provided expert services in assessing whether accounting warranties had been breached and assessing the quantum of loss arising from accounting, tax and other alleged breaches of warranties.
Outcome: We were instructed by the Respondent to respond to allegations of breach of warranties under accounting warranties and tax warranties and the assessment of damages for all alleged warranty breaches. The work involved obtaining a detailed understanding of the operation of the various joint operating agreements and production sharing contracts in force. Key areas of focus were the assessment of materiality; the valuation methodology; weighted average cost of capital and multiplier; expectations when operating in the specific country where there is frequent government intervention; and an assessment of damages.
Orthodontics / Loss of Profit Assessment
Nature of dispute: The Respondent sold to the Claimant a new orthodontic solution that it had developed. The Share Purchase Agreement included an earn out mechanism that should have benefited the Respondent had the Claimant used reasonable effort to develop and market the new orthodontic solution. However, the Claimant failed to use reasonable effort and eventually initiated an arbitration claiming the Respondent was responsible for its failure to develop and market the product and asking for the reimbursement of earn out advanced payments.
Assignment: Secretariat professionals were engaged by the Respondent to perform a preliminary assessment of a possible counterclaim and assess the opportunity of a counterclaim for lost earn out. We eventually prepared expert reports assessing the market share that could have been achieved by the new solution had the Claimant used reasonable effort and quantified the net present value of the lost earn out attributable to the Respondent under two alternative scenarios.
Outcome: Based on our expert work, the tribunal rejected in its entirety the Claimant’s damages claim and awarded the Respondent for its counterclaim the amount that we had calculated under one of the two scenarios considered. The award also stipulated that the Claimant should support 80% of the tribunal expenses, and more than 50% of the legal and expert fees incurred by the Respondent.
Pharmaceutical / Loss of Profit Assessment
Nature of dispute: The dispute was an ICSID claim under NAFTA involving the largest Canadian-owned pharmaceutical company in Canada. As a manufacturer of drugs for export to the US, the drugs are subject to the US Federal Food, Drug and Cosmetic Act. In August 2009, the FDA issued an Import Alert for two manufacturing facilities located in Canada which produced solid dose drug products for the US market. The Import Alert signaled that drugs from these facilities were adulterated and could be detained at the US border without physical examination. The FDA lifted the Import Alert for these facilities in June/July 2011.
Assignment: Secretariat professionals were engaged to quantify damages arising from the Import Alert. To assess lost profits, we examined historical profits of all solid dose drug products produced from the affected facilities sold in the US prior to the Import Alert, and the ramp-up of profits for the products that were re-launched into the US after the lift of the Import Alert.
Outcome: In our expert report submitted to the Tribunal in July 2012, we assisted the client in quantifying its financial losses to be up to US$ 1.5 billion. Our financial analysis considered approximately 90 drug products for the US market.
Pharmaceutical / Loss of Profit Assessment
Nature of dispute: The dispute was between a US-based biopharmaceutical company who was the Claimant and a Japanese pharmaceutical company brought under the International Centre for Dispute Resolution of the American Arbitration Association. The dispute was in relation to a license agreement for the development and commercialization of a branded drug product for the market in Japan.
Assignment: Secretariat professionals were engaged by the Claimant to prepare an expert opinion report quantifying the net present value of the Respondent’s rights for the drug under the agreement and providing comments on other expert reports. Our assessment included: i) analysis of the historical and forecasted cancer patient population, cancer incidence and survival rate in Japan; ii) sensitivity analysis and break-even analysis based on key net present value inputs such as price, market share, impact of generic entry and the discount rate; and iii) review of the appropriateness of deducting various costs in a net present value analysis.
Outcome: Our expert report was finalized quantifying positive net present values under a number of scenarios. The Claimant and the Respondent settled the dispute shortly thereafter both parties exchanged mutual releases and the Respondent agreed to pay an amount to the Claimant.
Shipping / Custodia Legis Expense Assessment
Nature of dispute: A Custodia Legis expense claim following the arrest and subsequent sale of a vessel.
Assignment: US district court proceedings evaluating documents and financial records filed in support of a custodia legis expense claim.
Outcome: Secretariat professionals were instructed to review a report of the opposing party’s accountants which set out their analysis of certain intercompany balances and to comment on the reliability and completeness of the procedures performed. The work involved an examination of relationships between companies involved in the management and day-to-day operation of the vessel and scrutinising transactions between the parties, including a review of the underlying accounting records and cash movements, as well as a critique of the opposing expert accountants’ approach and methodology.
Steel Milling / Loss of Profit and Penalties Assessment
Nature of dispute: A Brazilian manufacturer of long steel entered into a supply and supervision agreement with a Chinese contractor for a new plant. It was alleged that the design, build quality and training of staff were deficient and this resulted in a loss of production, defective products, and an inability to produce certain products.
Assignment: Secretariat professionals were appointed to provide expert witness services assessing delay penalties and lost profits as a result of the various deficiencies that have been alleged.
Outcome: We performed a detailed assessment of the actual performance of the steel mill compared to that as warranted, to determine the effect of defective products and the inadequate range of products on profit margin, and of the overall supply and demand in the Brazilian market. We modelled the profits that would had been made, had the steel mill been free of design and manufacturing defects and had staff received proper training. We also considered hundreds of communications in relation to the shipping of plant and equipment to reconcile the content of cargos and to match against delivery schedules to assess the period of certain delays.
Telecommunications / Valuation Assessment
Nature of dispute: Allegations of a breach of Share Purchase Agreement warranties following the sale of a telecommunications broking business.
Assignment: Secretariat professionals were appointed to provide expert services in respect of breach of warranties in a Share Purchase Agreement on behalf of its former shareholders, assessing both liability in respect of accounting breaches and the quantum of loss.
Outcome: We were instructed by the former shareholders initially pre-action to assess the validity of the Claimant’s potential claim against the former shareholders. This involved reconstructing accounting data run entirely through manual Excel workbooks and assessing what EBITDA should have been in the relevant period had the accounting been undertaken correctly. In addition, we were then required to assess the valuation methodology and other appropriate valuation methodologies for the sale of the telecommunication broking businesses.