This article was featured in our 2023 Energy Arbitration Report, which is part of a series of industry-focused arbitration reports edited by Jus Connect and Jus Mundi.
This issue explores the energy industry, encompassing information on electricity & renewables, based on data available on Jus Mundi and Jus Connect as of September 2023. Discover updated insights into energy arbitration and exclusive statistics & rankings, as well as in-depth global and regional perspectives on energy projects, disputes, & arbitration from leading lawyers, arbitrators, experts, arbitral institutions, and in-house counsel.
THE AUTHORS:
Ajey Chandra, Executive Vice President at Baker & O’Brien
Peter Bartlett, Managing Director, London, Baker & O’Brien
Can We Adopt a Best Practice from the Energy Industry To Improve Our Performance in Arbitration?
If you simply take up the attitude of defending a mistake, there will be no hope of improvement.
Winston Churchill
At Baker & O’Brien, most of us are engineers with extensive energy industry experience, including developing and implementing major projects. An industry best practice is to evaluate a completed project retrospectively to develop “lessons learned” on what went well and what could have been done better. We apply this practice in our consulting work, learning from our arbitration expert witness experiences. In this article, we share a few insights that we hope will serve as catalysts for continued discussion and improvement.
Our Experience in Energy Arbitrations
Let us set the stage with a brief description of our experience so that readers can gauge how our insights apply to their cases. Clients engage us as independent experts to assist in arbitrations across the energy value chain. Our engagements span oil and gas production through transportation and processing (refining, petrochemicals, liquefied natural gas (LNG), and power generation) to industrial energy consumers. Our expert assignments typically fall into two general categories: (1) liability and root cause; and (2) damages/quantum analysis. Our engagements involve a wide range of economic damages in dispute – from relatively modest amounts (<US$10 million) to high-stakes claims involving billions.
In the Liability and Root Cause category, we determine what went wrong and who was at fault. In engineering, procurement, and construction (EPC) execution-related disputes, the issues often concern the adequacy of the front-end engineering and design (FEED). Other common execution issues in dispute include delayed or defective work, performance of modular subcontracts, long-lead procurement items, and change order validity and management (or mismanagement). Once the EPC project transitions from construction to commissioning, disputes often develop over the contractor versus owner roles and responsibilities for preparing the plant for startup, testing, and operation.
In matters requiring Damages/Quantum expertise, the focus shifts from liability to economic valuation – putting a price tag on the alleged financial harm and moving from “who” to “how much.” Generally, these disputes pertain to: (1) commercial terms (e.g., supply or offtake, force majeure); (2) business or asset valuation; and (3) insurance claims for business interruption and property damage.
Opposing experts often disagree on fundamentals, such as the calculation methodology and the appropriate baseline. Further points of disagreement include forecasting commodity prices and profit margins and the appropriate discount rate to apply to future cash flows for determining a present value. What common lessons have we learned assisting with energy arbitrations?
Learnings and Perspectives
The following five categories capture the high-level focus areas and some of the nuanced perspectives.
TIMING OF THE EXPERT ENGAGEMENT
The timing of an expert engagement impacts the cost of services, the breadth and depth of assistance, and ultimately the quality of the work. Our advice is to engage the experts earlier than you think necessary. When engaged early in the process, we can facilitate independent investigation, understand better the underlying issues, and provide a more perceptive and quantitative analysis. For example, we may draw on our industry experience to identify key issues and questions not yet identified by the legal team. Engaging an expert in advance of receiving opposing expert reports is highly recommended so that suitable upfront analysis on expected key issues can be performed, and a suitable reply report submitted.
EXPERT TEAM
When appointing an expert, a counsel may face a trade-off between an expert with deep subject matter expertise versus one with more extensive testifying experience. A thoroughly prepared expert with an exceptional grasp of the core issues and the ability to explain them in a simple manner can best assist the tribunal. In matters with multiple testifying experts, delineating each expert’s opinion area is essential to control the risk of overlap and conflict. Thus, a key point to learn is the importance of regularly challenging the size and experience of the expert team.
EXPERT INSTRUCTION
Expert instructions require careful attention. Relevant, clear, and specific instructions or questions enhance the clarity and focus of expert reports. Instructions should be delivered from a single source, as multiple sources have the potential to result in conflicting directions. We have experienced subtle differences when instructions were given by multiple counsels,
for example, in client joint venture situations. The involvement of barristers provides a fresh perspective; however, their input on instructions, especially when late in the process, can create confusion and late-stage redrafting.
JOINT EXPERT CONFERRALS
It is common for tribunals to instruct the experts to hold joint conferrals to identify the areas of agreement, allowing experts and tribunals to focus on the major disputed issues. Baker & O’Brien has been involved in very effective joint expert conferrals; however, we have experienced occasions where the process became an arduous war of attrition. The process is most effective when the experts collaborate on a joint report that focuses on the main issues to assist the tribunal.
REPORT WRITING
Preparation is the key to success in expert testimony. And preparation is founded on a solid report, reflecting an intimate understanding of facts. The secret to a well-written and credible expert report is to begin an early draft to move towards a defined structure. This is the surest way of establishing the critical issues and identifying the gaps in documentation and evidence. Experts should lay out their logic and methodology, explain how they have applied their experience and draw their opinions from the underlying evidence. Critically, reports should be easy to read. Finding the right balance between technical detail and readability is critical for articulating credible opinions.
Conclusion
Expert assignments for energy-related arbitrations have many common issues that cut across engagement types. We strive to learn from them to provide credible and perceptive opinions that assist the tribunal.
ABOUT THE AUTHORS
Ajey Chandra is Executive Vice President of Baker & O’Brien, based in Houston. He is a recognized expert in the energy “midstream” (natural gas and natural gas liquids) and has testified in international arbitrations and courts.
Peter Bartlett is the Managing Director of Baker & O’Brien‘s London office. His expertise includes petroleum refining and developing and implementing large energy projects. He has testified in several energy international arbitrations.
Find more data-backed insights in our 2023 Energy Arbitration Report
