THE VALUATION DATE FOR DAMAGES IN INTERNATIONAL ARBITRATION – YUKOS ARBITRATION
The valuation date for damages in international arbitration is clearly important, and it does not always coincide with date suggested by the Parties in an international arbitration. The Yukos arbitration illustrates this point.
The two most significant valuation dates for damages, from a quantum point of view, were the forced auction of Yukos to Baikal in December 2004 and the date that Yukos was struck off the company register in November 2007. The Claimants’ original claim was that the valuation date should be the highest of either the 2007 date or the date of the award.
The Tribunal found, however, that the appropriate valuation date should either be December 2004 or the date of the award (which it deemed to be 30 June 2014 for purposes of its calculation) (Final Award, para. 1777) and that Claimants should be entitled to the higher valuation (as should be the case where unlawful expropriations occur and in accordance with the ILC Articles on State Responsibility (Final Award, para. 1763)).
The Tribunal therefore established the total amount of damages caused by Respondent’s actions on each of the dates identified, composed of: 1) the value of Claimants’ shares in Yukos as of the valuation date, 2) the value of the dividends that the Tribunal determined would have been paid by Yukos up to the valuation date ‘but for’ the expropriation of Yukos, and 3) pre-award interest on these amounts (Final Award, para. 1778). It is worth noting that the Tribunal found that the possible listing of Yukos on the NYSE (and the derived benefits) and the envisaged merger with Sibneft were too uncertain to be attributable to Respondent and rejected these scenarios (Final Award, 1779, 1780). Although these were highly probable, arbitral tribunals seldom grant damages for amounts that can be deemed to be speculative.
As neither Claimants nor Respondent had performed valuations on the dates the Tribunal found to be relevant, the Tribunal had to do the valuations itself (Final Award, 1782). This is one of the most important aspects of the quantum section of the Final Award. Although forensic experts would often prefer that the Tribunal give directions to experts and expect them to reach conclusions among themselves, the Tribunal took the information put before it and made the adjustments itself on the basis of Respondent’s corrected version of Claimants’ Comparable Companies analysis (Final Award, 1782) as DCF and Comparable transactions were found to be too unreliable.
According to M. MacGregor (BDO, London), the Tribunal’s analysis rightfully shows the limitations of the DCF method, how it can be manipulated and how speculative it can be while confirming that Comparable Companies can be a very valuable valuation tool. The Tribunal’s adjustments, however, do not seem to have had back up.
The Tribunal found Yukos’ equity value in 2007 was USD 61 billion, to be reduced by the RTS Oil and Gas Index to obtain Yukos’ equity value in 2014 of USD 42 billion, then added dividends after some adjustments of USD 45 billion and interests on dividends of USD 7 billion for a total of USD 94 billion. As Claimants’ ownership of Yukos was 70.5%, its pro rata share was nearly USD 67 billion. The Tribunal then applied the 25% contributory fault figure to reach an amount of USD 50 billion.
The same methodology leads to an amount of USD 16 billion calculated at the December 2004 date, but, as mentioned, Claimants were found to be entitled to the higher of the two figures. The valuation date for damages in international arbitration used by the Arbitral Tribunal therefore represented a difference of USD 34 billion, accounting for the majority of the damages awarded.
– Olivier Marquais