In complex disputes, the value of a legal claim can be difficult to explain, quantify or rely upon for commercial decision-making. In this matter, a company required an indicative valuation of its economic interest in an investment treaty arbitration claim.  

Background

The arbitration related to a mining project in Asia. The claim concerned alleged government conduct that impaired the ability to operate, develop and derive economic benefit from the project, including issues relating to licences, project operations and the value of the investment. 

What AS Advisory did

AS Advisory was engaged to prepare an indicative valuation of the assumed economic interest in the arbitration claim for the purpose of a proposed restructure.

Given the contingent nature of the claim, AS Advisory adopted a probability-weighted net present value methodology. This approach recognised that litigation assets are not conventional operating assets and their value depends on a number of uncertain future events, including:

  • prospects of success; 
  • the quantum of damages ultimately awarded; 
  • enforcement and collection risk; 
  • the expected timing of recovery; 
  • future legal and arbitration costs; and 
  • the impact of litigation funding arrangements. 

AS Advisory reviewed the available transaction documents, arbitration materials, legal opinions, funding information and cost assumptions and devised a model to assess expected economic value. 

The outcome

The valuation gave a commercial framework for understanding the potential value of a complex and uncertain litigation asset. Rather than treating the arbitration claim as either a speculative opportunity or a headline damages figure, the valuation translated the claim into a risk-adjusted financial estimate that could be used for restructuring and investment decision-making.

This assisted the organisation to assess its investment structure, consider the allocation of economic interests, and support discussions with stakeholders using a reasoned and independent valuation framework.

Key takeaway

Litigation claims can represent significant economic value, but that value is often uncertain, illiquid and dependent on legal, funding and enforcement outcomes. A properly structured forensic valuation can help organisations make better decisions by converting legal uncertainty into a commercial model that can be tested, explained and relied upon for restructuring purposes.