Managing disputes in the oil and gas industry

In the recent past, India has witnessed a scenario where several oil and gas contracts were involved in litigation or arbitration matters, primarily because of issues around interpretation of contractual terms or cost sharing. In many cases it has been seen that the resolution of such disputes requires significant involvement of experts such as drilling engineers, scientists, statisticians and accountants.

Disputes are increasingly being resolved through arbitration as it is considered as one of the most effective ways that offers neutrality, impartial arbitration, expert assistance, confidentiality and global enforceability of decisions. The purpose of using experts in dispute settlements is essentially to help the Arbitration Panel understand and evaluate the “technical aspects” of issues and claims. The inclusion of expert witnesses is critical to the arbitration process – which could be the determining factor in the outcome of the hearing. The use of expert witnesses in arbitration hearings has seen significant increase – in these cases, the dispute depends upon the professional or technical expertise of the individual and there is higher probability of expert witnesses in such proceedings.

Today’s business environment has become quite complex and it has been observed that a significant number of commercial disputes cannot be resolved without the assistance of one or more experts who can decrypt complicated technical issues into simple facts.

Determining need of expert evidence

The parties involved in the dispute and their legal counsels tend to frequently engage with experts to provide assistance in evaluating the financial and related business aspects of issues. As the appointed arbitrators may not always be subject matter experts, they require assistance in assessing and weighing the complicated issues. For example, estimating the damage compensation in international arbitration disputes involving the oil & gas industry requires deep understanding about the peculiarities of the industry and accounting practices. While evaluating the damages, many key perspectives may be required as valuing future revenues as expected profits (future) may be affected. Hence, such disputes would typically require the support of an expert.

There is a general rule that witnesses should state facts and not opinions. Therefore, the crucial difference with an expert witness and a factual witness is that the former is entitled to express opinions on the facts. In doing so, the role of the expert is to give objective, unbiased assistance to the tribunal of facts on matters within their purview.

The term ‘expert determination’ describes a process where both parties in question mutually agree to appoint a third party (the expert), who is neutral and independent. The expert will then help formulate and prepare the party’s claim or defence – and the latter is bound by the expert’s decision.

The prominent feature of the expert is that in general, they are free to use their knowledge, expertise, approach and experience to investigate the issue that has been referred, taking account of the submissions. However, judges and arbitrators are confined to decide the issues on the basis of the submissions and evidence submitted by the parties. In cases where the nature of the issue is technical, experts play a very essential and crucial role as they have been carefully selected because of their relevant expertise. This is one of the greatest strengths of expert determination.

Benefits of having experts on board

The inclusion of an appropriate expert witness is critical to the entire process and is important when putting forward key arguments, facts and analysis. These act as determining factors for the outcome of the hearing. Aspects such as quantification of damages, market evaluation, financial analysis and loss of profit primarily require accounting expertise. However, an appropriate expert could help the parties in presenting complicated issues in a simplified manner, which can be easily understood by tribunal.

It is recommended to engage or retain experts in the early stages of any dispute which could result in finding crucial facts. This may strengthen or analyse the weaknesses of the case.

The use of experts does not always end with the hearing. It is often necessary to turn to their knowledge and review parts of the records, documentation and comment around the testimony of the opponent’s expert. Without this assistance, it may be difficult for the lawyers to identify potential weaknesses in the testimony – which is used to prepare the post hearing submission.

Forensic expert witness

Witness statements are particularly helpful for arbitration cases that deal with complex issues. These may be financial, technical or other commercial in nature. The work of forensic experts customarily relates to investigating, analysing and reporting on accounting and commercial issues for actual and potential use in the dispute resolution process.

The skills and experiences of forensic experts differ significantly from those which primarily conduct conventional auditing. Such specialists can be valuable in helping assess the damages which are claimed at the stages of arbitration.

Gathering of facts

Forensic experts will request for the disclosure of documents and records which are available from all other sources and organization, apart from reviewing all the records prepared by the company. In practical business environments, the amount of electronically stored information in the form of financial information, emails, documents that are held within the company can be vast. Hence, working with the forensic expert will help in finding relevant information within the data, leveraging their knowledge, skill and forensic technology.

During accounting reviews, forensic experts can evaluate the damages and prepare claims and counter-claims. For example, in any dispute involving monetary damages, experts will calculate the value of the company by using well recognised valuation methodologies. These could involve projecting all cash flows multiple earning of the company and scrutinizing all transactions.

Way forward    

The parties appointing and instructing forensic experts to value businesses and damages should take particular care on defining the scope of their instructions. In such circumstances, the experts have a duty to guide and discuss with the lawyers on the various choices available.

During arbitration proceedings, it is the duty of the Counsel also to play a pivotal role and present the expert evidence to the best of their advantage. However, it is imperative to note that it is the expert’s duty to identify and highlight all the aspects that should be taken into consideration.

Forensic experts in commercial disputes could be investigators as well as accountants, and this combination is very helpful in evaluating the quantum of damages. The deep technical expertise and ability to conduct investigations and valuations can result in creating a productive factual evidence report, which will help the tribunal conclude the dispute.

(This post originally appeared in the PetroFed Journal) 

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