To mark International Women’s Day on 8 March 2017, Practical Law Arbitration is carrying out a series of interviews with prominent women in arbitration.
In this, the third interview in the series, we interview Adriana San Román, arbitration partner at Wöss & Partners, Mexico City – Washington DC, and member of the International Council for Commercial Arbitration – American Society of International Law (ICCA-ASIL) Task Force on Damages. Adriana started her career in corporate finance before moving to a career in law. She is a leading damages consultant and damages expert in international arbitration and litigation. She has co–authored the book Damages in International Arbitration under Complex Long-term Contracts and several articles on damages in international arbitration.
In Part Two, Adriana discusses women in arbitration, the future and some career tips.
Can you tell us a bit about yourself? What made you want to be a lawyer and what made you make the leap from finance to law?
I wanted to study law because it regulates everything, and economics because it is the fuel of society. So I registered for both courses at university at the same time. However, I ended up studying law first and then took a master’s degree in economics and finance.
I worked in corporate banking for the largest bank in Mexico and then as part of the financial engineering group, where I took part in the legal and financial structuring of major projects. I later worked in a corporate law firm in structuring infrastructure projects. At this point, I decided I wanted to become independent, so I teamed up with Dr. Herfried Wöss, a prominent arbitrator, and leading arbitration and corporate lawyer and we founded Wöss & Partners, 15 years ago.
Since then, I have participated in a considerable number of projects and arbitrations, both as practitioner and as a damages expert. In 2012, I moved to Washington DC to write a book on comprehensive legal and economic damages, which was published in 2014.
Can you talk us through a typical day? How much of your time is spent on conducting arbitration cases and how much on your work as an expert?
I work 50% of the time as practitioner and the other 50% as a damages expert. However, when I work as an expert, I focus on my report 100% of the time until I finish it and then I move to another case.
How do you manage your time?
I try to do the operative things very early in the morning, and then start doing the analysis, revising legal documents, reviewing evidence, interviewing witnesses, and other things needed for the case. At lunchtime I pick up my teenage son and we have lunch together. I enjoy this time because it gives me an opportunity to be with him, clear my ideas and gain another perspective on life. I usually continue my work in the evenings, as it is quieter and I can concentrate on the details.
Damages in international arbitration
Where do most of your appointments as expert come from?
My appointments come mostly from Mexico and other Latin American countries. However, in 2018, we are planning to open another international arbitration office in Vienna.
How did your interest in the damages aspects of arbitration arise?
As a former corporate banker, I realise that everything has an economic impact on a firm, which means that if there is a breach of contract, there will be a claim for damages. As a banker, I took part in structuring projects, including evaluating and pricing risks. As a lawyer, when structuring a project, I make sure that contract reflect the risks taken, and, at the same time, aim to limit those risks in order to protect the client. When I was invited to take part in framing a damages claim in an international arbitration for the first time, I found it fascinating because I could apply all the financial and legal knowledge I had acquired.
After some arbitration cases in which I took part as counsel, companies and lawyers started asking me to act as their damages expert.
What is the remit of the ICCA-ASIL Task Force on Damages and what does your role entail?
It seeks not only to achieve consensus in the fundamentals, but also to identify and to disentangle legal and financial principles.
Can you explain a bit about the damages tool the Task Force is seeking to implement? How do you see it working in practice?
We are still at the primary stage, but it is a very ambitious project that, when finished, will provide a tool for arbitrators, practitioners and damages experts to apply best practices in commercial and investment arbitration.
What is your view of the many different methodologies adopted by arbitration tribunals in assessing damages? Should there be a move to a more consistent approach?
I think there should be freedom with regard to methodologies, but the rules should be clear; that is, the principles should apply in every international arbitration case. It should be clear what the difference is between total reparation in investment arbitration and its implications (as well as the measure of damages), and what is full compensation and the measure of damages in commercial arbitration.
In our book, we have developed a universal doctrine of damages, after analysing different rules of law, and we have come to the conclusion that, in all of the rules of law analysed (UK, USA, France, Mexico Germany, United Nations Convention on Contracts for the International Sale of Goods (CISG) and the International Institute for the Unification of Private Law (UNIDROIT)), the full compensation principle is recognised; in one way or the other, this principle means placing the injured party in the economic position it would have been in but for the breach. This means that the “but-for” method developed by Friedrich Momsen in his Doctrine of Interest in 1855, applies, because the difference between the but-for situation and the situation caused by the breach is what has to be fully compensated. That is what full compensation means: that is, compensation for the actual loss, which is the expectation interest. This is a practical doctrine that aims at fairness. It gives both sides the opportunity to defend their interests, and avoids over and under compensation.
Similarly, in any given type of claim, should there be more uniformity by investment treaty tribunals in calculating the value of an investment?
There should be more uniformity if we want to achieve fairness in investment arbitration. Normally in investment arbitration you would have an income generating investment or contract; therefore, what should be determined is the effect of the unlawful act on the income stream, which is the economic differential between the but-for situation and the actual situation, and not the value of an investment. This is often complex due to the time element involved.
It is important to clarify the implications of the total reparation principle in investment arbitration, which in essence is the application of the Chórzow formula. This means that the injured party must be compensated with the highest fair market value at the date of the award, or the date of the breach, plus the lost profits between the date of the breach and the date of the award. This formula implies that extraordinary events such as economic crises, will not be taken into consideration, which corresponds to the hypothetical normal course of events under German law. The formula has been applied, amongst others, in the Yukos v Russia cases. The question remains whether this measure should be applied in cases with a mere breach of contract under an umbrella clause.
Why do you think there remains such a wide gap in damages assessment by party appointed experts? Would it be better to just have one joint expert appointed by the tribunal?
There is a lack of clear rules and, above all, a lack of recognition of the full compensation principle and the but-for method. If this principle and method are recognised, the rules will be clearer and both parties will have the opportunity to defend their case, providing equilibrium between the parties. Compensation should be for the actual loss (that is the loss caused by the breach) that can be proved by the evidence available and after applicable limitations (which is the expectation interest).
Although full compensation principle provides the rules, it does not make things easier for the injured party, who has to prove the breach and causality, overcome limitations and provide enough evidence for each of the elements previously mentioned. Additionally, the method for calculating the damages must take into consideration reasonable assumptions, and the expert must show that the method used is the most appropriate according to the circumstances and the evidence available. There are well reasoned cases such as ADC, Yukos, Crystallex, and not so well-reasoned cases that simply cause confusion and uncertainty.
What are your thoughts on the decision in Hochtief v Argentina, where the Tribunal penalised one of the parties in costs because of its appointed expert’s failure to obey the Tribunal’s instructions?
If the party is going to be penalised when its expert does not exactly answer what the tribunal asks for, this rule should be stated as such by the tribunal to avoid uncertainty in the arbitration procedure. Additionally, the basic question did not seem to be addressed in this case, namely whether in the absence of the illegal act the company would have incurred debts. Throughout its deliberations, the arbitral tribunal takes into consideration that the company should have paid the debts before the dividends, but what if the company took these debts due to the illegal act? In that case, the but-for situation should be without the debts and the actual situation would consider the debts. This would possibly have brought a different result.