When Valuation Stops Being Reliable: Expert Judgment in an Era of Structural Instability
In international arbitration, valuation has long been treated as a technical discipline. Differences between experts were expected, but generally contained as a matter of inputs, methodologies, and professional judgment within a shared framework.
That assumption is becoming increasingly difficult to sustain.
Across a growing number of cases, valuation gaps are no longer marginal. Divergences of two, three, or even ten times in the same dispute are no longer anomalies. Empirical observations in investor–state arbitration suggest that the spread between claimant and respondent valuations frequently exceeds 100%, and in certain cases expands far beyond that range.
This is not simply a disagreement.
It reflects a deeper shift: valuation is being applied to an economic reality that no longer behaves in ways the “standardised” models were designed to capture.
The question is no longer which model is correct, but whether the models themselves remain capable of describing the reality numerically.
Where the Models Begin to Break
The core valuation approaches, namely discounted cash flows, market comparables, and asset-based methods, remain unchanged in principle. What has changed is the economic environment in which they are applied.
Discounted cash flow models are increasingly sensitive to inputs that are no longer stable. Over the past few years, global interest rates have changed at a pace not seen since the 2008 financial crisis.
Source: S&P Capital IQ.
The above mentioned fluctuations in the government bond yields affect the discount rate, and even minor variations in the latter may produce disproportionately large differences in valuation outcomes.
Market-based approaches rely on comparability. But in fragmented markets, the notion of a “comparable” company or transaction can be fragile. Dispersion in valuation multiples across geographies and sectors has widened significantly in the post-2020 environment, particularly in energy, technology, and emerging markets.
Source: S&P Capital IQ.
Historical data, often referred to as a reliable anchor for forward-looking projections, is also losing predictive power due to the volatility levels across markets.
Source: S&P Capital IQ.
Considered together, these trends suggest that valuation is no longer operating within a stable analytical framework, but within a moving system where assumptions themselves become the primary source of divergence. In other words, a mechanical extrapolation of historical performance using a template-style DCF or market multiples model may no longer be robust enough for a complex international dispute.
The “Illusion” of Precision
Despite these structural changes, valuation outputs continue to be presented, and often perceived, as precise.
A valuation expressed to the nearest dollar suggests a level of precision that is not always tested. Sensitivity analyses may be included in the expert report, but typically within constrained scenarios that do not fully capture the corresponding levels of uncertainty, especially when it comes to questions of alternative factual, legal, and causation scenarios.
The result is a form of somewhat “clean output”: internally consistent, technically defensible, but potentially detached from the instability of the underlying economic environment.
This “illusion” of precision may significantly distort any arbitral proceedings. Tribunals are asked to choose between competing valuations that appear rigorous in isolation, but are often built on fundamentally different interpretations of uncertain economic conditions or hypothetical scenarios.
From Competing Models to Competing Realities
What emerges in many cases is not merely a disagreement between experts, but a divergence in how the underlying circumstances are framed.
For example, one expert may assume an indefinite continuity of a business, while another may consider disruptions or risks affecting the going concern nature of the same economic enterprise.
Both positions can be technically coherent. Both can rely on accepted valuation methodologies. But they may lead to fundamentally different valuation outcomes.
In this context, one may see a shift in the nature of and approach to cross-examination of experts. Cross-examination may no longer be only about testing the accuracy of calculations or challenging individual assumptions, but more of an examination of the internal logic of the expert’s position as to how any uncertainty is identified, considered, and translated to the final conclusion.
The arbitration community commentary and practice increasingly indicate that tribunals are faced not only with competing calculations, but with competing narratives of reality.
The Changing Role of the Expert
When the reliability of “standardised” valuation models is questioned, the role of the expert inevitably evolves.
The expert is no longer simply a “live” calculator, instead the expert becomes an interpreter of uncertainty.
This change places greater emphasis on:
- transparency of assumptions;
- internal consistency of reasoning;
- ability to explain and defend methodological choices under pressure, including via means of joint expert reports, cross-examination, or “hot-tubbing” (witness conferencing).
Tribunals are increasingly evaluating not only the outcome of a valuation, but the credibility of the process and the robustness of the expert’s reasoning. As a result, expertise is no longer defined solely by methodological correctness, but by the capacity to articulate and incorporate the impact of economic uncertainty in the assessment of damages.
Implications for Arbitral Decision-Making
For tribunals, this transformation presents a challenge.
Traditional approaches assume that a “reasonable” valuation can be identified within a range. But when that range expands significantly, the decision becomes less about deciding on the “best” calculation methodology, and more about deciding on the most coherent account of reality and commercial sense.
This in turn raises difficult questions.
To what extent should tribunals rely on models built on assumptions of stability, continuity, and no-alternative scenarios? How should they weigh in expert opinions grounded in fundamentally different views, especially if those views rely on alternative factual or legal instructions? Can uncertainty itself be quantified in a standardised way, or is it inherently irreducible?
These questions are no longer theoretical. They are becoming central to arbitral practice.
Conclusion: What Are We Asking Experts to Opine On?
Valuation has not ceased to be a technical exercise, but it is no longer only the mechanics.
As economic and geopolitical conditions become more volatile, valuation increasingly reflects not solely data and standard methodologies, but interpretation and professional judgment.
This does not weaken the role of the expert, but rather redefines it.
If competing valuation models no longer converge within broadly reasonable bounds, then the task of the expert cannot be limited to producing a set of numbers.
It becomes something more demanding: to construct a coherent, transparent, and defensible valuation narrative based on a sound commercial judgment in a world where stability may no longer be assumed.
Which leads to a final, but not new, question.
If “valuation is an art, not an exact science” – what exactly are we asking experts to opine on?
