The Czech Republic v Diag Human SE & Anor [2025] EWCA Civ 998

[2025] EWCA Civ 998Case Nos: CA-2024-000977, CA-2024-000986 & CA-2024-002663
IN THE COURT OF APPEAL (CIVIL DIVISION)
[2024] EWHC 503 (Comm)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
KING’S BENCH DIVISION
COMMERCIAL COURT
Mr Justice Foxton
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 28/07/2025
Before
LORD JUSTICE MALESLORD JUSTICE POPPLEWELLLADY JUSTICE ANDREWS
CA-2024-000986
Between
THE CZECH REPUBLICRespondentDIAG HUMAN SEAppellants/JOSEF STAVADefendants
Between
And between:Appellant/CA-2024-000977 and CA-2024-002663ClaimantTHE CZECH REPUBLICAppellantDIAG HUMAN SERespondents/JOSEF STAVADefendants
Lord Verdirame KC, Philip Riches KC, Kate Parlett, Jonathan Ketcheson, & Sam Goodman (instructed by Mishcon de Reya LLP) for Diag Human SE and Mr StavaLucas Bastin KC, Peter Webster & Richard Hoyle (instructed by Arnold & Porter Kaye Scholar (UK) LLP) for Czech RepublicHearing Hearing date: 15 July 2025
Approved JudgmentThis judgment was handed down remotely at 10.30am on 28 July 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives..............................
[1]On 7th May 2025 we handed down judgment in three appeals dealing with challenges by the Czech Republic (‘CZR’) under s.67 and s.68 of the Arbitration Act 1996 (‘AA 1996’) to an arbitration award by which Mr Josef Stava and Diag Human SE (‘Diag SE’) were awarded sums approximately equivalent to US$350 million plus interest against CZR. The award (‘the BIT Award’) was made pursuant to a bilateral investment treaty (‘the BIT’) between Switzerland and CZR which protected investments in one contracting state (here CZR) by investors of the other contracting state (here Switzerland).[2]The result of our judgment, taken together with the decisions of Mr Justice Foxton on issues from which there was no appeal, was that CZR’s challenges to the BIT Award in favour of Mr Stava failed, but its challenge to the award in favour of Diag SE succeeded on the basis that Diag SE was not a qualified investor for the purpose of the BIT, so that the arbitral tribunal had no substantive jurisdiction over the dispute between Diag SE and CZR within the meaning of s.30 AA 1996. As we said at para 195 of our judgment, this means that the award in favour of Diag SE must be set aside.[3]The parties have been unable to agree the terms of an order to give effect to our judgment. Exchanges of written submissions revealed a fundamental dispute as to the effect on the award in favour of Mr Stava of our decision that the award in favour of Diag SE must be set aside. Accordingly we held an oral hearing on 15th July 2025 so that the rival positions could be explored.[4]In short, CZR contends that the award in favour of Mr Stava is dependent on, and not severable from, the award in favour of Diag SE, so that the setting aside of the award in favour of Diag SE means that the award in favour of Mr Stava must also be set aside. Mr Stava’s position is that the setting aside of the award in favour of Diag SE does not affect the award in his favour, which should be confirmed.[5]In addition there are issues as to the effect of our decision on the costs of the arbitration and as to undertakings given by Mr Stava and Diag SE to prevent double recovery as a result of potential enforcement of the award dated 4th August 2008 of the Commercial Arbitration tribunal (‘the 2008 Award’).

Background and recent developments

[6]The circumstances in which the disputes between the parties arose, the nature of those disputes and the jurisdictional and other challenges to which they have given rise are described in our judgment and need not be repeated here. However, we should mention some recent developments, which have occurred since the hand down of our judgment.[7]The first such development is that the arbitral tribunal has issued a further award (‘the Remittal Award’) on the issue remitted to it by the order of Mr Justice Foxton dated 11th April 2024. That issue was: ‘Whether any damages should be reduced by 30% because of an assignment by Diag Human a.s. to a third party, Mr Jiri Orsula, of 30% of the value of Diag Human a.s.’s claim’.[8]The tribunal’s answer was that the damages should not be reduced, so that CZR ‘remains obliged to pay Claimants [i.e. both Diag SE and Mr Stava] 100% of the amount granted in the [BIT Award]’.[9]The tribunal issued the Remittal Award despite having been informed by CZR’s solicitors on 7th May 2025 that we had decided in our judgment that the award in favour of Diag SE must be set aside. It did so on the ground that it had not invited any post-hearing submissions and was not willing to receive submissions on the effect of our judgment.[10]This led to three applications made by CZR. The first was a challenge to all three members of the tribunal on the basis that the issue of the Remittal Award, despite the tribunal having been informed of our decision that the award in favour of Diag SE must be set aside, gave rise to justifiable doubts about the impartiality of the tribunal. This application, made to the Permanent Court of Arbitration pursuant to Articles 12 and 13 of the UNCITRAL Rules 2010 as amended by the tribunal’s terms of appointment, was made on 12th June 2025.[11]The second application was made by arbitration claim form in the Commercial Court and was a challenge to the Remittal Award under s.67 and s.68 AA 1996. The challenge was based in part on the submission that the issue of the Remittal Award without allowing an opportunity for submissions as to the effect of our judgment was a serious irregularity and in part on submissions as to the scope of the order for the remission made by Mr Justice Foxton.[12]The third application, made on 27th June 2025, was a request to the tribunal for correction of the Remittal Award, made pursuant to Article 38 of the UNCITRAL Rules. This had the effect of reviving the jurisdiction of the tribunal, which had become functus officio on issue of the Remittal Award, although the notice of challenge meant that the arbitral proceedings were suspended in accordance with Article 13(4) of the UNCITRAL Rules and paragraph 5.1.4 of the terms of appointment.[13]The final development which needs to be mentioned is that on 11th July 2025 all three members of the tribunal resigned at the request of CZR. They did so saying that they believed the challenge to their impartiality to be wholly without merit but that the arguments levelled against them by CZR had ‘tainted the nature of any possible future proceedings before’ them. They recognised that this might mean that a new tribunal would need to be constituted.[14]In my view the resignation of the tribunal is most unfortunate. One of the possibilities canvassed in the parties’ submissions is that the BIT Award may need to be remitted to the tribunal in the light of our judgment. But if we were to take that course, it would now be necessary to constitute a new tribunal, unfamiliar with the background, inevitably resulting in substantial delay, expense and potential injustice. If, as the tribunal clearly believes, the challenge to its impartiality is wholly without merit, it would have been far better had it continued to serve. Indeed, there was before it a request for a correction of the Remittal Award which it would be difficult for any new tribunal to provide.

Section 67 remedies

[15]Section 67(3) AA 1996 provides that:
‘On an application under this section challenging an award of the arbitral tribunal as to its substantive jurisdiction, the court may by order— (a) confirm the award, (b) vary the award, (c) set aside the award in whole or in part.’ (a) confirm the award, (b) vary the award, (c) set aside the award in whole or in part.’
[16]Although the subsection does not mention remission, it is common ground that the court’s powers include a power to remit the award to the arbitral tribunal for reconsideration. In this respect section 10 of the Arbitration Act 2025, amending section 67(3) to include an express power to remit, is declaratory of the existing law, as explained by the Law Commission in its Report (Law Com No. 413, paras 9.140 and 9.143). Does the setting aside of the award against Diag SE affect the award in favour of Mr Stava?[17]Mr Lucas Bastin KC for CZR submitted that once the award in favour of Diag SE is set aside, the award in favour of Mr Stava cannot stand. All of the damages awarded were for loss suffered by Diag SE as a result of non-payment of the sum awarded by the 2008 Award. But that was an award in favour of Diag SE in arbitration proceedings to which Mr Stava was not a party. Mr Stava could only recover such loss in his capacity as a shareholder of Diag SE. But our decision as regards Diag SE was based on the fact that Mr Stava had ceased to be a shareholder of Diag SE and so no longer had control of the company or any of the economic attributes of ownership.[18]Mr Bastin cited cases from Australia and Singapore in which an issue arose whether different parts of an award were severable, in which case severable parts which were not affected by a valid challenge could stand, whereas if the award was not severable, the whole award would have to be set aside (William Hare UAE LLC v Aircraft Support Industries Pty Ltd [2014] NSWSC 1403; GD Midia Air Conditioning Equipment Co Ltd v Tornado Consumer Goods Ltd [2017] SGHC 193; and CBX v CBZ [2021] SGCA(I) 3). He submitted that the award in favour of Mr Stava was tainted by, and inextricably linked with, the award in favour of Diag SE, and therefore could not survive the setting aside of the award in favour of Diag SE.[19]I would reject this submission. The arbitral tribunal found that CZR is liable in damages to Mr Stava on the basis that he was an investor who had suffered loss in the amount of the 2008 Award as a result of breaches by CZR of the BIT. As explained at para 48 of our judgment, the tribunal found that the BIT breach in relation to the Bojar Letter caused damage in the amount of the 2008 Award; that the BIT breach in relation to the Commercial Arbitration caused no loss as it did not prevent the 2008 Award; that the BIT breach in relation to the Review proceedings and the 2014 Resolution tainted the whole of the Review proceedings, such that the 2008 Award was entitled to recognition in international law; and that the damages there identified would compensate for the loss caused by this breach of the BIT.[20]The fact that the 2008 Award was in favour of Diag SE did not prevent the tribunal from treating Mr Stava as having suffered loss in the same amount. That is what the tribunal did, describing him as a privy of Diag SE. This was a decision on the merits which is not open to review, all jurisdictional challenges as regards Mr Stava having been dismissed.[21]The fact that Mr Stava divested himself of his shareholding in Diag SE did not affect the tribunal’s jurisdiction over his claim for loss which, on the tribunal’s findings, he had already suffered. Whether that divestment meant that his claim ought to fail was a point going to the merits of the claim and not the tribunal’s jurisdiction over that claim. It was therefore a matter for the tribunal and not the court.[22]The fact that, as we have now determined, the tribunal had no jurisdiction to make an award against Diag SE does not undermine the tribunal’s decision as regards Mr Stava. The tribunal would have had jurisdiction to determine Mr Stava’s claim, including to find that he had suffered damage in the same amount as Diag SE, even if Diag SE had never been a party to the BIT arbitration. So there is no logical difficulty in confirming the award in favour of Mr Stava. But even if there were, the fact that an award is illogical is not a ground of challenge under s.67 or s.68 AA 1996.[23]I would accept that if an award is successfully challenged for lack of substantive jurisdiction or serious irregularity a question may arise whether the whole award must be set aside. That much is apparent from the terms of s.67 and s.68 AA 1996 without needing citation of Antipodean or Far Eastern cases, welcome as authorities from those jurisdictions always are in this field. But in the present case, Mr Stava has a valid award in his favour and I see no good ground on which he should be deprived of it merely because the tribunal had no jurisdiction over the claim by Diag SE. That view accords with the principle of minimal interference with arbitration awards which underlies the 1996 Act.

Double recovery

[24]The arbitral tribunal was concerned to avoid double recovery. That would arise if Diag SE and Mr Stava were to enforce the BIT Award and Diag SE were also to enforce the 2008 Award. I suspect that this concern was somewhat hypothetical, as despite proceedings in several jurisdictions there has so far been no successful enforcement of the 2008 Award. Be that as it may, the tribunal dealt with this concern by requiring Diag SE and Mr Stava to provide CZR with a written undertaking confirming:
‘(a) The amounts, if any, collected by Claimants under the 2008 Award; (b) Claimants’ formal commitment that they will discontinue any and every enforcement proceedings commenced under the New York Convention for the 2008 Award, and that they will henceforth only seek to enforce the present Award.’
[25]The undertaking was duly provided. The amount collected under the 2008 Award was nil.[26]Mr Bastin pointed out that the tribunal’s damages award was premised on the undertaking being given by Diag SE (the party in whose favour the 2008 Award was made) as well as by Mr Stava, but that our judgment means that the tribunal had no jurisdiction to require any undertaking from Diag SE. He submitted that its decision to award damages might have been different if it had appreciated this.[27]I regard this as an insubstantial objection for two reasons. First, the undertaking by Diag SE was in fact given even if the tribunal had no jurisdiction to require it. Second, both Diag SE and Mr Stava, both of whom are properly before this court, have offered a further undertaking which in my view provides adequate protection against double recovery.

Costs of the arbitration

[28]The arbitral tribunal ordered CZR to pay 70% of Diag SE’s and Mr Stava’s legal costs of the arbitration, and assessed those costs in the sums of US$427,135.70, GBP739,205.77, CZK850,688.30, EUR165,700.21 and CHF18,225.65. It ordered also that CZR should reimburse Diag SE and Mr Stava 70% of their share of the arbitration costs, i.e. EUR378,442.86.[29]Mr Bastin submitted that this costs award might have been very different if the tribunal had appreciated that the claims by Diag SE failed in their entirety for lack of jurisdiction.[30]I would accept that it is possible that the tribunal might have made a different award of costs in these circumstances. As the award of costs is a matter of discretion, and that discretion needs to be exercised in the light of a full understanding of the issues in the arbitration and the conduct of the parties, I would have been minded to remit the issue of costs alone to the tribunal for reconsideration in the light of our judgment. But the resignation of the tribunal makes that course pointless. A new tribunal could not possibly put itself fully into the minds of the former tribunal members in order to reconsider the former tribunal’s exercise of discretion. For that matter, nor can this court. But we are in as good a position to do so as any new tribunal would be, and to constitute a new tribunal would take months and cause substantial further expense. That would be wholly disproportionate given the amount of costs at stake which, although substantial, is a modest sum when compared with the amount of the award. I consider, therefore, that we must do the best we can.[31]I would order that CZR should pay 70% of Mr Stava’s legal costs of the arbitration and should reimburse him 70% of his share of the arbitration costs. I would leave the figures awarded by the tribunal undisturbed. Although some of these costs will be attributable to the claim by Diag SE, in practice Mr Stava was Diag SE’s source of funding and it would be very difficult to disentangle costs properly attributable to Diag SE’s claim from those attributable to Mr Stava’s claim.[32]I recognise that there is an element of rough justice in this decision, but it arises as a result of the tribunal’s resignation which was deliberately procured by CZR in the knowledge that this court would have to consider remission of the award and that the need to constitute a new tribunal would inevitably cause substantial difficulty. Overall, therefore, I consider that this is a fair result as a matter of discretion.

Miscellaneous changes to the BIT Award

[33]Mr Bastin submitted that it would be necessary for various paragraphs in the BIT Award to be deleted or amended in the light of our judgment. With the exception of the dispositive paragraph, I do not think that this would be an exercise which it would be sensible or appropriate for this court to undertake and in view of the resignation of the tribunal, the tribunal cannot do it either. It is unnecessary and would be disproportionate to constitute a new tribunal for this purpose.

The Remittal Award

[34]A question arises whether we can or should do anything about the Remittal Award. In my view it is clear that this award cannot stand to the extent that it confirms an award in favour of Diag SE. But that does not necessarily mean that the tribunal was wrong to say that the damages did not need to be reduced as a result of the assignment to Mr Orsula.[35]I would leave these matters to be determined by the Commercial Court on CZR’s challenge to the Remittal Award.

Conclusion

[36]I would make an order in the terms of the Annex to this judgment.

LORD JUSTICE POPPLEWELL:

[37]I agree.

LADY JUSTICE ANDREWS:

[38]I agree. ANNEX UPON an award dated 18 May 2022 having been issued by the tribunal in an arbitration with PCA Case No. 2018-20 between the Defendants (as arbitration claimants) and Claimant (as arbitration respondent) (the “Award”) AND UPON the Claimant having issued a claim pursuant to section 67 and section 68 of the Arbitration Act 1996 by arbitration claim form dated 15 June 2022 (the “Challenge”), as further particularised in Amended Particulars of Claim (“APoC”) AND UPON the High Court having determined certain grounds of the Challenge in a judgment dated 8 March 2024 (the “March 2024 Judgment”) and an order dated 11 April 2024 (the “11 April Order”) AND UPON the High Court determining that the Claimant could pursue the challenge set out at APoC paragraph 6 but only to the extent permitted by paragraph 1(d) of the 11 April Order (the “Diag SE June 2011 Objection”) AND UPON paragraph 2(a) of the 11 April Order having held that the section 68 challenge at APoC paragraph 19(a) was upheld and having remitted determination of the issue set out there to the tribunal (the “Remittal Proceedings”) AND UPON the High Court having granted permission to appeal(i) to the Defendants by paragraph 6(b) of the 11 April Order (the subject of “the First Appeal”) and(ii) to the Claimant by paragraph 6(a) of the 11 April Order (the subject of the “Second Appeal”) AND UPON the Defendants having pursued the First Appeal by Appellant’s Notice dated 2 May 2024 (given appeal reference CA-2024-000986) and the Claimant having pursued the Second Appeal by Appellant’s Notice dated 2 May 2024 (given appeal reference CA-2024-000997) AND UPON the 11 April Order further providing that all the remaining grounds of the Challenge (the “Remaining Grounds”) be determined at a second hearing (the “Second Hearing”) AND UPON the High Court having determined the Remaining Grounds in a judgment dated 9 August 2024 (the “Second Judgment”) and an order dated 25 October 2024 (the “25 October 2024 Order”) AND UPON the High Court by paragraph 2 of the 25 October 2024 Order having granted the Claimant permission to appeal the dismissal of the Diag SE June 2011 Objection (the “Third Appeal”) AND UPON the Claimant having pursued the Third Appeal by Appellant’s Notice dated 22 November 2024 (given appeal reference CA-2024-002263) AND UPON the hearing of the three appeals taking place between 3-7 February 2025 before Lord Justice Males, Lord Justice Popplewell and Lady Justice Andrews AND UPON the Court having reserved judgment and handed down a written judgment on 7 May 2025 with neutral citation number [2025] EWCA Civ 588 (the “Judgment”) AND UPON the parties having made submissions to the Court regarding the appropriate terms of an order consequential upon the Judgment AND UPON the Court agreeing to the parties’ joint proposal that the deadline for the parties to apply for permission to appeal be extend until 14 days after receipt of a final Order from the Court AND UPON hearing Counsel for the parties 39. AND UPON Mr Josef Stava and Diag Human SE each giving an undertaking in the following terms:
‘Josef Stava and Diag Human SE each undertake, in respect of the 2008 and 2022 Awards, that they will not collectively recover any more from the Czech Republic than the maximum sum which is due under either: (1) the 2008 Award; or (2) the 2022 Award (whichever is the higher). Should total recovery by Josef Stava and Diag Human SE exceed the permissible maximum sum referred to immediately above, they each undertake to repay any excess to the Czech Republic.’
IT IS ORDERED THAT: Disposal of Appeals

IT IS ORDERED THAT:

[1]The First Appeal is dismissed.[2]The Second Appeal is dismissed.[3]The Third Appeal is allowed and it is declared that the Tribunal does not have jurisdiction in respect of the claims by Diag Human SE.[4]The Award in favour of Mr Stava is confirmed.[5]The Award in favour of Diag Human SE is set aside.[6]Paragraph 1103 of the Award is varied so that it reads as set out in the Schedule to this Order.

Costs

[7]The question of costs in respect of these appeals and the appropriate variation of the provisions of the 25 October 2024 Order regarding costs before the High Court be adjourned to be determined following further submissions in light of the above orders.

Other

[8]This order shall be served by the Claimant on the Defendants. Service of the Order The Court has provided a sealed copy of this Order to the serving party: the Czech Republic’s solicitors, Jane Wessel and Charlotte Mallorie, Arnold & Porter Kaye Scholer (UK) LLP, Tower 42, Old Broad Street, London EC2N 1HQ. Dated: [ ] July 2025 SCHEDULE Paragraph 1103 of the Award is varied so that it reads as follows: (i). Finds that it does not have jurisdiction ratione temporis over events that pre-dated the entry into force of the BIT; (ii). Finds that it does not have jurisdiction over the claim by Diag Human SE. (iii). Finds that Respondent breached Article 4(2) of the BIT; (iv). Awards Mr Josef Stava damages and interest as calculated in the 2008 Award, from which any amounts collected under the 2008 Award by Mr Stava or Diag Human SE shall be deducted:a. CZK 4,089,716,666.00 in damages (lost profits, in addition to those awarded in the Partial Award) for the period from 1 July 1992 to 30 May 2000;b. CZK 4,244,879,686.00 in interest for the period from 1 July 1992 to 30 June 2007;c. Interest of CZK 1,287,877.00 per day, starting on 1 July 2007 until payment, and, from 14 July 2007 until payment, additional interest per day on the amount CZK 58,130,213.00 at the repo rate per annum set by the Czech National Bank (on 1 January and 1 July each year for the respective half calendar year thereafter) plus 7 per cent. (v). Orders Respondent to reimburse Mr Stava 70% of his share of the arbitration costs assessed in the sum of EUR 378,442.86. (vi). Orders Respondent to reimburse Mr Stava 70% of his legal and other costs assessed in the sums of US$427,135.70, GBP739,205.77, CZK850,688.30, EUR165,700.21 and CHF18,225.65. (vii). Dismisses all other claims.’

Cited in 1 later judgment