The Czech Republic v Diag Human SE

Hearing dates: 17–21, 24, 25, 28 June and 2 July 2024

Further written submissions: 11 July 2024

Draft Judgment Circulated: 31 July 2024

Approved Judgment

This judgment was handed down at 10.30am on 09 August 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

The Honourable

INTRODUCTION

This is the second substantive judgment in a challenge brought by the Czech Republic to an award dated 18 May 2022 ( “the Award”), made by a tribunal ( “the Tribunal”) appointed under the Agreement between the Czech and Slovak Federal Republic and the Swiss Confederation on the Promotion and Reciprocal Protection of Investments of 5 October 1990 ( “the BIT”). The Award was rendered in an arbitration commenced by Diag Human SE and Mr Stava (“ the Arbitral Claimants”) against the Czech Republic ( “the BIT Arbitration”)

I handed down judgment addressing aspects of the Czech Republic's challenge on 8 March 2024 ( [2024] EWHC 503 (Comm)) ( “the March Judgment”) in which I determined most of the issues raised by the Czech Republic's challenge under s.68 of the Arbitration Act 1996 (“ the 1996 Act”), the extent to which challenges brought by the Czech Republic were barred by s.73(1) of the 1996 Act and whether all of the issues raised by the Czech Republic under s.67 of the 1996 Act were properly classified as jurisdictional for the purposes of that section.

This judgment addresses:

i) The surviving s.67 challenges on their merits:

a) The “No Investment” objection.

b) The “Ratione Temporis” objection.

c) The objection that Diag Human is not a protected investor (“the No Investor” objection).

ii) In the context of that third issue, the Arbitral Claimants' application to amend to advance an argument of issue estoppel.

iii) A residual issue in relation to one of the s.68 challenges which I left open in the March Judgment.

I do not intend to repeat the summary of the background of this case, the history of the arbitral proceedings or the terms of the Award which appear in the March Judgment.

RELEVANT PRINCIPLES: S.67

It is well established that in resolving the s.67 challenges, I must determine the question of whether the Tribunal had substantive jurisdiction de novo. Any influence of the Award in this context must derive from the cogency of its reasoning, rather than the fact of the determination.

In reaching my conclusions, I am not confined to the evidence before the Tribunal nor — provided that the points raised remain within the permissible bounds of s.73(1) of the 1996 Act — by the particular arguments deployed in support of a jurisdictional objection before the Tribunal. Inevitably, with such a narrow front left in play, the resources of time and thought poured into the surviving jurisdiction challenges far exceed the attention given to these matters in the BIT Arbitration, when there were so many other issues to address. The evidence adduced at the s.67 hearing is, as with other hearings, subject to the ultimate control of the court: Central Trading & Exports Ltd v Fioralba Shipping Co (The Kalisti)[2014] EWHC 2397 (Comm), [2015] 1 All ER (Comm) 580, [14]–[33]. However, the circumstances in which the court can refuse to admit new evidence on a s.67 application, and in particular how far the prior conduct of the arbitration bears on that issue, remains obscure.

THE EVIDENCE

Oral evidence

The Czech Republic

The Czech Republic adduced oral evidence from two witnesses.

The first was Mr Jensen. Mr Jensen was a company lawyer at Novo Industries from 1986 and, following a 1989 merger with Nordisk Gentofte, with Novo Nordisk until January 2012. He made it clear that he was not involved in Novo Nordisk's business nor how Mr Klaus Eldrup-Jørgensen (head of the blood plasma unit) ran that business. I accept that Mr Jensen was doing his best to assist the court. However, he had almost no involvement in the key events in 1990–1992, and his principal involvement came in 2004, when he was responsible for Novo Nordisk's official interactions with a Czech Parliamentary Commission established to investigate the claim brought by Conneco against the Czech state. In that context, he was essentially dependent on the recollection of those ex-employees he spoke to, and those few documents to which Novo Nordisk still had access following the sale of the blood plasma business and the transfer of its archive in 1995. Even in relation to events in 2004, Mr Jensen's recollection, some 20 years, on was clearly inaccurate in certain respects. For example, while he was adamant that he only attended one meeting with the Commission, an all-day meeting on a Sunday, the contemporaneous documents show that he attended two, both on Mondays: one on 31 May 2004 and another 28 June 2004. I have concluded that the contemporary documents and the inherent probabilities provide a better guide as to Conneco's interactions with Novo Nordisk. I consider that material in some detail in Annex 2.

The Czech Republic's second factual witness was Dr Petr Turek, a physician who specialised in haematology. He worked at the Institute of Haematology and Blood Transfusion in Prague between 1980 and 2005 and was a consultant to the Czech Ministry of Health. He explained why the committee established by the Ministry of Health (of which he was a member) did not select Conneco in the 1991 tender. I am satisfied that Dr Turek was doing his best to assist the court, albeit the events he was describing took place over 30 years ago. His evidence was of very limited relevance to the matters which remain in issue.

The Arbitral Claimants

The Arbitral Claimants' principal witness was Mr Josef Stava. He is 74 years old. Mr Stava founded both Conneco and its Swiss parent company, and is currently chair of Diag SE's board of directors. He was clearly the moving spirit in establishing its business. Mr Stava is the only person involved in Conneco's business who gave evidence in the BIT Arbitration and to the court. Perhaps for that reason, his arbitration statements went into a level of detail about that business which I doubt Mr Stava was familiar with contemporaneously, still less 30 years on. The reality is that Mr Stava was simply not in a position to speak to most of that detail, although, unfortunately, that did not prevent him from attempting to do so. Further, the more rigorous checking and testing of his evidence occasioned by the court process exposed a number of significant inaccuracies. At best, this revealed an unhealthy level of wishful thinking on Mr Stava's part, and a wholesale failure to take the care necessary to ensure that his evidence was as accurate as it could be. The overall effect was to cause me to approach Mr Stava's evidence with considerable caution.

The need for that caution was reinforced by an event which happened in the course of Mr Stava's cross-examination. At each break in his evidence, Mr Stava was warned that he must not communicate with anyone about this case until his evidence had been completed. It was clear, however, that at the end of Day 3, Mr Stava was becoming frustrated at what he described as difficulties with his memory. He asked one of his counsel team (in open court, and hence on the transcript) if it was possible to finish his evidence then, so that he could talk to his legal team. Entirely properly, he was told that this was not possible, and the court reiterated that warning.

Most regrettably, Mr Stava ignored that warning and the court's instruction. He contacted his Czech lawyer, Dr Kalvoda, to ask for a copy of a document from the Commercial Arbitration, and which he had previously sent to this London legal team in the days before he gave evidence. He was sent a further copy of the document, together with a covering email in Czech which contained commentary. Mr Stava asked his daughter Dagmar Stave to obtain a translation of the email, and then sent that translation along with the original email from Dr Kalvoda (but without any attachments) to his legal team early the following morning, suggesting certain questions relating to the material and one further topic which he could be asked in re-examination. His daughter Dagmar Stava was copied into that communication, and she also arranged for a hardcopy of the document to be printed and given to Mr Stava. The Arbitral Claimants' legal team informed the court at the start of the hearing that morning that there had been an overnight development which might impact on Mr Stava's continuing evidence, on which they wanted the opportunity to take instructions. I can now see that what was being sought was an opportunity to take instructions to provide the overnight communications to the court, albeit this was not clear to me at the time. The evidence proceeded, but it soon became apparent that Mr Stava was relying on a particular document (which he was holding in his hand) and questioning about the provenance of that document initiated a process which revealed the information set out in this paragraph. Dealing with these events occasioned a significant disruption to the trial and added considerably to the...