The Czech Republic v Diag Human SE

Hearing date: 15 July 2025

Approved Judgment

This 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.

Introduction

On 7 ^th 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).

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.

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 15 ^th July 2025 so that the rival positions could be explored.

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.

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 4 ^th August 2008 of the Commercial Arbitration tribunal (‘the 2008 Award’).

Background and recent developments

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.

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 11 ^th 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’.

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]’.

The tribunal issued the Remittal Award despite having been informed by CZR's solicitors on 7 ^th 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.

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 12 ^th June 2025.

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.

The third application, made on 27 ^th 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.

The final development which needs to be mentioned is that on 11 ^th 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.

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

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.’

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?

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.

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.

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...