The Czech Republic v Diag Human SE
| Jurisdiction | England & Wales |
| Judge | Mr Justice Bright |
| Judgment Date | 07 July 2023 |
| Neutral Citation | [2023] EWHC 1691 (Comm) |
| Court | King's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2022-000307 |
[2023] EWHC 1691 (Comm)
Mr Justice Bright
Case No: CL-2022-000307
IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Lucas Bastin KC and Peter Webster (instructed by Arnold & Porter Kaye Scholer (UK) LLP) for the Claimant
Patrick Green KC, Philip Riches KC and Jonathan Ketcheson (instructed by Mishcon de Reya) for the Defendants
Hearing date: 28 June 2023
Approved Judgment
Introduction
The applications before the Court
This action concerns an Arbitration Award dated 18 May 2022 (“the 2022 BIT Award”), which culminates with an award in the Defendants' favour of CZK 4,089,716,666.00, plus very substantial interest. The Claimant challenges the 2022 BIT Award under ss. 67 and 68 of the Arbitration Act 1996 (“the Act”). The merits of the Claimants' challenges will be decided conclusively at a later date. The Defendants have applied for the s. 67 and s. 68 challenges to be summarily dismissed under §O8.6 of the Commercial Court Guide. The hearing to determine those merits issues will commence in January 2024 and has been listed for seven days.
Today's hearing concerns two applications by the Defendants:
i) Under s. 70(6) of the Act, the Defendants apply for security for costs in relation to the substantive determination of the Claimant's challenges.
ii) Under s. 70(7) of the Act, the Defendants apply for security for the amount of the 2022 BIT Award.
The s. 70(6) application was argued for the Defendants by Mr Philip Riches KC. The s. 70(7) application was argued for by Mr Patrick Green KC. The Claimant's case was presented by Mr Lucas Bastin KC. I am grateful to all three of them, and to their respective juniors, Mr Jonathan Ketcheson and Mr Peter Webster.
Background
The Czech arbitration proceedings
The underlying disputes date back to 1992 and concern conduct on the part of the Claimant which, say the Defendants, violated Czech competition and commercial law rules and caused damage to Conneco (the Czech company through which the Defendants say the Czech business was carried out and to which the First Defendant is the successor in interest). The focus of the underlying disputes was a letter written by the then Czech Health Minister, Dr Martin Bojar, on 9 March 1992 (“the Bojar Letter”).
Czech domestic arbitration proceedings were commenced by the First Defendant against the Czech Ministry of Health. These Czech arbitration proceedings resulted in an Interim Award of 19 March 1997 (“the Interim Award”) and a Partial Award of 25 June 2002 (“the Partial Award”). The Partial Award declared that, pending final resolution, the Ministry of Health should pay the First Defendant the sum of CZK 326,608,334, with other damages and interest being reserved.
The sum awarded by the Partial Award was paid, I believe, in 2003. However, no interest on that sum has ever been paid.
A Final Award of 4 August 2008 (“the 2008 Final Award”) awarded approximately CZK 8.3 billion in further damages and interest. My understanding is that the interest element of 2008 Final Award included the reserved interest on the sum awarded by the Partial Award.
The Czech Review proceedings
The arbitration agreement provided for review proceedings, and the Ministry of Health applied for a review of the 2008 Final Award (“the Review”). The Review tribunal issued a Resolution on 23 July 2014 (“the 2014 Resolution”) which stated that the proceedings were discontinued.
The parties have not been in agreement as to the effect of the 2014 Resolution, either historically or in their submissions before me.
Furthermore, the Defendants' case has long been, and was before me, that the Review proceedings were corrupt. They say that the Claimant unlawfully used its intelligence services, its police force and a Parliamentary Enquiry Commission to obtain information and pressure the members of the Review tribunal. They also say that the Claimant improperly ensured that those appointed to the Review tribunal lacked independence and were pressurised and/or bribed.
Proceedings in Luxembourg
In Luxembourg, judgment no. 70/2018 of the Court of Cassation confirmed that the 2008 Final Award was enforceable in Luxembourg, upholding an exequatur order (which I understand to be a form of enforcement order). The First Defendant has not succeeded in enforcing in Luxembourg. It obtained a saisie-arrêt over two banks with which the Claimant held accounts. After extensive litigation over 8 years, it transpired that no money was held in the accounts.
In the context of the saisie-arrêt proceedings, on 24 September 2020, the Luxembourg court made a costs order in the First Defendant's favour, which the Claimant has not paid (“the Luxembourg Costs Order”). The amount of the Luxembourg Costs Order was about €500,000. However, the First Defendant (or its lawyer) did not succeed in enforcing the Luxembourg Costs Order over the next two years. On 29 June 2022, it was set aside on appeal.
Mr Riches KC for the Defendants told me that proceedings are still ongoing in Luxembourg as to the status of the Luxembourg Costs Order, so that its status is not certain. The Claimant disputes this.
Proceedings in other jurisdictions
In various other jurisdictions, the outcome has been different.
In the Netherlands, Supreme Court ruling 17/02024, issued on 15 June 2018, upheld the conclusion of the Court of Appeal that the effect of the 2014 Resolution was that the 2008 Final Award was deprived of binding effect. In summary, the reasoning of the Supreme Court was that the Review Tribunal decided that the Partial Award (and a subsequent Review Partial Award) had settled the entirety of the matters in dispute in the arbitration, thus depriving the Czech arbitrators of any further jurisdiction. In effect, the Partial Award was not properly so-called: it was, itself, a final award and was in fact the last effective act in the Czech arbitration proceedings.
In the United States, on 26 October 2018, the Court of Appeals, District of Columbia 3 rd Circuit, came to a similar conclusion to that of the Dutch Supreme Court. It held that the Final Award was not binding because the Review Tribunal had terminated the proceedings, and, in doing so, nullified the 2008 Final Award: 907 F.3d 606 (2018).
In Austria, on 5 July 2019, ruling 46 R 165/19h of the Vienna Higher Civil Court confirmed the view of the lower court that the effect of the 2014 Resolution was that the 2008 Final Award was replaced by a termination order. The 2008 Final Award therefore was not binding.
In Belgium, the ruling of the Court of Cassation of 10 February 2022 overturned the earlier decision of the Belgian Appeal Court and held that the 2008 Final Award did not become binding, and that regard must be had to the 2014 Resolution whose effect was to prevent the 2008 Final Award from becoming binding.
Proceedings in this jurisdiction
In this country, the First Defendant commenced enforcement proceedings in respect of the 2008 Final Award by case no. 2011 Folio 864. An interlocutory judgment of Burton J rejected an application by the Claimant for security for costs, in part because of the interest that Burton J considered likely to arise on the sum awarded by the Partial Award, which he estimated as likely to amount to at least £840,000: [2013] EWHC 3190 (Comm).
The merits determination of the enforcement proceedings took place in May 2014 – shortly before the 2014 Resolution. Eder J held that, in circumstances where the Review proceedings were not complete, the 2008 Final Award could not be considered final and binding, and so was not enforceable. He came to this view in part because of an earlier decision of the Austrian court to this effect, which he found gave rise to an issue estoppel. However, he said that this was the conclusion he would have reached in any event. He also rejected the First Defendant's alternative argument that there should at least be enforcement in respect of the interest on the Partial Award.
On 12 October 2018, this Court granted a costs order in the Claimant's favour, against both the Defendants (“the English Costs Order”), in the sum of £1,063,263.15. This sum has not been paid by the Defendants.
In January 2022, the Claimant issued proceedings in Liechtenstein seeking to enforce the English Costs Order. I understand that the claim was dismissed, but is subject to a pending appeal by the Claimant.
The BIT arbitration
In the meantime, on 22 December 2017, the Defendants commenced fresh arbitration proceedings against the Claimant, under the Czech and Slovak Federal Republic-Swiss Confederation bilateral investment treaty (“the BIT”). It is these arbitration proceedings, whose seat is in London, which have given rise to the 2022 BIT Award.
The gist of the case being advanced by the Defendants included that, by the Bojar letter, but still more by its conduct in the context of the Review proceedings, the Claimant breached the fair and equitable standard required under the BIT.
This case was broadly accepted in the 2022 BIT Award.
It is relevant to note that, in their reasons, the BIT tribunal set out in some detail all the relevant factual matters, often quoting or reproducing the underlying evidential material, as well as stating the findings that they made on the basis of that material.
Security for costs
Legal principles
The power to order security for costs in this context is given by s. 70(6) of the Act, as follows:
“(6) The court may order the applicant or appellant to provide security for the costs of the application or appeal, and may direct that the...
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