The Czech Republic v Diag Human SE
| Jurisdiction | England & Wales |
| Judge | Lord Justice Males,Lord Justice Snowden,Lady Justice Falk |
| Judgment Date | 21 December 2023 |
| Neutral Citation | [2023] EWCA Civ 1518 |
| Year | 2023 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2023-001486 |
[2023] EWCA Civ 1518
Lord Justice Males
Lord Justice Snowden
and
Lady Justice Falk
Case No: CA-2023-001486
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT
Mr Justice Bright
Royal Courts of Justice
Strand, London, WC2A 2LL
Patrick Green KC & Ognjen Miletic (instructed by Mishcon de Reya LLP) for the Appellants
Lucas Bastin KC, Peter Webster & Katherine Ratcliffe (instructed by Arnold & Porter Kaye Scholer (UK) LLP) for the Respondent
Hearing date: 7 December 2023
Approved Judgment
This judgment was handed down remotely at 10.30am on 21 December 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Section 70(7) of the Arbitration Act 1996, which applies when the losing party seeks to challenge an arbitration award in the court, provides that:
“The court may order that any money payable under the award shall be brought into court or otherwise secured pending the determination of the application or appeal, and may direct that the application or appeal be dismissed if the order is not complied with.”
The applicants, Diag Human SE and Mr Josef Stava, sought an order that money payable to them under an arbitration award dated 18 th May 2022 by the respondent, the Czech Republic (“the Republic”), be secured pending the determination of the Republic's challenges to the award under sections 67 (substantive jurisdiction) and 68 (serious irregularity), and that if such security was not provided, the Republic's challenges to the award should be dismissed. By his order of 12 th July 2023, Mr Justice Bright dismissed the application for security and refused permission to appeal.
The applicants now apply to this court for permission to appeal. Their application raises the preliminary question whether this court has jurisdiction to grant permission to appeal. That depends on whether the dismissal of an application for security made pursuant to section 70(7) is a “decision under” section 67 or 68. If this court does have such jurisdiction, the further questions arise whether permission to appeal should be granted and, if so, whether the judge was wrong to dismiss the application for security.
These issues were considered at a rolled-up hearing on 7 th December 2023. The application was expedited because the substantive challenge under sections 67 and 68 is due to be heard at an eight day hearing (including one reading day) in the Commercial Court commencing on 29 th January 2024.
Background
The award which the Republic seeks to challenge was made pursuant to the Bilateral Investment Treaty on the Promotion and Reciprocal Protection of Investments dated 5 th October 1990 made between the Czech and Slovak Federal Republic and the Swiss Confederation (“the 1990 BIT”). The arbitration was commenced on 22 nd December 2017. Its seat was in London. The arbitral tribunal awarded some CZK 4 billion (about £140 million at current rates) to the applicants for what were found to be breaches of the requirement for fair and equitable treatment contained in the 1990 BIT.
The background to the arbitration was somewhat convoluted, but the following brief summary will suffice for present purposes.
The underlying disputes date back to 1992. Conneco, a Czech company to which the first claimant, Diag Human SE, a Liechtenstein company, is the successor, carried on business in the blood/plasma market in what was then Czechoslovakia. The applicants' case is that its business was unlawfully destroyed as a result of a letter written by the then Czech Minister of Health, Dr Martin Bojar, on 9 th March 1992 (“the Bojar letter”). That led to an ad hoc arbitration agreement, subject to Czech law, between Conneco and the Czech Ministry of Health.
An arbitral tribunal appointed pursuant to this agreement issued a partial award on 25 th June 2002, awarding some CZK 326 million in favour of Diag Human. This has been paid. A final award of CZK 8.3 billion in further damages and interest was issued on 4 th August 2008 (“the 2008 award”), but has not been paid.
The arbitration agreement provided for an award to be challenged by way of Review proceedings. The Ministry of Health applied for a Review, which resulted in a Resolution by the Review Tribunal dated 23 rd July 2014 (“the 2014 Resolution”) declaring that the arbitral proceedings were discontinued.
The applicants' case is that the Review proceedings were corrupted. They say that the Republic 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 Republic improperly ensured that those appointed to the Review tribunal lacked independence and were pressurised and/or bribed.
The “high point” of this case, as the judge described it, is a manuscript note (“the Note”) made by Mr Michal Švorc, then the Director of the Legal Department of the Czech Ministry of Finance, which appears to have been made at a meeting in the Prime Minister's office on or about 8 th December 2009, in relation to the Review proceedings. The manuscript appears to record that the Czech police and intelligence services held one member of the Review tribunal “by the balls” and that another member wanted “subsidies” in order to ensure a decision that nothing more would be payable by the Republic.
There have been proceedings in Luxembourg, the Netherlands, the United States, Austria, Belgium and England in which Diag Human has sought to enforce the 2008 award. With the exception of Luxembourg, where it transpired that the Republic held no assets available for enforcement, the courts in those jurisdictions have held that the 2008 award was not enforceable as a result of the pending Review proceedings and/or the 2014 Resolution.
In the meantime, on 22 nd December 2017, the applicants commenced fresh arbitration proceedings against the Republic, under the 1990 BIT, contending that the Republic had breached the requirement of fair and equitable treatment as a result of (1) the Bojar letter, (2) interference with the Czech arbitration and (3) interference with the Review proceeding which led to the 2014 Resolution, as shown by the Note and other matters. The BIT arbitral tribunal upheld those complaints. It held that the 2014 Resolution was not entitled to recognition in international law; in consequence the 2008 award was to be recognised as valid and binding, which would compensate the applicants for damage suffered as a result of sending the Bojar letter and interference in the Review process; and it ordered the Republic to pay the applicants the amount of the 2008 award, with interest.
The challenge to the BIT award
Again in brief summary, the Republic contends that the BIT award is seriously flawed. Its case is that the applicants did not have a qualifying investment in the Czech Republic at the time of the alleged breaches and are not “investors of the Contracting Party” within the meeting of Article 1(1) of the 1990 BIT. Among other things, it says that Mr Stava parted with his shares in Diag Human in June 2011 by placing them into a Liechtenstein discretionary trust, as a result of which he had no investment capable of giving rise to a claim under the 1990 BIT; and that Diag Human cannot claim to be an investor either, because its claim depends on it being controlled by a Swiss person, and from the moment that Mr Stava parted with his shares, he was no longer in control of the company. As a result, it submits that the BIT arbitral tribunal did not have substantive jurisdiction to determine the dispute.
As to section 68 of the 1996 Act, the Republic contends that the BIT tribunal decided the case on a basis that had not been argued, in breach of section 33; and that it failed to decide some of the issues which were put to it.
I observe that these grounds of challenge do not appear to involve any challenge to the BIT arbitral tribunal's factual finding that the Republic exerted pressure on and/or corrupted members of the Review proceedings tribunal. The Republic's case is simply that the tribunal had no jurisdiction to make that finding. Moreover, although the Republic has suggested, in my view somewhat implausibly, that the reference in the Note to an arbitrator wanting “subsidies” has to do with an issue about the level of the tribunal's legitimate fees, it has not advanced any case that there is a lawful or proper explanation for the reference to another of the arbitrators being held “by the balls”. If the Note is to be interpreted as the applicants suggest, it demonstrates a serious interference with the integrity of the arbitral process to which the Czech Ministry of Health had agreed.
At one time the applicants sought to have the sections 67 and 68 applications dismissed summarily on the ground that they have no real prospect of success. It did so in accordance with the procedure set out in paragraphs O8.6 and O8.7 of the Commercial Court Guide (11 th Edition, 2022). These provide:
“ O8.6 The Court has power under rule 3.3(4) and/or rule 23.8I to dismiss any claim without a hearing. It is astute to do so in the case of challenges to awards under section 67 or 68 of the Act where the nature of the challenge or the evidence filed in support of it leads the Court to consider that the claim has no real prospect of success. If a respondent to such a challenge considers that the case is one in which the Court should dismiss the claim on that basis: (a) the respondent should file a respondent's notice to that effect, together with...
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