The Czech Republic v Diag Human SE & Anor

On a de novo challenge under s 67 of the Arbitration Act 1996, the court must determine the tribunal’s substantive jurisdiction independently. Under an asset-based investment treaty, ownership or control of an asset will ordinarily suffice, but extreme cases may require further substance. Contribution, duration and investment risk are interdependent considerations and must generally be assessed holistically. A territorial requirement is applied to an integrated investment as a whole. In the nationality context, control may be de jure or de facto. An unchallenged determination in an arbitral award may give rise to issue estoppel in a later s 67 challenge, but only where the issue is the same. The surviving jurisdictional challenges and the outstanding s 68 challenge were dismissed.

This was the second substantive first-instance judgment concerning the Czech Republic’s challenge to an investment treaty award made in favour of Diag Human SE and Mr Josef Stava. The court’s earlier judgment, [2024] EWHC 503 (Comm), determined most issues under ss 67 and 68 of the Arbitration Act 1996, including the scope of objections and the effect of s 73(1).

The present judgment determined the surviving challenges on their merits: whether there was a protected investment, whether the dispute was precluded ratione temporis, and whether Diag Human SE remained a protected investor after its shares were placed in the Koruna Trust. The court also considered an amendment pleading issue estoppel and a residual s 68 issue.

The surviving challenges were dismissed. The application to amend to plead issue estoppel was permitted, but the plea failed. The residual s 68 challenge failed for want of substantial injustice, subject to preserving the possibility of revival if successful appeals affected the award concerning the 2014 breach.

1. Under s 67 of the Arbitration Act 1996, jurisdiction is determined de novo. The award’s reasoning has influence only through its cogency. The court may consider evidence and arguments not placed before the tribunal, subject to s 73(1). Where the investment identified by the court is substantially the same as that found by the tribunal, there is no basis to set aside or remit the award. The court may refuse relief where the alleged jurisdictional error would not have affected the outcome.
2. The BIT’s definition of investment was asset-based, but did not exclude an additional inherent requirement in extreme cases. Contribution, duration and investment risk were relevant, interdependent considerations. The investment had to be assessed globally, not by dissecting an integrated business into individual contracts or assets. Conneco’s capitalisation, premises, staff, know-how, goodwill, healthcare arrangements and relationship with Novo Nordisk constituted a substantial investment.
3. The territorial requirement was satisfied because the Novo Nordisk arrangement formed an integral part of the Czech business. Even viewed separately, it had a sufficient territorial link. The arbitration agreement concerning compensation for interference with the protected investment could be treated as a continuation of that investment.
4. The Bojar Letter created a new post-treaty dispute. It concerned different conduct, subject matter and real cause from the earlier tender disputes and could be resolved independently of them.
5. Article 1(1)(c) of the BIT included de jure and de facto control in the nationality context. Mr Stava exercised sufficient de facto control over Diag SE because he directed its only business, supplied its funding and knowledge, carried the economic substance of the investment, and faced no realistic conflict with the trust’s interests.
6. The Tribunal’s finding concerning Mr Stava’s standing did not determine the distinct question whether Diag SE had Swiss nationality. The common factual enquiry did not create issue estoppel, and allowing the s 67 challenge was not an abuse of process.

This was a further first-instance decision on the challenge to the arbitral award. The court’s earlier judgment, [2024] EWHC 503 (Comm), determined most preliminary and jurisdictional issues. No appeal decision was determined in this judgment.