Key takeaways
Courts may uphold parts of an arbitration
Even if one party’s award is set aside, another’s can still stand if the tribunal had proper authority.
Arbitrator resignations can disrupt progress
The Court noted that resignations even if unjustified can complicate proceedings and slow down enforcement.
Jurisdiction and merits are treated separately
The Court clarified that having jurisdiction is distinct from deciding the case itself, some claims may still succeed.
The Czech Republic -v- Diag Human SE & another [2025] EWCA Civ 998
In this case, an investment treaty arbitral tribunal awarded damages to a company, Diag Human SE (Diag SE), and its former shareholder, Mr Joseph Stava, against the Czech Republic (CZR). The Court of Appeal subsequently held that the arbitral tribunal had no jurisdiction over Diag SE and the award against it should be set aside. CZR, the losing party, tried to argue that if the award against Diag SE was set aside, the award against Mr Stava could not stand.
The Court of Appeal has rejected that argument. Mr Stava had a valid award in his favour and there was no good ground on which he should be deprived of it merely because the arbitral tribunal had no jurisdiction over the claim by Diag SE. This view accorded with the principle of minimal interference with arbitration awards which underlies the Arbitration Act 1996 (the Act).
The background facts
Earlier Court of Appeal decision
In a previous decision, the Court of Appeal had dealt with challenges brought by CZR under ss. 67 and 68 of the Act in respect of an investment treaty arbitration award (BIT Award) pursuant to which Diag Human SE (Diag SE) and Mr Joseph Stava had been awarded sums equivalent to about US$350 million plus interest against CZR.
The BIT Award was made pursuant to a bilateral investment treaty (BIT) between Switzerland and CZR, which protected investments made in one contracting state by investors of the other contracting state.
In that earlier decision, the Court of Appeal found 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” under 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 of the Act. Therefore, the award in favour of Diag SE had to be set aside.
Our article on that earlier decision is here: Court of Appeal finds claimant in arbitration not “investor” under investment treaty | Hill Dickinson
CZR subsequently contended that the award in favour of Mr Stava was dependent on, and not severable from, the award in favour of Diag SE. Therefore, the setting aside of the award in favour of Diag SE meant that the award in favour of Mr Stave also had to be set aside.
Recent developments
After the original Court of Appeal decision was handed down, the arbitral tribunal issued a further award (Remittal Award) in respect of an issue that had been remitted to it by the Commercial Court. The issue was whether the damages awarded should be reduced by 30% because Diag SE had assigned 30% of the value of its claim to a third party.
The arbitral tribunal decided that the damages should not be so reduced and that CZR remained liable to pay 100% of the amount awarded to Diag SE and Mr Stava. The arbitral tribunal came to this decision, notwithstanding that it had been made aware of the Court of Appeal’s decision that the award against Diag SE should be set aside.
CZR’s applications
CZR made three applications as follows:
A challenge to all three members of the arbitral tribunal on the grounds that the Remittal Award raised justifiable doubts as to their impartiality. This challenge was made to the Permanent Court of Arbitration, pursuant to the UNCITRAL Rules 2010, which governed the arbitral tribunal’s terms of appointment.
An arbitration claim form issued in the Commercial Court, challenging the Remittal Award under ss.67 and 68 of the Act. 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 the Court of Appeal decision was a serious irregularity and in part on submissions as to the scope of the Court’s original order for remission.
A request to the arbitral tribunal for correction of the Remittal Award, made pursuant to the UNCITRAL Rules. This revived the arbitral tribunal’s jurisdiction, which had become functus officio after the Remittal Award was issued.
As a result of the challenge to their impartiality, and at the request of CZR, all three members of the arbitral tribunal resigned. This was notwithstanding that they all refuted any suggestion of partiality.
The Court of Appeal considered this resignation to be unfortunate because it meant that if the BIT Award had to be remitted to the arbitral tribunal, a new arbitral tribunal would have to be constituted. Furthermore, CZR had asked the arbitral tribunal to correct the Remittal Award, which would be difficult for a new arbitral tribunal to do.
The Court of Appeal decision
CZR contended that all of the damages awarded were for loss suffered by Diag SE as a result of non-payment of a sum awarded to it in an arbitration award of the Commercial Arbitration tribunal made in 2008 (2008 Award). The 2008 Award was rendered in arbitration proceedings to which Mr Stava was not a party. He could only recover in his capacity as a shareholder of Diag SE. However, he had ceased to be such a shareholder after the 2008 Award.
However, the Court of Appeal rejected the argument that once the award in favour of Diag SE was set aside, the award in favour of Mr Stava could not stand. The Court of Appeal emphasised that its original decision, as regarded Diag SE, was based on the fact that Mr Stava had ceased to be a shareholder, and so no longer had control of the company or any economic attributes of ownership.
Furthermore, the fact that the 2008 Award was in Diag SE’s favour had not prevented the arbitral tribunal from treating Mr Stava as having suffered loss in the same amount. The arbitral tribunal had described Mr Stava as a privy of Diag SE. That was a decision on the merits, which was not open to review, all jurisdictional challenges as regarded Mr Stava having been dismissed.
The Court of Appeal added that the fact that Mr Stava had divested himself of his shareholding in Diag SE did not affect the arbitral tribunal’s jurisdiction over his claim for loss which, on the arbitral tribunal’s findings, he had already suffered. Whether that divestment meant that his claim ought to fail was a point going to the merits of the claim and not the arbitral tribunal’s jurisdiction over that claim. It was, therefore, a matter for the arbitral tribunal and not the Court.
Additionally, the fact that the Court of Appeal had determined that the arbitral tribunal had no jurisdiction to make an award against Diag SE did not undermine the arbitral tribunal’s decision as regarded Mr Stava and the arbitral tribunal’s jurisdiction to determine Mr Stava’s claim. There was, therefore, no logical difficulty in confirming the award in favour of Mr Stava. And, even if the award was illogical, that was not a ground of challenge under ss.67 or 68 of the Act.
The Court of Appeal also dismissed the argument of double recovery if Mr Stava was to enforce the BIT Award and Diag SE were to enforce the 2008 Award. Firstly, attempts to enforce the 2008 Award in various jurisdictions had so far proved unsuccessful. Secondly, both Diag SE and Mr Stava had offered written undertakings providing adequate protection against double recovery.
Finally, any issues outstanding with regard to the Remittal Award would be dealt with by the Commercial Court on CZR’s challenge to that Award.
Comment
It is worth noting the Court of Appeal’s comments about the arbitral tribunal resigning where the arbitral tribunal members believed the challenge to their impartiality to be wholly without merit. In the Court of Appeal’s view, it would have been far better had the arbitral tribunal continued to serve.
An arbitral tribunal may have to think carefully about whether allegations as to its partiality form a genuine bar to its continued involvement because the allegations have “tainted” the future proceedings, particularly given the delay, expense and potential injustice involved in constituting a new tribunal.
Although the IBA Guidelines on Conflicts of Interest in International Arbitration are not legally binding, they contain well-recognised good practices to avoid conflicts of interest in arbitration and form part of a broader initiative aimed at the harmonisation of independence and impartiality standards in international arbitration.
