Czech Republic v Diag Human SE and Another [2025] EWCA Civ 588

Background

In Czech Republic v Diag Human SE and Another [2025] EWCA Civ 588, the English Court of Appeal dealt with appeals arising from a challenge to an investment treaty arbitration award. The case involved the interpretation of Sections 73 and 31 of the Arbitration Act 1996 (“AA 1996”) and the distinction between jurisdiction and admissibility in the context of an investment treaty. The appeals focused on whether the tribunal had jurisdiction to hear the claims of a company that had ceased to hold its investment under the relevant bilateral investment treaty (“BIT”).

Bilateral Investment Treaty (BIT)

The dispute centred around the Switzerland-Czech Republic BIT, where "investor" is defined in Article 1. The BIT allows for arbitration of disputes between a contracting party and an investor of the other contracting party. For legal entities, Article 1(1)(c) grants investor status to entities "controlled" by nationals of a contracting party. The BIT requires proof of control in some instances, as outlined in its protocol.

The claimant, Diag Human SE (“DH”) and its associated party, Josef Stava (“JS”), were involved in a long-running dispute with the Czech Republic regarding alleged corruption in commercial arbitration proceedings. The BIT arbitration resulted in an award in favour of DH and JS, which the Czech Republic sought to challenge. The Czech Republic argued that the tribunal lacked jurisdiction, especially after JS transferred his shares in DH to a Liechtenstein trust in 2011, which impacted the definition of control.

Challenges to the Award

The Czech Republic sought to set aside the BIT award based on three main appeals:

First Appeal: Timeliness of Jurisdictional Objections
The Czech Republic challenged the timeliness of the jurisdictional objections, asserting that the jurisdictional issue should be addressed before the court. The Court of Appeal rejected this argument, holding that the non-objection to the timeliness of the objections in the arbitration precluded the Czech Republic from raising the issue before the court. The court noted that under Sections 31(3) and 73 of the AA 1996, once a tribunal has determined an objection, the non-objecting party could not later challenge the timeliness.
Second Appeal: Jurisdiction vs Admissibility
The Czech Republic argued that JS's disposal of his shares in DH in 2011 rendered him ineligible to claim under the BIT, impacting the tribunal’s jurisdiction. The Court of Appeal held that the issue was not one of jurisdiction but of admissibility. The tribunal's jurisdiction was not affected by the timing of JS’s disposal of his investment, as the BIT did not impose a temporal restriction on when the investment had to be held for the arbitration to proceed.
Third Appeal: Meaning of “Control” in the BIT
The Court of Appeal allowed the third ground of appeal, agreeing with the Czech Republic’s argument that DH was not an investor under the BIT. The court ruled that for a legal entity to qualify as an investor under Article 1(1)(c), it must be under de jure control, not merely de facto control. Despite JS’s ongoing management of DH, the Court of Appeal found that control rested with the trustee of the Liechtenstein trust, not JS in his personal capacity. As such, DH did not qualify as an investor under the BIT and the tribunal lacked jurisdiction to hear its claims. The Court of Appeal set aside the award in favour of DH.

Decision

The Court of Appeal dismissed the first two grounds of appeal but allowed the third, setting aside the BIT award in favour of DH for lack of jurisdiction. The court found that DH did not meet the investor criteria under the BIT due to the lack of de jure control by JS over the company.

Commentary

This case provides significant insights into the application of Sections 31 and 73 of the AA 1996, particularly in the context of jurisdictional challenges in investment treaty arbitration. The Court of Appeal’s decision clarifies the circumstances under which jurisdictional objections can be raised and the relationship between jurisdiction and admissibility. The ruling on "control" in the context of investment treaty arbitration will be of particular interest to practitioners dealing with complex issues of standing and investor status under BITs.