Introduction
In a recent decision, the English Court of Appeal (Civil Division) addressed whether the setting aside of an arbitral award against one claimant, Diag Human SE (“Diag SE”), had any impact on the award granted to a co-claimant, Mr.Josef Stava (“Stava”). The case originated under the Bilateral Investment Treaty (“BIT”) between Switzerland and the Czech Republic (“CZR”).
On 7 May 2025, the Court delivered its judgment in three appeals brought by CZR. These appeals challenged an arbitral award under sections 67 and 68 of the Arbitration Act 1996 (the “Act”), granting approximately US$350 million plus interest to Stava and Diag SE.
CZR's challenge to the award in favour of Stava was unsuccessful. However, its challenge against the award in favour of Diag SE succeeded. The Court found that Diag SE did not meet the criteria to quality as an investor under the BIT, and therefore, the arbitral tribunal lacked substantive jurisdiction over the dispute between Diag SE and CZR. Consequently, the award in favor of Diag SE was set aside.
The parties were unable to agree on the terms of an order implementing the aforesaid judgment. CZR argued that the award in favour of Stava was dependent on, and therefore not severable from, the award granted to Diag SE. CZR contended that, as a result, the setting aside of Diag SE's award necessitated the setting aside of Stava's award as well. In contrast, Stava maintained that the setting aside of Diag SE's award had no bearing on his own, which remained valid and should be confirmed. The hearing took place before the Court on 15 July 2025, and the judgment, being the subject of this case digest, was handed down remotely on 28 July 2025.
Remittal Award and subsequent developments
Some developments had occurred following the Court's judgment on the appeals.
The arbitral tribunal issued a further award (the “Remittal Award”) that the damages should not be reduced. It held that CZR “remains obliged to pay Claimants [Diag SE and Stava] 100% of the amount granted in the [BIT Award]”. This decision was made despite CZR's solicitors informing the tribunal, on 7 May 2025, that the Court had set aside Diag SE's award. The tribunal justified on the basis that it had not invited any post-hearing submissions and declined to consider submissions regarding the impact of the Court's judgment.
Following the issuance of the Remittal Award, CZR initiated three applications. First, on 12 June 2025, CZR challenged all three tribunal members before the Permanent Court of Arbitration, arguing that the Remittal Award gave rise to justifiable doubts about the tribunal's impartiality, pursuant to Articles 12 and 13 of the UNCITRAL Rules 2010 as amended. Second, CZR challenged the Remittal Award under sections 67 and 68 of the Act, alleging that the tribunal committed a serious irregularity by failing to invite submissions on the effect of the Court's judgment, etc. Third, on 27 June 2025, CZR filed a request for correction of the Remittal Award under Article 38 of the UNCITRAL Rules, with the effect of reviving the tribunal's jurisdiction.
On 11 July 2025, at CZR's request, all three tribunal members resigned. Though they rejected the impartiality challenge as baseless, they felt the accusations had “tainted” the nature of any possible future proceedings before them.
Lord Justice Males' reasoning
CZR contended that Stava's award could not survive once Diag SE's award was set aside. All damages stemmed from Diag SE's losses under a 2008 award (the “2008 Award”), involving arbitration proceedings to which Stava was not a party. He could only claim such loss as a shareholder, yet he no longer held that status. CZR cited case law from Australia and Singapore addressing the severability of arbitral awards, submitting that Stava's award was inseparably tied to that of Diag SE and therefore tainted by its setting aside.
Lord Justice Males firmly rejected CZR's argument. He highlighted the arbitral tribunal's determination that CZR owed damages to Stava, recognizing him as an investor who had incurred financial loss, equal to the sum of the 2008 Award due to CZR's violations of the BIT.
The tribunal described Stava as a “privy” of Diag SE. Lord Justice Males held that the fact the 2008 Award was made in favour of Diag SE did not prevent the tribunal from finding that Stava had suffered loss in the same amount. This was a decision on the ‘merits' and not open to review.
Stava's divestment of his shareholding in Diag SE did not impact on the tribunal's jurisdiction over his claim for loss, which, according to its findings, had already incurred. Whether such divestment should lead to the failure of his claim was a matter relating to the merits, not to jurisdiction. As such, it fell squarely within the tribunal's remit, not that of the court.
The tribunal's lack of jurisdiction to render an award against Diag SE did not undermine its decision concerning Stava. It would still have had jurisdiction to hear Stava's claim and to find that he had sustained loss in the same amount, even if Diag SE had not been a party to the BIT arbitration.
Where an award is successfully challenged on the grounds of lack of substantive jurisdiction or serious irregularity, a question may arise as to whether the entire award must be set aside. However, in this case, Stava holds a valid award in his favour and there is no proper basis for depriving him of it solely because the tribunal lacked jurisdiction over Diag SE's claim. This position aligns with the principle of minimal judicial interference in arbitration awards which underpins the Act.
The Court also considered CZR's argument that tribunal's damages award was predicated on undertakings from both Diag SE and Stava. However, pursuant to the Court's judgment, the tribunal lacked jurisdiction to require any such undertaking from Diag SE. The Court dismissed this objection as “insubstantial” for two reasons. First, Diag SE voluntarily provided the undertaking, notwithstanding the tribunal's lack of jurisdiction to compel it. Second, both Diag SE and Stava, being properly before the Court, had offered a further undertaking that sufficiently mitigated the risk
of double recovery.
Costs of the arbitration
The arbitral tribunal ordered CZR to pay 70% of Diag SE's and Stava's costs (assessed in the sums of US$427,135.70, GBP739,205.77, CZK850,688.30, EUR165,700.21 and CHF18,225.65). CZR was also to reimburse Diag SE and Stava 70% of their share of the arbitration costs (i.e. EUR378,442.86). CZR argued that the costs award might have differed had the tribunal recognized that it lacked jurisdiction over Diag SE's claims.
The Court accepted that a different outcome was possible but found that remitting the issue was impractical due to the tribunal's resignation. It was impossible for a new tribunal to replicate the mindset of the original tribunal when reconsidering its discretion. Creating a new tribunal would also cause excessive delays and costs. Instead, the Court ordered CZR to pay 70% of Stava's costs and reimburse him 70% of his share of the arbitration costs, leaving the tribunal's original figures undisturbed. The Court also noted that while some costs may have been attributable to Diag SE's claim, Stava had effectively funded those proceedings, making it impractical to separate the costs of the two claims with any precision.
The Court acknowledged that its decision involved an element of “rough justice”. However, this outcome stemmed from the tribunal's resignation, deliberately procured by CZR. Overall, therefore, the Corut considered that this was a fair result as a matter of discretion.
Lord Justice Popplewell and Lady Justice Andrews agreed, making the decision a unanimous one.
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