Introduction

The case of Czech Republic v Diag Human SE & Anor ([2023] EWCA Civ 1518) addresses critical issues regarding the enforcement of arbitration awards under the Arbitration Act 1996. Specifically, it examines the application of Section 70(7), which allows courts to order security for money payable under an arbitration award pending the determination of challenges under Sections 67 and 68.

Diag Human SE and Mr. Josef Stava sought security for the enforcement of an arbitration award against the Czech Republic. The Republic challenged the award's validity, prompting legal debates on the court's jurisdiction to grant permission to appeal decisions related to security orders.

Summary of the Judgment

The England and Wales Court of Appeal, led by Lord Justice Males, upheld the decision of Mr. Justice Bright, who had refused to order security under Section 70(7) of the Arbitration Act 1996. The applicants sought to appeal this refusal, arguing that the lower court erred in its interpretation of Section 70(7) and that the Court of Appeal should possess jurisdiction to grant such permission.

However, the Court of Appeal concluded that decisions under Section 70(7) are intrinsically linked to Sections 67 and 68, which pertain to challenges against arbitration awards. Consequently, only the first instance court holds the authority to grant permission to appeal such decisions, aligning with precedents set in cases like NIOC v Crescent Petroleum Company [2023] and others.

Analysis

Precedents Cited

The judgment extensively references prior case law to elucidate the court's stance:

• NIOC v Crescent Petroleum Company International Limited [2023] EWCA Civ 826: Established that the Court of Appeal lacks jurisdiction to grant permission to appeal decisions made under Section 73 regarding challenges to arbitration awards.
• Peterson Farms v C&M Farming Ltd [2003] EWHC 2298 (Comm): Highlighted the necessity of demonstrating that a jurisdictional challenge is "flimsy or otherwise lacks substance" before security can be ordered under Section 70(7).
• A v B [2010] EWHC 3302 (Comm): Introduced the "threshold requirement" for ordering security based on the perceived strength of the challenge.
• Konkola Copper Mines Plc v U&M Mining Zambia Ltd [2014] EWHC 2146 (Comm): Emphasized the need for security if there is a risk of asset dissipation, reinforcing the conditions under which Section 70(7) may be invoked.

Legal Reasoning

Lord Justice Males reasoned that Section 70(7) is fundamentally connected to Sections 67 and 68, which govern challenges to arbitration awards. The Court of Appeal held that decisions made under Section 70(7) are considered "decisions under" Sections 67 or 68. As such, only the first instance court has the jurisdiction to grant permission to appeal these decisions.

The court also addressed the applicants' argument that Section 70(7) should be treated differently, emphasizing that introducing a "flimsiness" threshold for security orders could lead to procedural complexities and undermine the efficiency aims of the Arbitration Act.

Furthermore, the court dismissed the applicants' assertion that the Republic's alleged historical misconduct should independently justify a security order, maintaining that such a determination falls within the purview of the first instance court and does not warrant appellate intervention.

Impact

This judgment reinforces the procedural boundaries set by the Arbitration Act 1996, particularly regarding the appellate process for decisions under Section 70(7). By affirming that only first instance courts can grant permission to appeal decisions related to security orders, the court upholds the established gatekeeping role of lower courts in arbitration proceedings.

Future litigants must adhere to the procedural pathways delineated by this ruling, ensuring that applications for security orders are executed within the first instance court's jurisdiction. This decision also curtails attempts to circumvent established judicial protocols by seeking appellate intervention prematurely.

Complex Concepts Simplified

Section 70(7) of the Arbitration Act 1996

This provision allows courts to order that any money payable under an arbitration award be secured or brought into court while an application or appeal against the award is being decided. It also empowers the court to dismiss the application or appeal if the security is not provided.

Sections 67 and 68 Challenges

These sections pertain to challenges against an arbitration award. Section 67 deals with challenges to the arbitral tribunal's substantive jurisdiction, while Section 68 addresses serious irregularities in the arbitral process.

Security Orders

Security orders are mechanisms to ensure that funds awarded under an arbitration decision are available to the winning party pending any legal challenges to the award. This prevents the losing party from dissipating assets to evade payment.

Permission to Appeal

Permission to appeal is a preliminary step where a higher court determines whether an appeal should be heard. It acts as a filter to prevent frivolous or unmeritorious appeals from proceeding.

Conclusion

The Court of Appeal's decision in Czech Republic v Diag Human SE & Anor underscores the importance of adhering to procedural jurisdictions established by the Arbitration Act 1996. By affirming that only first instance courts can grant permission to appeal decisions related to security orders under Section 70(7), the court reinforces the structured hierarchy and minimizes unnecessary appellate interventions.

This judgment serves as a critical precedent for future arbitration-related security applications, guiding practitioners to navigate the judicial system efficiently and within prescribed legal boundaries. It highlights the delicate balance between safeguarding award enforceability and maintaining the integrity of the arbitration process, ensuring that courts remain effective gatekeepers against unjust enrichment and asset dissipation.