Severability of Arbitral Awards: Confirmation of a Valid Claimant’s Award Despite Co-Claimant’s Jurisdictional Defeat – Commentary on The Czech Republic v Diag SE & Anor ([2025] EWCA Civ 998)

1. Introduction

The Court of Appeal’s decision in The Czech Republic v Diag SE & Anor settles a thorny set of post-award questions that arose from a bilateral investment treaty (“BIT”) arbitration in which two claimants, Mr Josef Stava and Diag Human SE (“Diag SE”), had obtained a US $350 million award against the Czech Republic (“CZR”). While the court had earlier ruled that the tribunal lacked jurisdiction over Diag SE, it upheld jurisdiction over – and the merits in favour of – Mr Stava. The immediate problem therefore became whether the surviving element of the award could stand once the Diag SE portion was struck out. CZR pressed for a total set-aside; Mr Stava sought confirmation of his award. In addition, the parties contested the fate of the tribunal’s costs order, the risk of double recovery owing to an earlier 2008 commercial arbitration award, and the status of a subsequent “Remittal Award.”

2. Summary of the Judgment

The Court of Appeal (Males LJ, Popplewell LJ, Andrews LJ concurring) ordered:

• The award in favour of Mr Stava is confirmed.
• The award in favour of Diag SE is set aside for want of jurisdiction.
• Paragraph 1103 of the award is varied to delete references to Diag SE and to preserve the damages, interest and costs payable to Mr Stava alone.
• CZR must pay 70 % of Mr Stava’s arbitration costs as previously assessed; no remission to a new tribunal will occur in light of the original tribunal’s resignation.
• Mr Stava and Diag SE give undertakings preventing double recovery relative to the 2008 award.

Critically, the court refused to accept that the two limbs of the original BIT award were so intertwined that removal of Diag SE’s portion contaminated Mr Stava’s. Instead, it adopted a principle of severability of awards: where the tribunal possessed jurisdiction over one claimant and not the other, the valid segment may survive unless actual dependence is shown. The judgment emphasises minimal judicial interference with arbitral awards and endorses practical solutions when the tribunal is functus officio or has resigned.

3. Detailed Analysis

3.1 Precedents Cited and Their Influence

• William Hare UAE LLC v Aircraft Support Industries Pty Ltd ([2014] NSWSC 1403)
• GD Midea Air Conditioning Equipment Co Ltd v Tornado Consumer Goods Ltd ([2017] SGHC 193)
• CBX v CBZ ([2021] SGCA(I) 3)

CZR relied on these Australian and Singaporean authorities to argue that where an award is “inseverable,” a successful jurisdictional challenge to one part invalidates the whole. The Court of Appeal distinguished them on factual and doctrinal grounds:

• Different Fact Matrix – In each foreign case the damages calculus or liability rationale for Claimant A was inseparably predicated on Claimant B’s status. In the present dispute, although the quantum claimed by Mr Stava mirrored the 2008 award in favour of Diag SE, his loss was independently analysed by the tribunal as a privy and investor in his own right.
• English Statutory Context – Section 67 AA 1996 empowers the court to “set aside in whole or in part.” This textual discretion, coupled with the principle of “minimal curial intervention,” tilts the balance toward preserving valid portions.

Reference was also made to section 10 of the Arbitration Act 2025, which (prospectively) clarifies the court’s power to remit; the Court of Appeal treated it as declaratory of existing law, reinforcing its authority to craft proportionate remedial orders.

3.2 Court’s Legal Reasoning

a. Jurisdictional Autonomy of the Claims

The tribunal had unquestioned jurisdiction over Mr Stava from the outset; the later discovery that Diag SE fell outside the BIT’s investor definition did not retroactively infect the tribunal’s mandate vis-à-vis Mr Stava. The court underscored the conceptual divide between:

• Challenges to jurisdiction (which courts may review de novo), and
• Challenges to the merits (which are not reviewable unless there is serious irregularity).

While CZR argued that Mr Stava could suffer no personal loss after divesting his shareholding, the Court characterised that contention as a merits issue already resolved by the tribunal. Thus it lay beyond the scope of Sections 67/68 once jurisdiction was established.

b. Severability and “Taint” Analysis

The court articulated a two-step test for whether an award should be set aside in toto following a partial jurisdictional failure:

1. Logical Dependency: Does the reasoning or calculus for Claimant A require the legal personality of Claimant B?
2. Practical Justice: Would excision of the invalid part create uncertainty, unfairness, or enforcement obstacles?

Applying the test, the court found no fatal dependency: the tribunal could have, and notionally would have, reached the same conclusion on Mr Stava’s loss even if Diag SE had never been at the table.

c. Double Recovery Undertakings

Although the original undertaking came from both claimants, the tribunal’s lack of jurisdiction over Diag SE did not vitiate the protection because:

• The undertaking was in fact given; and
• The Court exacted a replacement undertaking directly, ensuring enforceability.

d. Costs and Tribunal Resignation

With the tribunal’s resignation removing the possibility of a tailored re-assessment, the Court preferred a pragmatic – if “rough” – approach: maintain the 70 % costs allocation to Mr Stava. Significantly, the judgment criticises CZR for engineering the resignation, implicitly warning parties against tactical manoeuvres designed to frustrate remission.

3.3 Anticipated Impact

The decision carries several forward-looking implications:

• Clarified Severability Doctrine – English courts will preserve valid slices of composite awards unless the challenger satisfies a demanding burden of showing true interdependence.
• Strategic Considerations in Multi-Claimant Arbitrations – Parties resisting enforcement cannot assume that disqualifying one claimant eliminates the entire award; conversely, claimants must structure pleadings so that each has an independent factual and legal foundation.
• Role of Undertakings to Manage Double Recovery – The case demonstrates judicial willingness to use undertakings as equitable tools where jurisdictional technicalities might otherwise obstruct practical justice.
• Cost-setting Precedent – Resignation or inability of the original tribunal will not necessarily lead to remission; courts may themselves finalise cost awards where remitting would be disproportionate.
• Interaction with the 2025 Act – The judgment is an early example of courts treating the Arbitration Act 2025 amendments as declaratory, signalling continuity rather than disruption in remedial powers.

4. Complex Concepts Simplified

Section 67 vs. Section 68 AA 1996
Section 67 allows parties to challenge an award on the ground that the tribunal lacked “substantive jurisdiction.” The court hears these challenges afresh (de novo). By contrast, Section 68 targets “serious irregularity” affecting the tribunal or the proceedings (e.g., bias, procedural excesses). Remedies include setting aside, varying, or remitting the award.

Severability of Awards
Arbitral awards often address multiple parties or claims. “Severability” means a court can surgically remove any unlawful part and preserve the rest, provided the remaining portion constitutes an intelligible and enforceable decision.

Remission
Instead of quashing an award, a court may send (“remit”) it back to the tribunal to correct errors. Section 10 of the Arbitration Act 2025 makes explicit what was already implicit in Section 67(3): the power to remit in jurisdictional challenges.

Functus Officio
Once a tribunal issues a final award, its mandate normally ceases; it becomes “functus officio.” Certain rules (e.g., Article 38 UNCITRAL) allow limited correction or interpretation requests that temporarily revive jurisdiction.

Double Recovery
A claimant should not collect the same damages twice through different awards or proceedings. Courts and tribunals may require undertakings or offset mechanisms to avert such windfalls.

5. Conclusion

The Court of Appeal’s ruling in The Czech Republic v Diag SE & Anor crystallises a modern, pragmatic approach to post-award challenges: protect valid arbitral determinations, excise only what is jurisdictionally tainted, and deliver practical justice efficiently. By confirming Mr Stava’s award notwithstanding Diag SE’s disqualification, the court strengthens the autonomy of arbitral proceedings while safeguarding the integrity of English supervisory jurisdiction. The precedential value extends to future BIT and commercial arbitrations alike, signalling that partial jurisdictional successes will not necessarily topple the entirety of complex, multi-claimant awards.

© 2025 – This commentary is provided for educational purposes and does not constitute legal advice.