Factual and Procedural Background
This opinion concerns three appeals arising from two judgments by Judge Foxton involving a challenge by the Defendant State to an arbitration award under sections 67 and 68 of the Arbitration Act 1996 (AA 1996). The award, referred to as the Treaty Award, arose from a bilateral investment treaty (BIT) between Switzerland and the Defendant State, protecting investments by investors of one contracting state in the territory of the other. The Appellant was a Swiss national who founded a Czech company, which later merged into a Liechtenstein company controlled by him. In 2011 arrangements known as the Lawbook Transaction transferred shares of the Liechtenstein company into a Liechtenstein discretionary trust, the Koruna Trust, established by the Appellant. The Defendant State challenged the tribunal’s jurisdiction on the basis that the Appellant no longer controlled the company after these arrangements, thus ceasing to qualify as an investor under the BIT.
The first judgment (the March judgment) addressed whether certain jurisdictional objections by the Defendant State were barred by section 73 AA 1996 and whether they were jurisdictional within the meaning of section 30 AA 1996. The Judge held some objections were not barred and determined that the jurisdictional challenge concerning the Appellant's claims post-June 2011 was not jurisdictional and thus outside the scope of section 67. Appeals were brought against these findings.
The second judgment (the August judgment) addressed the substantive challenge concerning whether the Appellant retained control of the Liechtenstein company after the 2011 transactions. The Judge found that the Appellant did retain control, dismissing the jurisdictional challenge in that respect. The Defendant State appealed this decision.
The BIT was signed in 1990 between Czechoslovakia and Switzerland, with the Defendant State succeeding to Czechoslovakia’s rights and obligations after its dissolution. The BIT defines "investor" to include nationals and legal entities constituted under the law of a contracting party or controlled by such nationals or entities. The BIT provides for arbitration of disputes between a contracting party and an investor of the other contracting party, with the arbitration governed by international law and the seat in London.
The factual background includes a longstanding dispute dating back to the early 1990s involving shortages of blood plasma derivatives, tenders, and contractual negotiations with hospitals and a Danish company for processing blood plasma. The Appellant acquired Swiss nationality in June 1991, unaware of the BIT at the time. The dispute involved a series of arbitration proceedings ("Commercial Arbitration") against the Defendant State concerning alleged breaches related to interference with investments, culminating in a 2008 Award ordering damages to the Appellant's companies. The Defendant State initiated a review process of the 2008 Award, alleged to have been corrupted and interfered with by the Defendant State, leading to a 2014 Resolution purportedly discontinuing the proceedings.
The Appellant and the Liechtenstein company sought to enforce the 2008 Award unsuccessfully in various jurisdictions, then initiated the Treaty arbitration proceedings under the BIT in 2017. The arbitration tribunal issued the Treaty Award in 2022, finding breaches of the BIT by the Defendant State, including unfair treatment and interference with the Commercial Arbitration and review proceedings, awarding damages of approximately US$350 million plus interest. The Defendant State raised multiple jurisdictional objections, including challenges based on the 2011 share transfer arrangements and control of the company.
Procedurally, the Defendant State’s jurisdictional objections were raised late in the arbitration proceedings, first in a Rejoinder, and the tribunal addressed them on the merits without a timeliness objection from the Appellant and the company. The High Court dealt with challenges under sections 67 and 68 AA 1996, and the appeals concern the correctness of the High Court’s decisions on timeliness and jurisdictional issues.
Legal Issues Presented
- Whether the Defendant State’s jurisdictional objections, raised late in the arbitration proceedings, were barred by section 73 AA 1996 for failure to be raised timeously under section 31 AA 1996 and Article 23 of the UNCITRAL Rules.
- Whether the objection that the tribunal lacked jurisdiction to consider claims by the Appellant relating to breaches of the BIT after June 2011 (the Stava June 2011 Objection) was a jurisdictional objection within the meaning of section 30 AA 1996.
- Whether, following the 2011 transfer of shares in the Liechtenstein company into the Koruna Trust, the Appellant retained control of the company for the purposes of the definition of "investor" in Article 1(1)(c) of the BIT, and thus whether the company remained a qualifying investor under the BIT.
Arguments of the Parties
Appellant's Arguments
- The jurisdictional objections were not raised timeously as required by section 31(1) AA 1996 and Article 23 of the UNCITRAL Rules, and the Defendant State cannot rely on section 73 to excuse this failure.
- Section 31(3) does not allow for implied or constructive extensions of time by the tribunal; an express application and determination is required.
- The Stava June 2011 Objection was not jurisdictional but related to standing or admissibility and thus outside the scope of section 67 challenges.
- The Appellant retained effective control of the Liechtenstein company after the share transfer into the Koruna Trust, satisfying the definition of "investor" under the BIT.
- The Lawbook Transaction was a sham, intended to create an illusion of severance of control to facilitate settlement discussions with the Defendant State.
Defendant State's Arguments
- The jurisdictional objections were raised within the time allowed by the tribunal and addressed on their merits without objection, thus not barred by section 73 AA 1996.
- The tribunal implicitly admitted the late objections under section 31(3) AA 1996 by addressing them on the merits, constituting an extension of time.
- The Stava June 2011 Objection was jurisdictional, concerning substantive jurisdiction ratione materiae, as the BIT only protects investments held by qualifying investors at the time of the alleged breaches.
- Following the 2011 transactions, the Appellant ceased to control the Liechtenstein company, which no longer qualified as an investor under Article 1(1)(c) of the BIT.
- Relevant investor-State arbitration awards support the characterisation of such challenges as jurisdictional.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Gulf Import & Export Co v Bunge SA [2007] EWHC 2667 (Comm) |
Whether a tribunal’s decision to hear a late objection on the merits constitutes an extension of time under section 31(3) AA 1996 and section 73. |
The court found two alternative bases for the tribunal allowing late objections: either by extending time under section 31(3) or by permitting the objection within the time allowed by the tribunal under section 73. |
| The Republic of Serbia v ImageSat International NV [2009] EWHC 2853 (Comm) |
Whether failure to raise a jurisdictional objection at the first procedural step precludes raising it later. |
The court rejected a strict time bar where the opposing party did not object to the late raising of the jurisdictional point and the tribunal considered it on the merits. |
| Stockman Interhold SA v Arricano Real Estate Plc [2017] EWHC 2909 (Comm) |
Whether a tribunal implicitly extends time by addressing a late jurisdictional objection on the merits. |
The court held that an implicit extension of time depends on the facts; absence of an application for extension meant waiver of the objection. |
| PAO Tatneft v Ukraine [2018] EWHC 1797 |
Whether an objection that the claimant acquired the investment after the alleged breach is jurisdictional. |
Held that the objection was jurisdictional and concerned the scope of the offer to arbitrate. |
| Levy v Republic of Peru ICSID ARB/11/17 |
Non-retroactivity of treaties and requirement that investment be held at time of breach for tribunal jurisdiction. |
Supported the principle that substantive protections and jurisdiction apply only to investments held at the time of the alleged breach. |
| Azerbaijan v Armenia (ICJ, 12 November 2024) |
Temporal scope of jurisdiction under a treaty’s compromissory clause. |
The ICJ held that jurisdiction is limited to the temporal application of the substantive provisions of the treaty. |
| Aguas del Tunari SA v Republic of Bolivia ICSID ARB/02/3 (2005) |
Whether control requires legal ownership or actual exercise of control. |
The tribunal favoured legal ownership as the basis for control, rejecting vague factual control tests as unmanageable. |
| Von Pezold v Republic of Zimbabwe ICSID ARB/10/15 (2015) |
Recognition of effective (de facto) control for purposes of investor status. |
The tribunal accepted de facto control evidence but provided limited reasoning. |
| B-Mex LLC v United Mexican States ICSID ARB(AF)/16/3 (2019) |
Control can be legal or de facto for investor status. |
The tribunal held that de facto control can suffice but found legal control was established in the case. |
| Gramercy Funds Management LLC v Republic of Peru (2022) |
Distinction between ownership (control at ownership level) and control at management level for investor status. |
Confirmed that control relevant to investor status is control at the ownership level, not mere management control. |
| JTI Polska Sp Z.o.o. v Jakubowski [2023] UKSC 19 |
Principles of treaty interpretation under Article 31 Vienna Convention as a single combined operation. |
Applied to interpret the BIT provisions. |
| Barton v Wright Hassall LLP [2018] UKSC 12 |
Analogy on procedural fairness and party obligations in litigation. |
Distinguished from arbitration context; arbitration requires prompt raising of objections. |
| Woodward v Phoenix Healthcare Distribution Ltd [2019] EWCA Civ 985 |
Procedural fairness in service of process. |
Distinguished from arbitration context as above. |
| Denton v TH White Ltd [2014] 1 WLR 3926 |
Sanction for failure to comply with procedural rules. |
Illustrated the inappropriateness of taking advantage of opponent’s procedural mistakes in litigation. |
| City of London v Sancheti [2008] EWCA Civ 1283 |
Investor standing under BIT arbitration clauses. |
Confirmed that the arbitration clause is a standing offer to qualifying investors to arbitrate investment disputes. |
Court's Reasoning and Analysis
The court first considered the timeliness of the Defendant State’s jurisdictional objections. It held that the Defendant State failed to raise any timeliness objection before the arbitral tribunal, thus section 73 AA 1996 bars raising such an objection for the first time before the court. The tribunal’s decision to address the objections on the merits without objection from the Appellant and the company was taken as implicitly allowing the objections within the time permitted, satisfying section 73’s requirement of “time allowed by the tribunal”. Alternatively, the tribunal admitted the objections under section 31(3) AA 1996, which requires only that the tribunal permit a late objection, not necessarily by express extension of time. The court rejected the Appellant’s argument that a positive exercise of discretion was required and that addressing the merits alone was insufficient. The court emphasized the statutory purposes of efficiency, finality, and party autonomy underpinning these provisions, and that it would be commercially unrealistic and contrary to the consensual nature of arbitration to require parties to object to points they do not wish to raise.
On the second appeal, the court analysed whether the objection that the tribunal lacked jurisdiction to consider claims by the Appellant relating to breaches after June 2011 (the Stava June 2011 Objection) was jurisdictional under section 30 AA 1996. The court agreed with the Judge that this objection was not jurisdictional but concerned standing/admissibility, a matter for the tribunal to decide on the merits. The court interpreted the BIT’s arbitration clause as offering arbitration to qualifying investors who have made qualifying investments after 1 January 1950, without a temporal limitation requiring the investor to hold the investment at the time of the breach or at the time arbitration is commenced. The court rejected the Defendant State’s reliance on international awards as persuasive authority for a jurisdictional characterisation, noting the differences in treaty language and the distinct role of English courts in interpreting the Arbitration Act. The court also rejected the Defendant State’s alternative “variant 2” argument that the investor must hold the investment at the time arbitration is commenced, holding it was not pleaded and not within the scope of the appeal.
On the third appeal, the court examined whether the Appellant retained control of the Liechtenstein company after the shares were transferred into the Koruna Trust in 2011, as required by Article 1(1)(c) of the BIT for the company to qualify as an investor. The court undertook a detailed treaty interpretation exercise under Article 31 of the Vienna Convention, considering the ordinary meaning of “control”, the context of the BIT, its Protocol, and its object and purpose. The court held that “control” requires de jure control, i.e., legal control arising from ownership or legal rights over the entity, rather than mere de facto or practical control. The Protocol’s requirement for proof of control to be submitted and recognized by the host state supports this interpretation, as it contemplates a clear, administrable test based on legal rights rather than fluctuating factual control.
The court rejected the Judge’s emphasis on substance over form, explaining that legal ownership and control are not mere formalities but substantive rights fundamental to the function of the BIT’s investor definition. The court found the Judge erred in interpreting “control” to include de facto control, noting that such an approach is vague, unmanageable, and contrary to the BIT’s object of providing certainty and predictability to investors and host states.
Applying these principles to the facts, the court accepted that the Koruna Trust was valid and effective under Liechtenstein law and that the shares were legally owned by the trustee, not the Appellant. Although the Appellant exercised practical control over the company’s business activities as chairman and protector of the trust, he did so as agent of the trustee and was obliged to act in the best interests of the trust. The Appellant had no proprietary or legal rights of ownership or control over the shares. The court held that practical influence or funding of the company’s activities does not equate to legal control under Article 1(1)(c).
Accordingly, the court concluded that the Appellant did not have the legal control required for the company to qualify as an investor after the 2011 share transfer and that the award in favor of the company was made without substantive jurisdiction and must be set aside.
Holding and Implications
The court dismissed the first and second appeals and allowed the third appeal.
The first appeal dismissal confirms that jurisdictional objections raised late in arbitration proceedings but addressed on the merits without timely objection are not barred by section 73 AA 1996. This reinforces the principle that parties who do not object to late jurisdictional challenges before the tribunal cannot later rely on timeliness objections in court.
The dismissal of the second appeal affirms that a challenge to standing to bring claims for breaches occurring after an investor’s divestment is not a jurisdictional objection under section 30 AA 1996 but a matter of admissibility or merits for the tribunal. This clarifies the scope of jurisdictional challenges under the Arbitration Act in the context of BIT arbitrations.
The allowance of the third appeal has the direct effect of setting aside the award made in favor of the Liechtenstein company on the basis that it ceased to qualify as an investor under the BIT after the 2011 share transfer to the Koruna Trust. This decision underscores the importance of legal ownership and control in determining investor status under BITs with similar definitions and protocols. No new precedent beyond the parties is established, but the ruling provides authoritative guidance on the interpretation of “control” in such treaties and the application of sections 31, 67, and 73 of the Arbitration Act 1996 to jurisdictional objections.