The Czech Republicv Diag SE & Anor

Factual and Procedural Background

The case concerns challenges by the Defendant to an arbitration award ("the BIT Award") made pursuant to a bilateral investment treaty ("the BIT") between two contracting states protecting investments by investors of one state in the other. The BIT Award granted sums of approximately US$350 million plus interest to the Appellee and Company B against the Defendant. The court previously determined that the Defendant's challenge to the award in favour of Company B succeeded on jurisdictional grounds, resulting in that part of the award being set aside, while the award in favour of the Appellee was upheld.

The parties were unable to agree on the terms of an order to give effect to the judgment, particularly regarding the effect of setting aside the award in favour of Company B on the award in favour of the Appellee. An oral hearing was held to explore these issues. Additional matters included the effect on arbitration costs and undertakings given by the Appellee and Company B to prevent double recovery from the Defendant related to a prior award ("the 2008 Award").

Subsequent developments include the arbitral tribunal issuing a further award ("the Remittal Award") addressing whether damages should be reduced due to an assignment of part of Company B's claim. The tribunal declined to reduce damages despite being informed of the court's decision to set aside the award in favour of Company B. This led to three applications by the Defendant: a challenge to the tribunal's impartiality, a challenge to the Remittal Award under the Arbitration Act 1996, and a request for correction of the Remittal Award.

All three tribunal members resigned at the Defendant's request, citing that the challenge to their impartiality had tainted any future proceedings, potentially necessitating the constitution of a new tribunal and causing delay and expense.

Procedurally, the case involved multiple appeals and challenges under sections 67 and 68 of the Arbitration Act 1996, with appeals heard by the Court of Appeal and judgments handed down in May 2025. The court also considered undertakings by the Appellee and Company B to avoid double recovery and addressed the costs of arbitration and the effect of the tribunal's resignation on possible remission of the award.

Legal Issues Presented

1. Whether the setting aside of the award in favour of Company B affects the validity and enforceability of the award in favour of the Appellee.
2. The proper disposition of costs of the arbitration following partial setting aside of the award.
3. The effect of undertakings given by the Appellee and Company B to prevent double recovery on the damages award.
4. The consequences of the arbitral tribunal's resignation on the possibility of remission of the award for reconsideration.
5. The validity and effect of the Remittal Award issued by the tribunal after the court's judgment.

Arguments of the Parties

Defendant's Arguments

• The award in favour of the Appellee is dependent on and inseverable from the award in favour of Company B, and thus must also be set aside if the award to Company B is set aside.
• All damages awarded were for loss suffered by Company B, and the Appellee could only recover loss as a shareholder of Company B, but the Appellee had ceased to be a shareholder, undermining his claim.
• The undertaking to prevent double recovery was premised on Company B's involvement, which the court found invalid, potentially affecting the damages awarded.
• The costs award might have been different if the tribunal had appreciated that Company B's claims failed in their entirety.
• The issuance of the Remittal Award without allowing submissions on the effect of the court's judgment was a serious irregularity.

Appellee's Arguments

• The setting aside of the award in favour of Company B does not affect the award in his favour, which should be confirmed.
• The tribunal found that the Appellee suffered loss in his own right, independently of Company B's claim, and was a "privy" of Company B, entitling him to damages.
• The undertaking to prevent double recovery was given by both parties, and a further undertaking has been provided to protect against double recovery despite the tribunal's lack of jurisdiction over Company B.
• Costs attributable to Company B's claim are difficult to disentangle from those of the Appellee, and the court should confirm the costs award as a matter of discretion.
• The Remittal Award's issue concerning assignment should be left to the Commercial Court to determine.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed whether the award in favour of the Appellee could stand independently after setting aside the award in favour of Company B. It rejected the Defendant's argument that the awards were inseverable, noting the arbitral tribunal's findings that the Appellee suffered loss in his own right, independently of Company B's claim. The tribunal had jurisdiction over the Appellee's claim, and jurisdictional challenges relating to Company B did not affect this.

The court emphasised the principle of minimal interference with arbitration awards under the Arbitration Act 1996, affirming that the award in favour of the Appellee should be confirmed. It further held that the divestment of shareholding by the Appellee did not affect the tribunal's jurisdiction to award damages for loss already suffered.

Regarding double recovery, the court found the objection based on the lack of jurisdiction over Company B to be insubstantial since undertakings had been given by both parties, and further undertakings were offered to protect against double recovery.

On costs, the court acknowledged that the tribunal might have made a different award had it known Company B's claims would fail. However, the tribunal's resignation prevented remission for reconsideration. The court exercised its discretion to confirm the costs award in favour of the Appellee, noting the difficulty in disentangling costs attributable to Company B.

The court declined to amend other paragraphs of the BIT Award, deeming it inappropriate to do so without a tribunal, and left issues arising from the Remittal Award to be determined by the Commercial Court due to the tribunal's resignation and the pending challenge.

Holding and Implications

Holding:

• The First and Second Appeals by the Defendant are dismissed.
• The Third Appeal by the Appellee is allowed, declaring that the tribunal lacked jurisdiction over Company B's claims.
• The award in favour of the Appellee is confirmed.
• The award in favour of Company B is set aside.
• Paragraph 1103 of the BIT Award is varied as set out in the court's order.

Implications: The court's decision confirms the enforceability of the award in favour of the Appellee independently of the award to Company B, thereby preventing the Defendant from escaping liability on the Appellee's claim due to jurisdictional defects affecting Company B. The costs award is upheld as a matter of discretion despite potential over-inclusion of costs related to Company B's claim, reflecting pragmatic resolution in light of the tribunal's resignation. The decision does not establish new precedent beyond affirming minimal interference with arbitration awards and the severability of awards where jurisdictional challenges succeed in part. The pending challenge to the Remittal Award remains for determination by the Commercial Court, and no further amendments to the BIT Award will be made by this court due to the absence of the tribunal.