Diag Human S.E. v. The Czech Republic

Case summary

At a glance

Parties: Diag Human SE (Liechtenstein; formerly Diag Human a.s., Czech company) v. the Czech Republic – Ministry of Health
Case no.: Ad hoc arbitration, case No. RSP 06/2003 (Prague)
Forum and rules: Ad hoc arbitration under the arbitration agreement of 18 September 1996 and Czech Act No. 216/1994 Coll. on arbitration; later enforcement proceedings in England, France, the United States, Luxembourg and the Netherlands
Treaty: None. Contract-based arbitration agreement; enforcement under the New York Convention 1958
Tribunal: Partial Award (2002): JUDr. Josef Kunasek (Chair), Prof. JUDr. Monika Pauknerová, JUDr. Zdeněk Rusek. Final Award (2008): Prof. JUDr. Kvetoslav Růžička (Presiding), Prof. JUDr. Monika Pauknerová, JUDr. Zdeněk Rusek
Sector: Healthcare; blood plasma and plasma derivatives
Outcome: The Final Award of 4 August 2008 found the Ministry of Health liable for lost profits. A review tribunal discontinued the proceedings on 23 July 2014. Enforcement was refused in England, France, the Netherlands and the US, and granted in Luxembourg.
Amount: Claimed: CZK 5,770,780,060.10 in damages and CZK 7,487,684,791.01 in interest to 30 June 2007. Partial Award (2002): CZK 326,608,334, paid on 16 January 2003. Final Award (2008): further CZK 4,089,716,666 in damages, CZK 4,244,879,686 in interest to 30 June 2007, and CZK 1,287,877 per day from 1 July 2007. Each party bore its own costs. Luxembourg validated an attachment capped at EUR 419,734,449.

The dispute

Diag Human supplied blood plasma technology and organised plasma fractionation for Czechoslovak hospitals through the Danish company Novo Nordisk. On 9 March 1992 the Minister of Health, Martin Bojar, wrote to Novo Nordisk questioning Diag Human's reliability. Novo Nordisk then suspended its cooperation with Diag Human. Diag Human claimed damages, mainly lost profits, for abuse of economic competition and unfair competition under the Czech Commercial Code and Act No. 63/1991 Coll. The parties referred the dispute to ad hoc arbitration by an agreement of 18 September 1996. Article V of that agreement let either party have any award reviewed by a new panel of arbitrators within 30 days. The State denied causation and loss and raised limitation and mitigation. It also challenged the arbitration in several ways, including court actions against the arbitration agreement and a review request against each award.

Key holdings

Partial Award: liability and causation had already been decided with final effect by the interim award of 19 March 1997 and the review award of 27 May 1998. Causation ran from 1 July 1992 until Novo Nordisk closed its production line in May 2000. Relying on the expert opinion commissioned by the State (Horský and Svoboda), the tribunal awarded CZK 326,608,334 as the undisputed minimum lost profit. Partial Award, Part III
Final Award: all conditions of liability under § 373 of the Commercial Code were met. The plaintiff could not have averted the loss, and the loss was foreseeable. The tribunal took the court-appointed expert's variant II B (CZK 4,416,325,000) and deducted the amount already paid, awarding CZK 4,089,716,666. Limitation had already been rejected with final effect. Default interest runs only from the dates on which the State learned of each quantified amount. Final Award ¶¶ 230–239
The claim for CZK 21,000,000 in actual damages was dismissed for lack of proof. The proceedings on the apology and on financial compensation were terminated because those claims had been withdrawn on 7 April 2000. Under the arbitration agreement each party bears its own legal costs, and the costs of the expert, E & Y Valuations, were split equally. Final Award ¶¶ 240–249
English High Court (Eder J): the award is not binding under s103(2)(f) of the Arbitration Act 1996. The Austrian Supreme Court's decision of 16 April 2013 created an issue estoppel. In any event, the review request validly triggered a process of 'ordinary recourse'. The order of 21 July 2011 giving leave to enforce was set aside, and partial enforcement was refused. [2014] EWHC 1639 (Comm), ¶¶ 62, 87, 91, 97–98
Dutch Supreme Court: the Court of Appeal was entitled to read the Resolution of 23 July 2014 as depriving the Final Award of legal force. That effect equals the setting aside of an award under Article V(1)(e) of the New York Convention, so recognition and enforcement were refused. The Resolution was not contrary to public policy. HR 15 June 2018, ¶¶ 3.4.6, 3.5.6–3.5.7, 3.6.2
US Court of Appeals for the D.C. Circuit (2018): the Final Award was not binding under Article V(1)(e). Read with Czech law, the Resolution discontinued the whole arbitration after the Partial Award on res judicata grounds and so nullified the Final Award. The public-policy objection was not made out. An earlier panel (2016, Sentelle J dissenting) had held that the court had subject-matter jurisdiction under the FSIA arbitration exception. D.C. Cir. 26 Oct 2018, pp. 5–10
Luxembourg: the Court of Appeal held that the Resolution closed only the review proceedings, so the Final Award acquired the force of res judicata. It rejected the objections based on immunity, commercial nature and res judicata. The Court of Cassation dismissed the State's appeal, holding that the interpretation of Czech law is for the trial judges. The District Court later found that the State had waived immunity from jurisdiction and from enforcement by signing Article V of the arbitration agreement, and validated the attachment up to EUR 419,734,449. CA 27 Apr 2017 pp. 11–14; Cass. 28 June 2018; TAL 7 June 2019 pp. 8–15