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International Arbitration Forum

Diag Human, S.E. v. Czech Republic – Ministry of Health

Case summary

At a glance

Parties
Diag Human, S.E. (Liechtenstein) v. Czech Republic – Ministry of Health
Case no.
U.S. Court of Appeals, D.C. Circuit, No. 17-7154 (earlier appeal No. 14-7142); U.S. District Court, D.D.C., Civil Action No. 13-0355 (ABJ)
Court
U.S. District Court for the District of Columbia; U.S. Court of Appeals for the District of Columbia Circuit
Forum and rules
Enforcement proceedings under the New York Convention (9 U.S.C. §§ 201–208) and the Foreign Sovereign Immunities Act
Underlying award(s)
Czech arbitration under a 1996 arbitration agreement: Interim Award (19 March 1997), Partial Award (25 June 2002), Final Award (4 August 2008), and the Third Review Tribunal's Resolution (23 July 2014)
Treaty
New York Convention, Article V(1)(e)
Court
District Judge Amy Berman Jackson; 2016 panel: Judges Tatel, Brown (opinion) and Sentelle (dissent); 2018 panel: Judges Srinivasan, Wilkins and Randolph (opinion)
Sector
Blood plasma; health care
Outcome
Enforcement refused. The D.C. Circuit affirmed on 26 October 2018 that the 2008 Final Award was not binding under Article V(1)(e).
Amount
The 2008 Final Award granted more than CZK 8.3 billion, including interest from 1 July 1992 to 30 June 2007, plus about CZK 1.2 million per day. The opinions give different U.S. dollar figures for it: about $650 million, more than $325 million, and about $400 million. The 2002 Partial Award of CZK 326,608,334.00 (about $10 million) was paid. Nothing was enforced in the U.S. proceedings.

The dispute

Diag Human, a Liechtenstein blood plasma company, had a 1990 Framework Agreement with the Czech Ministry of Health. Under it, Diag Human supplied plasma collection equipment and training and was paid with a share of the fractionated plasma. Diag Human alleged that around 1992 the Minister of Health wrote to its partner Novo Nordisk questioning its business ethics. Novo Nordisk then stopped working with Diag Human, and its Czech business collapsed. After Diag Human sued in the Prague Commercial Court in 1996, the parties agreed to arbitrate. The arbitration agreement allowed either party to have an award reviewed by a second arbitral panel. Diag Human sought to enforce the 2008 Final Award in the United States. The Czech Republic argued that the court lacked jurisdiction, that the relationship was not commercial, and that the award never became binding because a review panel had set it aside. It also raised res judicata, limitation and the SPEECH Act.

Key holdings

  1. The District Court dismissed the case on its own motion for lack of subject-matter jurisdiction. It held that the parties had no commercial legal relationship before the arbitration agreement, so the New York Convention did not apply. Neither FSIA exception applied: there was no implied waiver under § 1605(a)(1) and no arbitration exception under § 1605(a)(6). 2014 Memorandum Opinion, pp. 8–15
  2. The D.C. Circuit reversed by majority. The 1990 Framework Agreement created a 'defined legal relationship', and that relationship was commercial because it involved supplying blood plasma technology and equipment. The FSIA arbitration exception therefore applies and the court has subject-matter jurisdiction. Whether the award is final is a merits question. 2016 Opinion, pp. 7–13
  3. Judge Sentelle dissented in 2016. He found no clear error in the District Court's finding that any legal relationship had ended before the 1992 dispute arose. He also found no waiver of immunity. 2016 Dissent, pp. 1–6
  4. On remand, the District Court refused enforcement under Article V(1)(e). Under paragraph V of the arbitration agreement, an award enters into effect only if no review application is filed in time. The Ministry filed one, and the review ended with the proceedings discontinued, so the 2008 Final Award never took effect or became binding. 2017 Memorandum Opinion, pp. 11–12
  5. The D.C. Circuit affirmed in 2018 on different reasoning. The decretal paragraph 'the proceedings are discontinued' is ambiguous, so the panel's reasoning must be read with it. That reasoning held the Final Award barred as res judicata by the Partial Award. Under Czech Arbitration Law § 27, review is part of a single arbitral proceeding. Discontinuing it therefore ended the whole arbitration and nullified the award. This was within the review panel's powers, even though the panel issued a resolution rather than an award. 2018 Opinion, pp. 5–10
  6. The court will not review alleged errors of Czech law in the review panel's reasoning. The public policy objection fails because the evidence about how the Resolution was made was too inconclusive to meet the 'repugnance' standard. The Final Award was not binding on the Czech Republic and is therefore not enforceable. 2018 Opinion, pp. 7, 10

Procedural history

  1. 18 September 1996The parties sign the arbitration agreement after Diag Human sues in the Prague Commercial Court.
  2. 19 March 1997Interim Award finds the Ministry liable. A review tribunal confirms it on 27 May 1998.
  3. 25 June 2002Partial Award of CZK 326,608,334.00. A review tribunal confirms it on 16 December 2002, and the Ministry pays.
  4. 4 August 2008Final Award of more than CZK 8.3 billion with interest. Both parties apply for review, and Diag Human withdraws its application on 29 March 2010.
  5. 19 March 2013Diag Human files an enforcement action in the U.S. District Court for D.C.
  6. 23 July 2014The Third Review Tribunal issues a Resolution discontinuing the proceedings.
  7. 14 August 2014The District Court dismisses the case for lack of subject-matter jurisdiction.
  8. 31 May 2016The D.C. Circuit reverses by majority and remands. The Supreme Court denies certiorari on 21 February 2017.
  9. 27 September 2017The District Court dismisses the amended complaint and refuses enforcement under Article V(1)(e).
  10. 26 October 2018The D.C. Circuit affirms: the Final Award is not binding and is not enforceable.

Tribunal, counsel and experts

Decided by
For the claimant
Hyman L. Schaffer
For the respondent
Alana E. Fortna · Leonard Fornella · Dean A. Calland
Experts
Aleš Gerloch (other) · Vladimír Balaš (other) · Alena Bányaiová (other)

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Keywords

Summary generated with AI from the published documents — refer to the award for the authoritative text.

Case ID
U.S. Court of Appeals, District of Columbia Circuit, No. 17-7154
Country
Claimant
Diag Human, S.E.
Respondent
Czech Republic – Ministry of Health
Section

Court: United States, U.S. Court of Appeals, District of Columbia Circuit
Date of decision: 26 October 2018
Case number: 17-7154
New York Convention provisions: V | V(1) | V(1)(e)
Source: New York Convention case law case database.