The judge provided further guidance on the English court’s approach to jurisdictional issues, finding on this set of facts that the UNCITRAL tribunal had properly exercised its jurisdiction in rendering its award. This post focuses on two aspects of the decision: (1) the approach of the English courts to a jurisdictional challenge to whether investors hold a qualifying investment in an investment treaty award; and (2) the applicability of issue estoppel in such challenges.
The case concerns a dispute over an investment in a blood plasma venture, which gave rise to a London-seated UNCITRAL award on May 18, 2022 (the BIT Award) finding that the Czech Republic had breached its obligations to Swiss investors under a bilateral investment treaty with Switzerland (the BIT).
In the most recent decision, the High Court ruled on the remaining three s.67 challenges and the final s.68 challenge. The court rejected each of the outstanding challenges. In this post we take a closer look at one of the three s.67 challenges, which addressed: (1) whether Diag SE and Mr Stava (the Investors) held a qualifying investment to benefit from treaty protection; and (2) the applicability of issue estoppel in such challenges.
The ‘No Investment’ objection
First, the court acknowledged that determining whether the Investors had made an investment under the BIT was a jurisdictional matter that therefore required a de novo review in line with the conventional approach to any review of an arbitral tribunal’s jurisdiction under s.67.
Second, however, the court highlighted the challenges courts face when reviewing s.67 challenges in the investment treaty context. Unlike commercial arbitration, where jurisdictional issues typically provide a “binary outcome” (i.e. ‘Is there an arbitration agreement or not?’ ‘Is the tribunal properly constituted or not?’), investment treaty cases often demand a detailed factual analysis that supervisory courts do not usually have to undertake. The court considered the approach to be taken if some, but not all, of the tribunal’s findings which are relevant to its decision on jurisdiction in an investment treaty arbitration are challenged under s.67, and whether successful challenges on only some of the tribunal’s findings would be sufficient for the award to be set aside in its entirety on the basis of a lack of jurisdiction.
The court noted that this could complicate the arbitration process. A tribunal’s findings on breach and relief depend on the specific investment identified, where the nature of the investment may have a jurisdictional aspect. Thus, tricky questions about the scope of a set-aside decision may arise where the investment found by the court differed from that found by the tribunal. Nevertheless, the court ruled that, provided that the “substance of the investment” identified by the court matched that identified by the tribunal, there was no basis for setting aside or remitting the case.
The court considered the appropriate approach where only some of the components of the investment found by the tribunal are open to challenge. The issue arose because the Czech Republic’s “no investment” objection was argued more broadly in court than before the tribunal. As a result, the court had determined in a previous judgment that the Czech Republic was prevented from pursuing its broader challenge (on the usual basis that a jurisdictional objection not raised before the tribunal cannot be raised for the first time in a s.67 challenge). Nonetheless, the court found that, if an investment involves distinct components (e.g., two factories), the fact that one component is not open to challenge does not preclude a s.67 challenge to the second. In contrast, if the unchallenged components are sufficient to establish the investment’s substance, the outcome might be different. The court ultimately found that in this case, “fortunately”, it was not required to resolve where the line should be drawn.
Third, in seeking to establish whether an investment under the BIT had been made, the court considered: (i) the terms of the BIT; (ii) the awards of investment treaty arbitration tribunals; and (iii) decisions of supervisory or enforcement courts. In addressing what constitutes an investment under international law and the BIT, the court held that a claimant in a bilateral investment treaty case must do more than merely demonstrate ownership or control of an asset to establish a protected investment. The concepts of contribution, duration, and risk were also essential elements of an investment, in that they distinguish an investment from a one-off sales contract.
On the facts, the court found that the Investors did hold several qualifying investments in the Czech Republic. The actions of the Investors met the requirements of contribution, duration, and risk: the subsidiary contributed share capital, acquired and equipped premises, deployed know-how and goodwill, and made significant commitments to equip Czech Republic health institutions.
The application of issue estoppel in a s.67 challenge
Separately, the Investors sought to argue that the Czech Republic was precluded from denying that Diag SE was controlled by Mr Stava, a Swiss national, and therefore could benefit from the protection of the BIT based on a decision of a prior arbitral tribunal.
Establishing issue estoppel, as set out in Good Challenger Navegante SA v Metalexportimport SA, requires: (i) a judgment of a court or tribunal of competent jurisdiction; (ii) which is final and conclusive; (iii) between the same parties; and (iv) on the same issue. However, issue estoppel may not apply if there are special circumstances, such as new evidence.
This court addressed two important preliminary questions: (1) whether the application of the doctrine of issue estoppel based on a determination in an arbitral award is fundamentally inconsistent with a s.67 challenge, which gives a de novo right to challenge a jurisdictional determination by an arbitral tribunal; and (2) whether international law (rather than English law) should govern the question of issue estoppel, given that the dispute arose under a bilateral investment treaty (an international treaty).
First, the court accepted that the right to challenge jurisdiction de novo under s.67 is important, but that this does not prevent issue estoppel from applying to an issue that has been conclusively determined in a prior arbitral award. In particular, where a previous tribunal’s decision on an issue is not challenged, it can give rise to an issue estoppel in a subsequent arbitration, even within a s.67 challenge.
Second, the court held that English law governed the question of issue estoppel rather than international law (as was argued for by the Czech Republic). The doctrine of issue estoppel was held to be a rule of public policy under English law as the law of the seat. This is consistent with previous authority but the first time that the issue has been considered in an investment treaty context.
On the facts, the court held that no issue estoppel arose. The key issue in the current challenge was Diag SE’s nationality, which had not been decided in the earlier arbitration.
Comments
This case explores – in more detail than any previous English decision – the complexities that can arise in s.67 jurisdictional challenges to investment treaty awards. Investment treaty decisions on jurisdiction are perhaps more likely to involve a detailed factual analysis than commercial cases, and the line between what are and are not issues of jurisdiction may not be easy to draw. The case also makes clear that it can be a fact-sensitive question as to whether a successful challenge to one component of an investment will lead to set aside of a whole award.
The court’s decision on issue estoppel confirms that English law will apply to this issue when the seat is in England, even when the award is rendered pursuant to an investment treaty. The balance struck between the de novo right to challenge jurisdiction under s.67 and the right of a party to an issue estoppel to avoid relitigation of the same issue is a further interesting aspect of the judgment.
It is worth noting that, pursuant to the Law Commission’s proposed reforms to s.67, reviews of a tribunal’s jurisdiction will be somewhat more restricted: the court will not rehear evidence other than in the “interests of justice” and will not hear fresh evidence unless such evidence could not, with reasonable diligence, have been put before the tribunal. However, in cases such as the present, where determining questions of jurisdiction is heavily fact-dependent, it remains to be seen whether the English courts will conclude that it would be in the “interests of justice” to permit evidence that was heard by the tribunal to be reheard by the court.
Judgment: The Czech Republic v Diag Human SE & Anor
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