Light at the end of the tunnel for company in 30 year legal battle with the Czech Republic

The Czech Republic has failed in its attempt to avoid accountability for costs payments to Josef Stava and his Liechtenstein-incorporated blood plasma company Diag Human SE in the event the State loses its case in the English Courts.

The hearing at a court on the 28th June 2023 in London forcing the Czech Republic to provide an unlimited costs undertaking is a significant triumph in a court case dating back to the 1990s.

Mr Stava and Diag Human SE had initially aimed to claim £4 million in security for costs surrounding the legal battle. However, the Court ended up not needing to make an order for this. During the hearing, the Judge pressed the Czech Republic’s lawyer to explain why it had never said it would pay the costs of the proceedings in London if it lost the case. The Judge said the State should have done so immediately (and well before the matter came to Court). In response, the Czech Republic offered to give an unlimited undertaking to pay Diag Human and Mr Stava’s costs if it loses the case, which its lawyers then confirmed the next day in a witness statement.

This hurdle is one of many laid down by the Czech Republic over the decades to avoid settling the obligations that it had to the company. A domestic arbitration resulted in a $350 million USD award against the state in 2008, which was subsequently recognised in Luxembourg, an EU member state. This recognition by the Luxembourg courts brings with it the prospect of the 2008 award being enforced against the Czech Republic across the EU. This enforcement order in Luxembourg was obtained in the face of efforts by a review tribunal established in the Czech Republic – described by Diag Human and Mr Stava as corrupt – to overturn the 2008 award. A handwritten note from the then Director of the Legal Department of the Ministry of Finance, Michal Svorc, chronicled the corrupt nature of the tribunal in minutes of a meeting at the Czech Prime Minister’s office where the Czech Republic was described as allegedly holding one member “by the balls” and where another member was said to have asked the state for “subsidies” in order to procure the outcome the Czech Republic sought.

Spanning over four decades, and nearly 8 years after that tribunal’s decision, a tribunal in London found in May 2022 that the Czech Republic had also breached the fair and equitable treatment standard under the Czech-Swiss bilateral investment treaty. This tribunal awarded Diag Human what now amounts to over $730 million USD against the Czech state when interest is included.

This wasn’t the end of the Czech government’s plan to litter the path to justice with legal obstacles. The Czech Republic filed an application in the English Court to set aside the $730 million USD award. In response, Diag Human and Mr Stava have applied for a summary dismissal of the challenge, and a hearing on the matter is scheduled for January 2024, which will deal with both the challenge and the dismissal applications.

Alongside the issue of costs, the hearing on the 28th June also touched on Diag Human and Mr Stava’s application for security of the $730 million USD award.

With evidence of the Czech Government’s corrupt activities undermining the integrity of the arbitration process in hand, Diag Human and Mr Stava have filed an application at the Court of Appeal and “look forward” to presenting their full case on the issue, according to a spokesperson for the company. They have also requested an expedited hearing, meaning that the Court of Appeal could issue a ruling in September or October this year.

In the unlikely event that the Czech Republic succeeds in setting aside the 2022 BIT award, the hope for justice is not lost, as Diag Human will then be in a position to resume enforcement of the earlier 2008 award. This 2008 award has been recognised in Luxembourg, an EU member state. That award now amounts to an even larger sum than the 2022 award.

Once Diag Human and Mr Stava have finally had the opportunity to present to the Court, the full extent of the Czech government’s corrupt activities and its efforts to avoid even compensating Diag Human for its losses, the Court of Appeal may find the state’s actions to be so brazen as to order the Czech Republic to provide security for the $730 million USD award.

Pending the court case on the challenge and dismissal applications, set to take place in January 2024, next year could see finally see justice for Diag Human and Mr Stava.