In Czech Republic v Diag Human SE, the Court of Appeal decided that, to qualify as an investor under the bilateral investment treaty, a legal entity from a third state must be de jure (rather than de facto) controlled by a qualifying national or entity.
Facts: The Czech Republic (“CZR”) challenged an award issued in favour of Diag Human SE under the Swiss-Czech Republic Bilateral Investment Treaty (“the BIT”). The challenge raised jurisdictional objections and claims of procedural irregularity.
Held: According to section 31(1) of the 966 Arbitration Act (“the Act”), “An objection that the arbitral tribunal lacks substantive jurisdiction at the outset of the proceedings must be raised by a party not later than the time he takes the first step in the proceedings to contest the merits of any matter in relation to which he challenges the tribunal’s jurisdiction.” So, jurisdictional challenges must be raised promptly during the arbitration proceedings. That said, a party that did not raise an objection within the time specified in section 31 of the Act was not precluded from relying on the point if it established that it did not know and could not with reasonable diligence have discovered the grounds for the objection until some time later. Hence, the Court found that CZR’s jurisdictional objections were made in the arbitration within the time allowed by the tribunal within the meaning of section 31(3) of the Act if it considers the delay justified. That was not, however, the case here. The Court of Appeal then dismissed the appeal relating to the Commercial Court’s finding that one of CZR’s challenges was not jurisdictional in nature.
Another issue for the Court of Appeal related to claims of procedural irregularity, this is, Diag’s status as an “investor” for the purposes of the BIT. The definition of “investor” in Article 1(1) of the BIT included (c) “legal entities established under the law of any country which are, directly or indirectly, controlled by nationals of that Contracting Party or by legal entities having their seat, together with real economic activities, in the territory of that Contracting Party.” Diag was a Liechtenstein company and could only qualify as an “investor” if it came under subsection (c). CZR argued that, after placing of their shares in a trust in 2011, Diag, ceased to be controlled by Mr Stava, a Swiss national, with the consequence that it no longer fell within the definition of “investor” of subsection (c). The Court clarified that, to qualify as an investor under the BIT, a legal entity from a third state must be de jure (rather than de facto) controlled by a qualifying national or entity. According to the Court, “The fact that the shares were transferred into a discretionary trust in which the potential beneficiaries, who included Mr Stava, had no legal rights of ownership or control, was not a matter of form. It was a matter of substance and was critical. The trust was valid and effective under Liechtenstein law to achieve these purposes, but only because of the transfer of legal rights.”
Czech Republic v Diag Human SE & Anor [2025] EWCA Civ 5
