Diag Human S.E. v. Czech Republic-Ministry of Health
Civil Action No. 2013-0355
| D.D.C. | Sep 27, 2017Background
- Diag Human (Liechtenstein) and the Czech Republic Ministry of Health agreed to arbitrate disputes under an Arbitration Agreement that allowed a mandatory review stage: an award would only "enter into effect" if no review application was filed within 30 days.
- The Arbitration Tribunal issued an Interim Award (1997) and a 2002 Partial Award awarding lost profits; that 2002 award was confirmed and paid.
- After further proceedings and expert work, the Tribunal issued a 2008 Final Award awarding Diag Human over CZK 8.3 billion.
- Both parties filed review applications of the 2008 Final Award; Diag Human later withdrew its review, leaving only the Czech Republic’s review pending.
- A Third Review Tribunal (established after Czech court proceedings) issued a July 23, 2014 Resolution discontinuing the review and explaining that, under Czech law, the 2002 Partial Award was in substance a full award, so the arbitration could not proceed further.
- The district court held the 2008 Final Award never became binding under the parties’ Arbitration Agreement (because a timely review application was filed) and therefore declined to enforce it under Article V(1)(e) of the New York Convention; the complaint was dismissed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2008 Final Award is enforceable in U.S. court under the New York Convention | The Third Review Tribunal’s Resolution was procedural and did not invalidate the 2008 Final Award; the decretal paragraph only discontinued review and left the Final Award intact | The Third Review Tribunal’s Resolution, read with its reasoning, shows the Final Award lacked legal effect (or was null) because the 2002 Partial Award already resolved the claim | The award never became binding: a timely review application prevented the 2008 award from entering into effect under the parties’ Arbitration Agreement, so the court refused enforcement under NY Convention art. V(1)(e) |
| Effect of parties’ Arbitration Agreement (timing/when award "enters into effect") | The Final Award matured and should be enforceable despite review proceedings | The Agreement made post-award review operative; a timely review application prevents an award from entering into effect | Court enforced the Agreement’s timing: because defendant timely sought review, the award never entered into effect |
| Proper scope of court review of arbitral decisions | Diag Human urged the court to disregard the Review Tribunal’s discontinuance and enforce the 2008 Award | Czech Republic contended courts must decline enforcement when an award has not become binding or was set aside/suspended under local law | Court applied limited review but relied on contract terms and Resolution to find no enforceable award |
| Applicability of New York Convention defense that award "has not yet become binding" | Diag Human argued the Final Award was binding and enforceable | Czech Republic argued art. V(1)(e) applies because the award never became binding or was effectively set aside | Court held art. V(1)(e) barred enforcement because the award never entered into effect under the Arbitration Agreement |
Key Cases Cited
- Kurke v. Oscar Gruss & Son, Inc., 454 F.3d 350 (D.C. Cir.) (scope of review of arbitral awards is extremely limited)
- Teamsters Local Union No. 61 v. United Parcel Serv., Inc., 272 F.3d 600 (D.C. Cir.) (courts should not retry factual or legal errors of arbitrators)
- United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29 (Supreme Court) (courts may not reconsider merits of an arbitration award)
- Termorio v. Electranta S.P., 487 F.3d 928 (D.C. Cir.) (New York Convention enumerates specific grounds for refusal of enforcement)
- Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (Supreme Court) (arbitrator’s contract construction is final; courts defer)