The D.C. Circuit ended a three-decade arbitration dispute on Friday (Oct. 26) when it declined to enforce a $400 million award against the Czech Republic in Diag Human, S.E. v. Czech Republic.
Diag Human, a Liechtenstein corporation, sued the Czech government after its minister of health allegedly violated unfair competition laws by interfering with Diag Human’s blood plasma business in the early 1990s. Czech arbitration panels ruled in Diag Human’s favor three times, agreeing that the government violated competition laws, granting a partial award of $10 million, and ultimately awarding full damages of $400 million.
Although arbitration is traditionally excluded from appeal, Czech law allows it. Both parties appealed the final award to a review panel. The panel then discontinued the arbitration proceedings—effectively gutting the final award—because the $400 million award should have been precluded as res judicata by the earlier $10 million award. In other words, the panel that awarded the $10 million considered all of the issues, so Diag Human shouldn’t have gotten a second bite at the apple for another award.
Another reason for setting aside the $400 million award was that third parties had sued Diag Human and the Czech government in related proceedings. Because parallel judicial and arbitration are not allowed under Czech law, the parties thus waived their right to further arbitration when they did not invoke their arbitration agreement to bar the court proceedings.
In an opinion by Judge Randolph (joined by Judges Wilkins and Srinivasan), the court rejected Diag Human’s attempts to have a U.S. court enforce the $400 million award. The court emphasized that its role was not to sit in judgment of the reasoning of the arbitration review panel. “Mistakes of law are not ours to correct,” Randolph wrote. The court said it was not enough to show that the panel committed error—even a serious error—for the D.C. Circuit to invalidate the decision.
The court found that the Czech review panel had the power to set aside the $400 million and held that the award was not binding on the Czech Republic.
