Czechia has lost an international arbitration under a investment protection treaty over alleged misconduct by the Ministry of Health in a 30-year-old tender for the procurement of blood plasma processors, according to the Czech finance ministry. Czechia has to pay CZK15.5bn (€625mn) to Diag Human, a company controlled by Czech-Swiss businessman Josef Stava.
After more than four and a half years of hearings, the tribunal awarded compensation of CZK8.3bn – decided in 2008 in a previous commercial arbitration – and interest of CZK7.2bn. Czechia will also pay the costs of the court proceedings in the amount of $5mn.
"This is a defeat for the Czech Republic not because of the amount of compensation, but because of the condemnation of the practices in terms of the rule of law and of international law," said Diag Human's lawyer Jan Kalvoda, who represents the company before the court.
The compensation could have been far worse: the arbitration tribunal rejected all other claims by Stava's company for a further CZK36.5bn, according to the ministry report.
The government will appeal the decision and apply to have it annulled.
"The ministry has carefully analysed the report of over 330 pages and, with the unanimous consent of the government, is today submitting the proposal to cancel the finding in the High Court in London," it said.
"At this moment the Czech Republic will not pay anything," said Finance Minister Zbynek Stanjura.
According to international arbitration expert Radek Snabl, Czechia's chances of overturning the award are, however, slim. Five years ago, Snabl warned that this dispute might not end well for the Czech Republic.
"This is a dispute in which a domestic arbitration has already partially vindicated Diag Human. … It means a higher risk for the Czech Republic than if the country were starting with a clean slate," Snabl was quoted by iDnes.cz as saying.
The dispute dates back to 1991, when the Ministry of Health announced a tender for the processing of blood plasma, which was won by the little known Diag Human company. It was later excluded from the contract.
At the end of 2002, arbitrators awarded Stava's company CZK327mn in partial compensation, while the rest of the compensation was still being decided. In 2008 an arbitral tribunal awarded Diag Human approximately CZK8bn in damages.
Later in 2014, a review arbitration tribunal ruled that the 2008 award lacked legal effect. Therefore, it agreed that the final verdict was already the one from 2002 and the state should not pay anything further.
In 2017, Diag Human initiated arbitration against the Czech Republic on the basis of the Czech-Swiss investment protection treaty.
In the current decision, the tribunal has recognised that the Czech Republic violated the investment protection agreement with a 1992 letter from the then Minister of Health which was to interfere unlawfully in the business relationship of Conneco (the predecessor of Diag Human SE) with the Danish company Novo Nordisk.
"The tribunal found that the Czech Republic acted in good faith and in the interest of public health in this respect. It acknowledged that the Ministry of Health had important and legitimate concerns about the cooperation with Conneco with regard to its business model and its reputation, and that Conneco was never guaranteed a monopoly by the Czech Republic to cooperate with Czech hospitals in the field of blood plasma processing," the ministry said in its statement.
The country used the services of the American law firm Arnold & Porter.
As reported by Czech Radio, Czechia has been currently facing five international arbitrations, including one with Diag Human. The total amount of all claims exceeds CZK58bn, of which CZK52bn was claimed by Diag Human.