The German Arbitration Institute introduces Supplementary Rules for Third-Party Notices

The German Arbitration Institute (DIS) has recently developed and published “Supplementary Rules for Third-Party Notices” (DIS-TPNR), which have been available on its website since 15 March 2024. The Supplementary Rules were drafted by a practice group, in which numerous practitioners participated, and are intended to facilitate and simplify the participation of third parties in arbitration proceedings.

Arbitration offers a number of advantages over litigation, including confidentiality. However, one of the most significant disadvantages of arbitration proceedings is the potential issues which arise when involving third parties in arbitration proceedings, which are not comparable to the issues which may arise when a third-party notice is issued in civil proceedings before the state courts in Germany. In proceedings before a state court (which are conducted in public by default) each of the parties involved can, under certain conditions, notify a third party of the dispute, and in doing so, involve this party in the legal dispute and bind it to any findings subsequently made by the court (Sections 72 et seq. German Civil Code of Procedure). This is an established and customary procedural instrument which is used to secure recourse claims against a third party in the event of an unfavourable outcome, and also serves the purpose of binding the third party to the findings already made and preventing divergent decisions.

The DIS Arbitration Rules previously did not provide a similar option. The problem is that the parties to an arbitration have either agreed from the outset (through the inclusion of an arbitration clause) that in the event of a dispute, arbitration will be used to resolve the dispute; or alternatively the parties have agreed to arbitrate on an ad hoc basis. The typical arrangement is therefore one where two parties have mutually agreed to conduct arbitration proceedings. Arbitrations in which more than two parties are involved are typically only found when supply chains are involved, and all parties in such a supply chain have agreed in advance or on an ad hoc basis that they wish to resolve the dispute by way of arbitration. Arbitration clauses that bind more than two parties to an arbitration are also frequently found in large construction projects involving a whole series of general contractors and subcontractors. However, it is not easy to involve a party in arbitration proceedings that has not submitted to such an arbitration clause and is not willing to do so on an ad hoc basis. In such cases, the only remaining option is to take recourse to the ordinary courts.

The DIS-TPNR are intended to remedy this problem. The DIS-TPNR apply if the parties agree to the DIS-TPNR, in addition to the DIS Arbitration Rules. They are closely modelled on the principles of the German rules on civil dispute resolution. In particular, they do not include the third party as a party, but as an intervener, as in state proceedings. The DIS-TPNR also ensure that the other party does not have to bear the costs of the third party and the third-party notice if they are unsuccessful. The third party is also involved in the constitution of the arbitral tribunal, which appears justified in view of the fact that the third party is bound by the findings of the arbitration proceeding. Finally, in accordance with the rules of the German Code of Civil Procedure, a third party which intervenes in support of a party to the dispute will no longer be heard (in relation to the party giving notice of the dispute) on an objection that the legal dispute has been incorrectly decided. Recourse proceedings themselves can then be conducted either before an arbitration tribunal (in accordance with the DIS rules or any other arbitration rules) or before a state court.

In this respect, the new DIS-TPNR significantly simplify the previously extremely time-consuming and complicated involvement of third parties in DIS arbitration proceedings, as the parties can now simply refer to the DIS-TPNR and no longer have to set up their own third-party dispute regime, as was previously the case with complicated arbitration agreements. For a more in-depth look at the new rules, the DIS provides a Practice Note on its website.