Arbitrations with Third-Parties: 5 Things to Know About New Rules from the German Arbitration Institution (DIS)

The German Arbitration Institute (DIS) has adopted new rules to involve third parties in arbitration proceedings. The Supplementary Rules for Third-Party Notices (DIS-TPNR) took effect in March.

At present, common institutional arbitration rules allow a third party in arbitration proceedings only if the third party joins the proceedings with the full rights and obligations of a party. The new rules, which can be agreed as an add-on to the DIS Arbitration Rules, offer possible third-party involvement with a specific (and different) purpose.

5 Things to Know About the New Rules

The rules show the DIS’ commitment to adapt to the complexities of commercial disputes. Even though arbitration is an established dispute resolution mechanism, third parties pose challenges due to the consensus requirement.

The German civil procedure mechanism of Streitverkündung (Third Party Notice) inspired the DIS to outline a new approach to third parties. Here are five things to know about the new rules:

1. The DIS-TPNR address the typical situation in which a recourse claim may be raised if the notifying party does not prevail in the initial arbitration.

• Examples include supply chain or construction disputes or other situations with back-to-back obligations.
• Since the existence of the recourse claim is still dependent on the outcome of the initial arbitration, including the third party by a joinder is not (always) the appropriate step.

2. The rules intend to contractually bind a third party to the factual and legal determinations in an initial arbitration award.

• The Third Party Notice results in a binding effect with respect to the issues litigated in the initial arbitration only in a subsequent dispute between the notifying party to the initial arbitration and the third party.
• After receiving a notice, a third party can intervene in the initial arbitration. A third party that does that has the rights of a non-party intervener as outlined in the new rules.
• The risk of contradicting decisions (i.e. of losing twice) is significantly reduced as the third party may argue in the subsequent dispute about the recourse claim only under exceptional circumstances that the initial arbitration was decided incorrectly.
• This binding effect will occur irrespective of whether or not the third party intervened in the arbitration proceedings.

3. A Third Party Notice shall suspend the limitation period with respect to the potential recourse claim against the third party.

4. Applying the new rules can help ensure that all related disputes are litigated together without burdening the initial arbitration.

• The initial arbitration does not need to deal with a dispute that is still contingent on the outcome of the initial arbitration.

5. The third party accepts the effects of the Third Party Notice under the new rules by entering into a respective agreement with the notifying party.

• Since the issues of the initial arbitration may not be relitigated in the subsequent dispute, the Third Party Notice can also enhance procedural efficiency and encourage settlement.
• The agreement can be included in a DIS arbitration agreement or a separate agreement.
• The binding effect can thus be expanded to a dispute with a different dispute resolution mechanism to arbitration. The opponent of the notifying party agrees to include a third party in the initial arbitration by agreeing to the TPNR.

The new rules offer a unique approach to including third parties in arbitration proceedings. They represent a significant development in the effort to establish a reliable framework for Third Party Notices, including the rights and obligations of the parties and the intervener.