Dispute resolution, litigation and arbitration
The new arbitration rules of the German Institution of Arbitration
The new arbitration rules of the German Institution of Arbitration (DIS) (Deutsche Institution für Schiedsgerichtsbarkeit e.V.) will take effect on 1 March 2018. They will introduce numerous changes set to expedite and cut the costs of DIS arbitration. These changes will also affect the drafting of arbitration agreements in corporate practice.
1. Measures for expediting proceedings
Speedier constitution of the arbitral tribunal
To date it generally takes two to three months to put together a DIS arbitral tribunal consisting of three arbitrators. In future this process is to be completed within the space of six weeks. To this end, the time limits for the nomination of an arbitrator by the respondent and nomination of the President by the co-arbitrators have each been shortened from 30 to 21 days (Articles 7.1 and 12.2).
The previous strict 30-day deadline for the nomination of a sole arbitrator by the parties will be replaced by a more flexible provision that leaves the deadline to the discretion of the DIS (Article 11). This should also speed up the constitution of tribunals in practice.
Faster response to request for arbitration
So far, the time limit for filing an answer was set by the arbitral tribunal. The period for constitution of the tribunal remained unused. In future, this time limit will be 45 days, commence upon receipt of the request for arbitration by the respondent, and may be extended by 30 days upon request to be filed with the DIS (Article 7.2). A further extension may only be granted if the respondent can demonstrate that, on account of special circumstances, a total period of 75 days does not suffice for filing its answer (Article 7.3). This objective is to ensure that the answer is filed shortly after constitution of the tribunal.
Mandatory case management conference with obligatory discussion of measures for increasing procedural efficiency
To date, the approach of arbitral tribunals following their constitution has varied. Practices ranged from the mere setting of time limits for filing submissions, to agreeing on the procedural timetable with the parties through to active case management.
In future, an arbitral tribunal will generally have 21 days following its constitution to conduct a case management conference with the parties (Article 27.2). Here, it must discuss the procedural timetable and consult with the parties on the extent to which the measures set forth in Annex 3 (Measures for Increasing Procedural Efficiency) to the DIS Arbitration Rules or the expedited proceedings as per Annex 4 are to be applied. Both annexes have been newly added to the DIS Arbitration Rules.
The proposed measures for increasing procedural efficiency include limiting the scope and number of submissions, conducting a single oral hearing only, dividing the arbitration into several stages, issuing partial awards, restricting the submission of documents and presenting the arbitral tribunal’s provisional assessment of the factual and legal situation. Should there be disagreement between the parties as to the application of one or more measures, the arbitral tribunal shall decide on the application of the measure(s) in question.
Expedited proceedings provide for further restrictions. Here, in addition to a request for arbitration and filing an answer, each party may file only one further submission, and the final award must be issued no later than within six months of the first case management conference.
Sanctions for lack of efficiency
The commitment of the arbitral tribunal and the parties to ensure greater efficiency is not merely a paper tiger, non-compliance is actually sanctioned. The arbitral tribunal can, for example, take into account the efficiency of case management by the parties in its decision on costs (Article 33.3). Conversely, when determining its fees following premature termination of proceedings, the DIS considers the efficiency of case management by the arbitral tribunal (Article 34.4).
Awards issued faster
In the past, arbitral tribunals sometimes issued awards with a considerable time delay. In future, DIS arbitral tribunals are to generally submit an award to the DIS for review within three months of the final hearing or permitted submission (Article 37 sentence 1).
This provision is also subject to penalties. The DIS council can reduce the arbitrator’s fee, based on how long it takes for the arbitral tribunal to issue its award (Article 37 sentence 2).
2. Cost reduction measures
More active dispute management
One of the most effective means to reduce costs is to resolve disputes at an early stage. In future, therefore, the DIS Arbitration Rules will oblige the arbitral tribunal to be more active in dispute management. In each phase, arbitral tribunals have hitherto been supposed to promote a settlement of the dispute or individual points in the dispute by mutual consent, as required by Article 26 of the old DIS Arbitration Rules. Now, they are also to discuss with parties during the first case management conference whether the dispute can be settled or individual points in the dispute can be resolved through mediation or another alternative dispute resolution procedure (Article 27.4).
The parties can also appoint a dispute manager to advise and assist them in selecting the dispute resolution mechanism best suited to their case (Article 2.2). The arbitral tribunal may also admit the dispute manager to attend the case management conference (Article 27.3).
Should the alternative dispute resolution procedure end in a settlement or decision, then at the request of the parties the arbitral tribunal must record this settlement or decision in an arbitral tribunal decision with the wording agreed upon, unless there is good cause not to do so in the tribunal’s view (Article 41.2). This facilitates execution of the settlement or decision both in Germany and, through the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), abroad as well.
Increased use of sole arbitrators
The rules to date have provided that the arbitral tribunal comprise three arbitrators unless otherwise agreed upon. Typically, arbitration clauses either contain no specification of the number of arbitrators or specify an arbitral tribunal comprising three arbitrators. In practice, this has usually meant that three arbitrators are appointed, which in some cases has triggered disproportionate costs.
Under the new DIS Arbitration Rules, the parties will be able to agree that the arbitral tribunal comprises one, three or some other odd number of arbitrators (Article 10.1). If the parties have not agreed on the number of arbitrators, either party may then apply to the DIS for the tribunal to consist in a sole arbitrator. If no such application is filed, or such application is not upheld, the tribunal will then comprise three arbitrators (Article 10.2 DIS Arbitration Rules).
- In practice therefore, when agreeing on a DIS arbitral tribunal the option should be considered of not including a provision on the number of arbitrators. This will make it possible to apply for a sole arbitrator to be appointed, especially in proceedings where the matter in dispute has a low value. Should this application be rejected or no application filed, the decision will be taken by a tribunal with three arbitrators.
3. Rules on multi-contract and multi-party arbitration
To date, DIS rules have contained few provisions on multi-party arbitration, and said nothing at all on arbitration involving more than one contract. The new version now contains lengthy stipulations on both issues.
Claims arising from more than one contract can be dealt with in a single arbitration if all parties to the arbitration have agreed to this (Article 17.1).
- In practice, when agreeing on a DIS arbitral tribunal, this will mean considering whether the contract is part of a multi-contract scenario or later amendments might make it part of such a scenario. In this case, a provision on the permissibility of multi-contract arbitration on the grounds of cost efficiency should be considered.
- Should the parties wish to permit multi-contract arbitration, attention should be paid to the compatibility of the arbitration clauses in the contracts. This is because claims arising from several contracts can only be handled in a single arbitration if the arbitration clauses are compatible with each other (Article 17.2). So contracts will need to contain consistent provisions on the number of arbitrators and on the seat and language of the arbitration.
Claims between more than two parties, too, can only be handled in a single arbitration if the arbitration agreement already provides that their claims can be handled in a single arbitration, or if the parties have agreed this in some other way (Article 18.1).
- So if the parties wish to allow multi-party arbitration, then in practice attention should be paid that the arbitration clause in the contract expressly or implicitly covers this scenario. The brief commentary provided by the DIS, referred to above, states that such implicit agreement should be evident from multiple parties having jointly signed the arbitration agreement.
For the first time, the new rules now address scenarios in which a multi-party arbitration arises only at a subsequent stage, i.e. where two or more arbitrations are consolidated (permissible under Article 8.1 if all parties agree to this) as well as where further parties are included (permissible under Article 19.1 until an arbitrator has been appointed).
There are also new rules on constituting the arbitral tribunal in scenarios involving multiple parties. Should two or more parties on either the claimant or respondent side fail to nominate a joint co-arbitrator, then the Appointing Committee can either (i) select and appoint a co-arbitrator only for these parties, as well as appoint the co-arbitrator nominated by the opposing side, or (ii) select and appoint two co-arbitrators, one for the two or more parties on one side and one for the opposing side (Article 20.3).
4. Entry into force
The new arbitration rules apply to all DIS arbitration initiated from 1 March 2018 (Articles 1.2 and 6.1).