On 1 March 2018, the German Arbitration Institute (Deutsche Institution für Schiedsgerichtsbarkeit e.V. – "DIS") launched its new arbitration rules ("DIS Rules"). The DIS included provisions on expedited proceedings in Annex 4 ("Expedited Proceedings" or "Annex 4") as an integral part of its rules.1 Annex 4 replaces the 2008 DIS Supplementary Rules for Expedited Proceedings ("SREP") but maintains their opt-in approach. At the same time, the SREP were stripped down to their essential parts and now consist of only five articles.
The present article sets out possible benefits and drawbacks of Annex 4 and provides practical tips for drafting arbitration clauses for disputes that are likely to involve small and mid-sized claims.
Over the past 18 months, Annex 4 and other novelties introduced by the DIS Rules have been field tested extensively by the institution's users.2 As at 19 June 2019, the DIS had registered 150 new cases since the entering into force of the DIS Rules. But only in 13 of those cases the parties had agreed on Expedited Proceedings.3 While this constitutes an improvement compared to the SREP (which reportedly applied to only 4 cases in 2017)4, the authors consider that there is room for growth in this area.
Approach chosen by the DIS
Annex 4 is one of the components of the new rules with which the DIS answered the user's call for increased efficiency. In its official preface to the DIS Rules, the institution expressly "recognizes that companies are distracted by disputes and litigation matters. That is why the 2018 DIS Arbitration Rules place a particular focus on early dispute resolution as well as on efficiency and speed."
Yet, unlike under the ICC Rules for amounts in dispute under USD 2 million5 or under the SCAI Rules for amounts in dispute under CHF 1 million6, Expedited Proceedings are not available by default in DIS proceedings. The DIS chose a more flexible approach and decided that Annex 4 operates as an opt-in without monetary threshold. During the case management conference, arbitral tribunals must discuss with the parties whether they want to apply the provisions on Expedited Proceedings.7 But the decision whether to apply these rules remains with the parties.
The DIS decided not to follow the recent trend in the rules of other arbitral institutions to apply provisions on expedited proceedings automatically as long as the amount in dispute remains below a certain monetary threshold. The drafters of the DIS Rules considered that the amount in dispute alone is not indicative of the complexity of the dispute and that Expedited Proceedings may not be suitable in all cases. "[Q]uality must not be sacrificed to speed"8, and Expedited Proceedings can live up to this standard under some circumstances and not under others.
The solution ultimately adopted by the DIS Rules seems to be in line with user wishes. According to the 2015 Queen Mary University International Arbitration Survey, 92% of the survey respondents would favour simplified arbitration procedures for small claims to be included in institutional rules. At the same time, only 33% of the survey respondents would prefer mandatory expedited procedures, while 59% would prefer them to remain optional.9 Overall, the DIS' approach fosters party autonomy in structuring the proceedings and pre-empts disputes between the parties on the amount in dispute as the sole criterion for conducting expedited proceedings.
Mode of operation of Annex 4
Article 27.4(ii) DIS Rules requires the arbitral tribunal to discuss the application of Annex 4 with the parties during the case management conference. It remains the parties' judgement call to decide whether Expedited Proceedings are appropriate considering the particular circumstances of the case. The parties' decision to opt-in to Annex 4 is postponed to the time when the framework for the proceedings and the procedural timetable are devised by the arbitral tribunal. This has the benefit that the amount in dispute and other characteristics of the case, such as the availability of counsel, witnesses and experts will be known and allows the parties to take a fully educated decision based on the initial submissions and evidence presented with the Request for Arbitration and the Answer.
Even though the parties may choose to adopt Expedited Proceedings in their arbitration agreement, Article 27.4(ii) DIS Rules now encourages the parties to make this decision when the proceedings are already underway.
While Annex 4 leads to simplified and shorter procedures by introducing several case management techniques and a six-month time limit for rendering the final award, it merely supplements and does not alter any provisions of the DIS Rules. Cases that are conducted in accordance with Annex 4 are not automatically submitted to a Sole Arbitrator (as would be the case under the ICC Rules and SCAI Rules). If the parties have not specified the number of arbitrators in their arbitration agreement and cannot reach a subsequent agreement on this issue, the Arbitration Council of the DIS may decide on a party's request that the arbitral tribunal be comprised of a sole arbitrator under Article 10.2.
Annex 4 does not shorten the time limits leading up to the case management conference, which are already rather tight under the DIS Rules. Article 7.1 gives respondents 21 days after the date of transmission of the Request to notify the DIS of certain procedural items. The Answer is due within 45 days following the date of transmission of the Request under Article 7.2 and the DIS may only extend this time limit up to a maximum of 30 additional days upon request. Article 27.2 provides that the arbitral tribunal must hold the case management conference as soon as possible after its constitution, in principle within 21 days.
Annex 4 addresses only the basics of fast track arbitration and establishes the arbitral tribunal's obligation to:
i) render the award within six months of the case management conference (Article 1);
ii) consider the parties' specific interest in accelerating the proceedings when establishing the procedure for the arbitration, in particular when setting time limits (Article 2);
iii) allow only one round of written submissions in addition to the Request for Arbitration and the Answer and one further written submission in reply to a Counterclaim (Article 3);
iv) hold only one oral hearing (unless the parties agree on a document-only arbitration) (Article 4); and
v) inform the DIS and the parties if the six-month time limit for rendering the award cannot be met and to render the award as soon as possible (Article 5).
Annex 4 thus seeks to improve the efficiency of DIS arbitrations. Its measures are designed to reduce the costs and duration of the proceedings and make a streamlined and simplified procedure with a shortened time frame available to the parties. The authors firmly believe that especially small and medium-sized enterprises could benefit greatly from Expedited Proceedings.
Drafting of DIS arbitration agreements
Annex 4 is a self-contained set of rules into which the parties can opt-in in their entirety. If the parties have a specific interest in obtaining an award within six months of the case management conference, they may wish to agree on the application of Annex 4 already in their arbitration agreement. This approach may be beneficial because once a dispute has arisen, the parties are often less likely to agree on the application of Annex 4. More often than not, the parties' interests are not fully aligned, and one party may strive to increase efficiency while the other party may be more concerned with due process or not be interested in a swift resolution of the dispute at all.
The DIS offers a model clause for Expedited Arbitration which the authors commend to parties wishing to incorporate Annex 4 into their arbitration agreement. The DIS' model clause is reproduced below with two additions the authors consider appropriate in a vast majority of cases with a moderate amount in dispute.
The first addition is to stipulate in the arbitration agreement that the arbitral tribunal is comprised of a sole arbitrator. This obviates the need to request a decision by the Arbitration Council under Article 10.2 and is generally considered appropriate in small and mid-sized disputes. As a yardstick, experience shows that cases with an amount in dispute below EUR 1 million are often handled by a sole arbitrator.
The second addition concerns automatic cost shifting which is not foreseen by Article 33.2 and 33.3 DIS Rules. This is often considered particularly helpful for small and mid-sized claims and means that "the loser will automatically pay all costs and fees in these cases, absent extraordinary circumstances."10
Annex: Suggested Model Clause for Expedited Arbitration under the DIS Rules
1) All disputes arising out of or in connection with this contract or its validity shall be finally settled in accordance with the Arbitration Rules of the German Arbitration Institute (DIS) without recourse to the ordinary courts of law.
2) The arbitral tribunal shall be comprised of a sole arbitrator.
3) The seat of the arbitration shall be [please enter city and country].
4) The language of the arbitration shall be [please enter language of the arbitration].
5) The law applicable to the merits shall be [please enter law or rules of law].
6) The Parties agree that the arbitration shall be conducted as Expedited Proceedings and that Annex 4 of the DIS Arbitration Rules shall apply.
7) The Parties agree that the costs of the arbitration under Article 32 of the DIS Arbitration Rules shall in the absence of special circumstances be borne by the losing Party.
- Article 1.3 DIS Rules.
- The public reception of the DIS Rules has been overwhelmingly positive, both in Germany and abroad, see for a detailed overview Blüher/Flecke-Giammarco, 'The New DIS Rules – Bucking the Trend to Succeed in a Changing Market?', in Müller/Besson/Rigozzi (Eds.), New Developments in International Commercial Arbitration 2018 (Stämpfli 2018) pp. 105 – 139, 117-122.
- DIS' Responses to the UNCITRAL questionnaire on expedited arbitration (29 July 2019), p. 16.
- Decker, 'Das neue beschleunigte Verfahren der Deutschen Institution für Schiedsgerichtsbarkeit', SchiedsVZ/German Arbitration Journal, Volume 17 Issue 2 (2019) pp. 75 – 81, 75.
- Article 30 ICC Rules.
- Article 42 SCAI Rules.
- Article 27.4(ii) DIS Rules.
- Rubino-Sammartano, International Arbitration Law and Practice (2nd Ed., Kluwer Law International 2001) p. 548.
- 2015 Queen Mary International Arbitration Survey: Improvements and Innovations in International Arbitration, p. 24.
- Gotanda, 'Chapter 7: Bringing Efficiency to the Awarding of Fees and Costs in International Arbitrations', in Kröll/Mistelis et al. (Eds.), International Arbitration and International Commercial Law: Synergy, Convergence and Evolution (Kluwer Law International 2011) pp. 141-155, 151-152.