On 21 November 2024, the DIS returned to New York with a second edition of its DIS@NYAW event. As in the last year, we wanted to engage again with our American peers on a current topic of mutual interest.
After discussing practical issues of post-M&A arbitration in 2023, we focused this time on the new DIS Supplementary Rules for Third-Party Notices that offer a novel mechanism to arbitration parties to prevent the typical recourse trap. In Germany, domestic construction disputes regularly go to court as the main contractor appreciates the protection afforded by the statutory third-party notice rules in litigation. The DIS wondered whether this perceived disadvantage of arbitration vis-à-vis litigation could be remedied and a working group developed the supplementary rules that came into effect on 15 March 2024.
After an introduction to the new supplementary rules by Johanna Wirth, we discussed with esteemed panelists David Martin (Halliburton), Dietmar Prager (Debevoise & Plimpton), John Fellas (Fellas Arbitration) and Eric A. Schwartz (Schwartz Arbitration), moderated by Jan K. Schäfer, practical issues, such as the situations in which a party can be sandwiched and faces a lose-lose situation. This happens not just in the construction space where the general contractor may need to stand in for works done by its sub-contractor vis-à-vis the employer and possibly seeks recourse against the sub-contractor but also in other recourse situations, such as arising in supply chains, in post-M&A arbitration with a W&I insurer, in IP disputes etc. We then shared experiences about contractual mechanisms negotiated to manage the recourse trap. In large and sophisticated projects, you may find detailed contractual stipulations to this effect, in most other situations arbitration parties will seek to manage things after a dispute has arisen, which can lead to unsurmountable complexities. Offering an easy to agree on off-the-shelf solution was considered attractive and arbitration institutions can play a role here. When addressing whether the new supplementary rules as an animal of party-autonomy fit well from a New York perspective, we learned about some possible challenges. While the mechanism and its operation are well-known to German lawyers from court litigation, for New York lawyers some practical issues arose about how to make the mechanism fair to the sub-contractor.
The discussion was stimulating and comparative law in action and was rounded off by John Fellas (Fellas Arbitration) with a take away. We achieved what we had hoped for, namely to create a forum to engage in a substantive discussion on a practical topic of mutual interest. Watch this space for the next edition of DIS@NYAW in 2025.
Jan K. Schäfer