HUNGARY

1. ARBITRATION

Arbitration has had a growing significance over the past two decades. An increasing number of contracting parties, in particular those active in the construction and energy industry, have submitted their disputes to arbitration in recognition of the advantages of these procedures. Timely process, efficiency, confidentiality and the freedom to appoint arbitrators with particular professional knowledge and expertise are the most commonly listed advantages of arbitration. The relatively high costs of arbitration are often referred to as a key disadvantage. The final and binding nature of arbitral awards (i.e., that no appeal is available) is seen as a disadvantage predominantly in the public sector.

Arbitration in Hungary is governed by Act No. LX. of 2017 on arbitration (Arbitration Act) which entered into force on 1 January 2018. The re-tailored Arbitration Act closely follows the UNCITRAL Model Law as amended in 2006. The Arbitration Act applies to both domestic and international commercial arbitration proceedings.

The Arbitration Act introduces the institutional framework for Hungarian commercial arbitration on the basis of which the following permanent arbitration courts have been established:

-Commercial Arbitration Court with general jurisdiction in Hungary as the main institution dealing

with arbitration;

-Sports Arbitration Court under the provisions of the Act on sports which is competent for the

matters defined in such Act; and

-Arbitration Court for agricultural disputes which is attached to the Hungarian Chamber of Agriculture.

The above arbitration courts deal with domestic and international commercial disputes and have adopted their own rules of procedure which are fully compatible with the UNCITRAL Model Law and UNCITRAL Arbitration Rules.

Under the regime of the Arbitration Act, it is also possible to conduct ad hoc and international arbitration proceedings in Hungary.

Arbitration agreements must be in writing, and must contain the parties’ submission of their disputes, arising from their contract, to arbitration; either to a permanent institution or to ad-hoc arbitration. The arbitration agreement may be entered into on a stand-alone basis or as part of another agreement (i.e. arbitration clause). An arbitration agreement will only be valid if duly signed by all parties.

Arbitration agreements will also be valid if such agreements are included in a document separate from the parties’ contract, and the parties’ contract includes such arbitration agreement by express reference to that separate document, provided that the parties’ contract expressly sets out that the arbitration agreement in the separate document must be deemed part of the parties’ contract.

Arbitration agreements are also deemed to have been concluded in writing if the party alleges the existence of the arbitration agreement in its declaration to refer the dispute to arbitration or in its statement of claim, and it is not disputed by the other party.

There are a number of disputes that cannot be submitted to arbitration: those arising from consumer contracts, marriage, personal or family status and capacity, labour relations, false or defamatory press statements, and enforcement procedures.

In previous years severe statutory restrictions were in effect in respect of disputes arising from contracts that related to “national assets”. There was a comprehensive ban on arbitration in disputes, the subject matter of which were rights, claims or demands arising from civil law agreements governing “national assets” located on the territory of Hungary. “National assets” are assets under the ownership of the Hungarian State or the local municipalities, such as company shareholdings, rights with quantifiable value, emission quotas, the airspace above the territory of Hungary, etc. These legislative bans and prohibitions completely ceased to exist recently, and the full scope and powers of arbitration have been restored in the Hungarian legal system.

Arbitrators may issue a wide range of interim measures (including those devoted to preserving a situation of fact or law, to preserving evidence, to seizing assets or freezing bank accounts). Interim measures of arbitral tribunals are adopted in the form of orders (i.e. not awards). Such order will only be granted following the constitution of the tribunal (the emergency arbitrator instrument has not been introduced into the rules of the major arbitration institutions in Hungary). When requesting interim measures the party may also request preliminary measures. Preliminary measures may be capable of preventing the other party from frustrating the purpose of the interim measure. The provisions of the Arbitration Act explicitly stipulate that the above orders should be enforced in accordance with the rules of judicial enforcement (i.e. the same way as regular court orders).

The Arbitration Act reflects the UNCITRAL Model Law when it sets out that it is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a regular court an interim measure of protection and for a regular court to grant such measure. Accordingly, Hungarian state courts will accept applications for protective measures related to disputes that are submitted to arbitration. Nevertheless, courts are willing to grant such measures only if the arbitration is in process (i.e., the request for arbitration has already been filed), and it is hard to track down cases where the measure was granted prior to the launch of the arbitration process. It can therefore be concluded that the term "before […] arbitral proceedings" in the text of the Arbitration Act does not in fact grant a seamless route to a protective measure unless a request for arbitration has already been filed. Such measures may be ordered after the constitution of the arbitral tribunal, and the court ordered provisional relief will remain in force following the constitution of the arbitral tribunal.

The Arbitration Act sets out that an award must be in writing, and must be signed by the members of the tribunal. If one of the parties so requests, the award must contain provisions on the amount and allocation of procedural costs and expenses. The award must describe the reasons and grounds for the decisions, and must provide a proper justification of the decision. The date of the award and the seat of arbitration must be clearly shown. A copy of the award must be delivered to each of the parties. Interim or partial awards, if these satisfy the validity criteria set out for awards in the Arbitration Act, are enforceable.

Arbitral awards cannot be appealed; only a request for setting aside can be filed with the state courts on grounds specifically listed in the Arbitration Act. These grounds are fundamentally identical with those listed in the UNCITRAL Model Law, and include:

-the party concluding the arbitration agreement had no legal capacity or capacity to act;

-the arbitration agreement is invalid;

-a party was not given proper notice of the appointment of an arbitrator, or of the arbitral proceedings or was otherwise unable to present its case;

-the award was made in a legal dispute to which the arbitration agreement did not apply

or which was not covered by the provisions of the arbitration agreement;

-incorrect composition of the arbitral tribunal or the proceedings were not in accordance

with the parties’ agreement;

-the subject matter of the dispute is not arbitrable under Hungarian law; or

-the award is in conflict with the rules of Hungarian public order.

Challenge proceedings before the state courts are usually completed at one single court hearing. It is exceptional that a second hearing is scheduled to further discuss complicated legal issues. Therefore challenge proceedings usually terminate within 3 to 6 (three to six) months.

If an arbitral award is challenged the court may stay enforcement upon the challenging party’s request, therefore stay of enforcement is not granted ex officio. The court will assess all circumstances relevant from the perspective of deciding the stay or leave to enforce. There are no statutory aspects or factors to consider; it is at the absolute discretion of the court to make the decision.

The Arbitration Act provides for the possibility of a retrial of arbitration matters within 1 (one) year following the receipt of the award, based on facts or evidence which were not taken into account during the original arbitration procedure for any reason not attributable to the party relying on them, provided that it could have resulted in a more favourable decision for this party.

2. ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

Hungary is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, with the reservations that the Convention will only be applied to disputes arising out of legal relationships, whether contractual or not, that are considered commercial under Hungarian law; and only to awards which were made in another contracting state. Hungary is also a party to the 1961 European Convention on International Commercial Arbitration.

Awards of arbitral tribunals will be directly enforceable through the judicial enforcement system. The concerned party will have to file an application to the competent court of the state and pay the statutory duties and fees, and the award will be enforced by the judicial enforcement officer in the same manner as state court judgements.

Enforcement may be opposed on the grounds that (a) the subject matter of the dispute was not capable of settlement by arbitration under the laws of Hungary; or (b) the recognition or enforcement of the award would be contrary to the public policy of Hungary.

Court proceedings related to arbitration fall into the exclusive competent of county courts (törvényszék).

The party opposing enforcement may request that the court stays enforcement. The court will assess all circumstances relevant from the perspective of deciding the stay or leave to enforce. There are no statutory aspects or factors to consider; it is at the absolute discretion of the court to make the decision.

TYPE OF PROCEEDINGS

PROCEDURE AND ASSUMPTIONS

PRACTICE TIPS

Approximate Duration

Arbitration Proceedings

Document Production

The costs of the procedure are contained in the Rules of Procedure. In case of the annulment of an arbitral award before the state courts, the procedure is subject to stamp duty: 1% of the amount up to a cap of HUF 250.000.

The arbitration fee depends on whether an arbitral tribunal or a sole arbitrator is appointed. The arbitration fee includes the registration fee, arbitrators’ fee and administrative costs and the state duty. The arbitration fee does not include other cost incurred by the Arbitration Court, e.g., experts’ and interpreters’ fees.

Subject to the engagement.

Procedural rules of Hungarian arbitration institutions do not contain detailed rules on document production. The tribunal and the parties may agree on the scope and order of document production, either by setting up specific rules or by reference to the IBA Rules on the Taking of Evidence in International Arbitration.

Approximate Costs

PROCEDURAL COSTS

ATTORNEYS’ FEES (NET)

The average duration of arbitration proceedings is between 5 months and 1½ years.

Approximate Duration

Stamp duty in proceedings before the enforcement officers of local courts: 1% of the enforceable amount subject to a cap of HUF 350,000.

Stamp duty in proceedings before the enforcement officers of county courts: 3% of the enforceable amount subject to a cap of HUF 750,000.

Fees of the enforcement officer are set out in a statutory rule of law. It is subject to the enforceable value, and is determined by a reducing percentage of the value starting from 3% for values between HUF 100,000 and HUF 1 million, to 0.5% for values exceeding HUF 10 million. In addition, the enforcement officer is entitled to the reimbursement of costs based on itemized costs plus a lump sum cost (50% of the fees set out above).

Subject to the engagement.

Enforcement of Foreign Arbitral Awards

Duration depends on the complexity of the case but may range from 2 months to more than a year.

Approximate Costs

COURT FEES

ATTORNEYS’ FEES (NET)

The information in this chapter was correct as of 1 January 2018. If you have any questions about the content of this chapter,

or would like further information about arbitration in Hungary, please contact

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