Arbitration has had a growing significance over the past two decades. An increasing number of contractingparties, in particular those active in the construction and energy industry, have submitted their disputes toarbitration in recognition of the advantages of these procedures. Timely process, efficiency, confidentialityand the freedom to appoint arbitrators with particular professional knowledge and expertise are the mostcommonly listed advantages of arbitration. The relatively high costs of arbitration are often referred to as akey disadvantage. The final and binding nature of arbitral awards (i.e., that no appeal is available) is seenas a disadvantage predominantly in the public sector.
Arbitration in Hungary is governed by Act No. LX. of 2017 on arbitration (Arbitration Act) which entered intoforce on 1 January 2018. The re-tailored Arbitration Act closely follows the UNCITRAL Model Law as amendedin 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 thebasis of which the following permanent arbitration courts have been established:
-Commercial Arbitration Court with general jurisdiction in Hungary as the main institution dealing
-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 adoptedtheir own rules of procedure which are fully compatible with the UNCITRAL Model Law and UNCITRALArbitration Rules.
Under the regime of the Arbitration Act, it is also possible to conduct ad hoc and international arbitrationproceedings 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. Thearbitration 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 theparties’ contract, and the parties’ contract includes such arbitration agreement by express reference to thatseparate document, provided that the parties’ contract expressly sets out that the arbitration agreement inthe 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 theexistence of the arbitration agreement in its declaration to refer the dispute to arbitration or in its statementof 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 consumercontracts, marriage, personal or family status and capacity, labour relations, false or defamatory pressstatements, and enforcement procedures.
In previous years severe statutory restrictions were in effect in respect of disputes arising from contractsthat related to “national assets”. There was a comprehensive ban on arbitration in disputes, the subjectmatter of which were rights, claims or demands arising from civil law agreements governing “nationalassets” located on the territory of Hungary. “National assets” are assets under the ownership of theHungarian 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 prohibitionscompletely ceased to exist recently, and the full scope and powers of arbitration have been restored in theHungarian legal system.
Arbitrators may issue a wide range of interim measures (including those devoted to preserving a situationof fact or law, to preserving evidence, to seizing assets or freezing bank accounts). Interim measures ofarbitral tribunals are adopted in the form of orders (i.e. not awards). Such order will only be grantedfollowing the constitution of the tribunal (the emergency arbitrator instrument has not been introduced intothe rules of the major arbitration institutions in Hungary). When requesting interim measures the party mayalso request preliminary measures. Preliminary measures may be capable of preventing the other partyfrom frustrating the purpose of the interim measure. The provisions of the Arbitration Act explicitly stipulatethat the above orders should be enforced in accordance with the rules of judicial enforcement (i.e. thesame way as regular court orders).
The Arbitration Act reflects the UNCITRAL Model Law when it sets out that it is not incompatible with anarbitration agreement for a party to request, before or during arbitral proceedings, from a regular court aninterim measure of protection and for a regular court to grant such measure. Accordingly, Hungarian statecourts 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., therequest for arbitration has already been filed), and it is hard to track down cases where the measure wasgranted 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 aprotective measure unless a request for arbitration has already been filed. Such measures may be orderedafter the constitution of the arbitral tribunal, and the court ordered provisional relief will remain in forcefollowing 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 thetribunal. If one of the parties so requests, the award must contain provisions on the amount and allocationof 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 arbitrationmust be clearly shown. A copy of the award must be delivered to each of the parties. Interim or partialawards, 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 ongrounds specifically listed in the Arbitration Act. These grounds are fundamentally identical with thoselisted 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 arbitralproceedings 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 isexceptional that a second hearing is scheduled to further discuss complicated legal issues. Thereforechallenge 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 relevantfrom the perspective of deciding the stay or leave to enforce. There are no statutory aspects or factors toconsider; 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 followingthe receipt of the award, based on facts or evidence which were not taken into account during the originalarbitration procedure for any reason not attributable to the party relying on them, provided that it couldhave resulted in a more favourable decision for this party.
2. ENFORCEMENT OF FOREIGNARBITRAL AWARDS
Hungary is a party to the 1958 New York Convention on the Recognition and Enforcement of ForeignArbitral Awards, with the reservations that the Convention will only be applied to disputes arising out oflegal relationships, whether contractual or not, that are considered commercial under Hungarian law; andonly to awards which were made in another contracting state. Hungary is also a party to the 1961European Convention on International Commercial Arbitration.
Awards of arbitral tribunals will be directly enforceable through the judicial enforcement system. Theconcerned party will have to file an application to the competent court of the state and pay the statutoryduties and fees, and the award will be enforced by the judicial enforcement officer in the same manner asstate court judgements.
Enforcement may be opposed on the grounds that (a) the subject matter of the dispute was not capable ofsettlement by arbitration under the laws of Hungary; or (b) the recognition or enforcement of the awardwould 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 allcircumstances relevant from the perspective of deciding the stay or leave to enforce. There are nostatutory aspects or factors to consider; it is at the absolute discretion of the court to make the decision.
TYPE OF PROCEEDINGS
PROCEDURE AND ASSUMPTIONS
The costs of the procedure are contained in the Rules of Procedure. In case of theannulment of an arbitral award before the state courts, the procedure is subject to stampduty: 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 andthe state duty. The arbitration fee does not include other cost incurred by the ArbitrationCourt, e.g., experts’ and interpreters’ fees.
Subject to the engagement.
Procedural rules of Hungarian arbitration institutions do not contain detailed rules ondocument production. The tribunal and the parties may agree on the scope and order ofdocument production, either by setting up specific rules or by reference to the IBA Rules onthe Taking of Evidence in International Arbitration.
ATTORNEYS’ FEES (NET)
The average duration of arbitration proceedings is between 5 months and 1½ years.
Stamp duty in proceedings before the enforcement officers of local courts: 1% of theenforceable amount subject to a cap of HUF 350,000.
Stamp duty in proceedings before the enforcement officers of county courts: 3% of theenforceable 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 theenforceable value, and is determined by a reducing percentage of the value starting from3% for values between HUF 100,000 and HUF 1 million, to 0.5% for values exceeding HUF10 million. In addition, the enforcement officer is entitled to the reimbursement of costsbased 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 thana year.
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