Hungary: International Arbitration Comparative Guide

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1 Legal framework

1.1 What is the relevant legislation on arbitration in your jurisdiction? Are there any significant limitations on the scope of the statutory regime – for example, does it govern oral arbitration agreements?

Arbitration proceedings are governed by Act LX of 2017 on Arbitration.

The Arbitration Act must be applied if the seat of the proceedings is in Hungary. Certain sections of the act apply also in international arbitration if the seat of the proceedings is outside Hungary (eg, the provisions on enforcement of a foreign award).

1.2 Does this legislation differentiate between domestic arbitration and international arbitration? If so, how is each defined?

The Arbitration Act differentiates between domestic and international arbitration. As per the explanatory notes to the act, arbitration is international if:

  • the parties' places of business, at the time when the contract was concluded, were in different countries;
  • one of the following places is outside the country in which the parties' places of business are located:
    • the agreed venue of arbitration; or
    • the place where the essential part of the commercial obligations arising from the parties' legal relationship must be performed or with which the subject of the legal dispute is most closely connected; or
  • the parties expressly agree that the subject of the contract is connected with more than one country.

The act itself does not differentiate manifestly between international and domestic arbitration; the most significant difference is that in the case of international arbitration, the citizenship of the chairman or the sole arbitrator must differ from the parties' citizenship.

1.3 Is the arbitration legislation in your jurisdiction based on the UNCITRAL Model Law on International Commercial Arbitration?

Yes, the Arbitration Act is based on the UNCITRAL Model Law on International Commercial Arbitration, as amended in 2006.

1.4 Are all provisions of the legislation in your jurisdiction mandatory?

Arbitration is based on the principle of party autonomy; thus, the parties may freely agree on many issues, although the Arbitration Act does include some mandatory provisions (eg, the number of arbitrators may freely be chosen, but this number must be odd). Where issues have not been specifically addressed by the parties, the act contains supplementary provisions.

1.5 Are there any current plans to amend the arbitration legislation in your jurisdiction?

As the Arbitration Act is new - it came into force as of 1 January 2018 - there are currently no plans to amend the legislation.

1.6 Is your jurisdiction a signatory to the New York Convention? If so, have any reservations been made?

Yes, Hungary is a signatory to the New York Convention. Upon ratification, the following reservation was made: "The Hungarian People's Republic shall apply the Convention to the recognition and enforcement of such awards only as have been made in the territory of one of the other Contracting States and are dealing with differences arising in respect of a legal relationship considered by the Hungarian law as a commercial relationship."

1.7 Is your jurisdiction a signatory to any other treaties relevant to arbitration?

Yes, Hungary is also a signatory to:

  • the Convention on the Settlement of Investment Disputes between States and Nationals of Other States; and
  • the European Convention on International Commercial Arbitration.

2 Arbitrability and restrictions on arbitration

2.1 How is it determined whether a dispute is arbitrable in your jurisdiction?

A dispute is arbitrable unless it arises from specific relationships which are listed in the Arbitration Act, including consumer contracts, marriage, parentage, adoption, guardianship or custody, and disputes arising from possession.

The parties may agree to submit to arbitration any and all disputes, or a specific dispute, that results or is expected to result from their legal relationship (whether contractual or not).

2.2 Are there any restrictions on the choice of seat of arbitration for certain disputes?

The Arbitration Act remains silent on such restrictions.

3 Arbitration agreement

3.1 What are the validity requirements for an arbitration agreement in your jurisdiction?

The agreement must be made in writing and duly signed by the parties. The Arbitration Act recognises not only hard-copy signatures, but also electronic signatures.

3.2 Are there any provisions of legislation or any other legal sources in your jurisdiction concerning the separability of arbitration agreements?

An arbitration clause may be included in an agreement, but may alternatively be concluded in a standalone arbitration agreement.

3.3 Are there provisions on the seat and/or language of the arbitration if there is no agreement between the parties?

As a general rule, the parties may agree on the language(s) to be applied during the arbitration. If no such agreement is made, the tribunal must determine the language(s) to be used during the arbitration.

Similarly, the parties may freely agree on the place of the arbitration. If no such agreement is made, the place of the arbitration is determined by the tribunal, taking into account the circumstances of the case, including the requirement that the location be suitable for the parties.

4 Objections to jurisdiction

4.1 When must a party raise an objection to the jurisdiction of the tribunal and how can this objection be raised?

Such an objection must be raised no later than the time when the party submits its defence. An objection may be raised irrespective of whether the party has already appointed an arbitrator.

4.2 Can a tribunal rule on its own jurisdiction?

Yes, the tribunal decides on its own jurisdiction.

4.3 Can a party apply to the courts of the seat for a ruling on the jurisdiction of the tribunal? In what circumstances?

If the tribunal has addressed jurisdiction as a preliminary issue, a party may turn to the regular (state) court within 30 days of receipt of the tribunal's decision. The tribunal may continue the proceedings and may even adopt a decision in the meantime.

5 The parties

5.1 Are there any restrictions on who can be a party to an arbitration agreement?

There are no restrictions on who can be a party to an arbitration agreement. The Arbitration Act excludes certain types of issues from arbitration, but this restriction is tied to the nature of the dispute, not to the parties themselves.

5.2 Are the parties under any duties in relation to the arbitration?

Pursuant to the Arbitration Act, its provisions are to be interpreted in line with the requirements of exercising rights in good faith. The act stipulates certain obligations - for example, that the parties appoint the arbitrators or that the parties submit their statements within a prescribed timeframe.

5.3 Are there any provisions of law which deal with multi-party disputes?

There are no provisions on multi-party disputes.

6 Applicable law issues

6.1 How is the law of the arbitration agreement determined in your jurisdiction?

Generally, the dispute should be decided in light of the parties' choice of law. Unless the parties have agreed otherwise, the chosen law is the substantive law of the relevant state, excluding the private international law rules thereof.

In the absence of a choice of law, the applicable substantive law is determined by the arbitration tribunal on the basis of the international private law rules that the tribunal considers applicable.

6.2 Will the tribunal uphold a party agreement as to the substantive law of the dispute? Where the substantive law is unclear, how will the tribunal determine what it should be?

The tribunal will adopt its decision in line with the stipulations of the contract and will take into account applicable customary practices. The content of the applicable law may be a question that requires the taking of evidence.

In addition, the tribunal may adopt a decision on the basis of equity (ex aequo et bono), provided that the parties have expressly authorised it to do so.

7 Consolidation and third parties

7.1 Does the law in your jurisdiction permit consolidation of separate arbitrations into a single arbitration proceeding? Are there any conditions which apply to consolidation?

The Arbitration Act is silent on consolidation. However, pursuant to the procedural rules of the Arbitration Court attached to the Hungarian Chamber of Commerce and Industry, separate arbitrations may be consolidated into a single arbitration if all parties involved so request or agree thereto. In such case, the arbitrations are consolidated into the proceeding commenced first.

7.2 Does the law in your jurisdiction permit the joinder of additional parties to an arbitration which has already commenced?

A person who is not party to the arbitration may participate in the proceedings as a party if the claim can be resolved only with its participation and if it submits a written a statement regarding its acceptance of the jurisdiction of the tribunal.

In addition, upon the request of any party, the tribunal will inform a person with a legal interest of the outcome of the arbitration proceedings on intervention. The intervener may submit evidence and participate in the hearing and in inspection procedures.

7.3 Does an arbitration agreement bind assignees or other third parties?

Yes.

8 The tribunal

8.1 How is the tribunal appointed?

Generally, each party appoints one arbitrator and the respectively appointed arbitrators elect the third arbitrator (chairman). In the case of more than three arbitrators, the same rule applies mutatis mutandis: the parties appoint the arbitrators in equal proportion and the final arbitrator is appointed by the elected arbitrators by majority vote.

If a party fails to appoint its arbitrator within 30 days of receiving the other party's notice or if the arbitrators appointed by the parties do not agree on the third or remaining arbitrator within 30 days of their appointment, the competent regional court will appoint the arbitrator. If the dispute falls under the competence of the Arbitration Court of the Hungarian Chamber of Commerce and Industry (HCCI), the appointment is exercised by the HCCI's president.

8.2 Are there any requirements as to the number or qualification of arbitrators in your jurisdiction?

The parties may freely agree on the number of arbitrators, as long as this is an odd number. In the absence of such agreement, the number of arbitrators is three.

There is no specific requirement as to the qualifications of arbitrators. However, a person may not be appointed as an arbitrator if he or she:

  • is under 24;
  • has been prohibited from public matters;
  • has been sentenced to imprisonment;
  • is under guardianship;
  • has been prohibited from exercising a profession requiring law school degree; or
  • is under probation.

8.3 Can an arbitrator be challenged in your jurisdiction? If so, on what basis? Are there any restrictions on the challenge of an arbitrator?

An arbitrator is obliged to disclose any circumstances that might raise lawful doubts as to his or her unbiased position or independence. A motion for challenge may be submitted if:

  • any circumstances exist that raise lawful doubt as to his or her unbiased position or independence; or
  • the arbitrator does not have the necessary qualifications or other criteria stipulated in the parties' agreement.

A party may challenge an arbitrator it has appointed only for reasons that become known to that party after the appointment.

The parties may agree on the procedure for challenge. In the absence of such agreement, a party may submit written notice to the tribunal within 15 days of the arbitrator's appointment or of the date on which it becomes aware of the circumstance giving rise to the challenge.

8.4 If a challenge is successful, how is the arbitrator replaced?

The new arbitrator is appointed in accordance with the same provisions as those governing the appointment of the (previous) arbitrator with the terminated mandate.

8.5 What duties are imposed on arbitrators? Are these all imposed by legislation?

The general duties apply to the arbitrators: that is, the arbitrators must be independent, impartial and unbiased. Notably, there are no specific legal provisions on ethics.

8.6 What powers does an arbitrator have in relation to: (a) procedure, including evidence; (b) interim relief; (c) parties which do not comply with its orders; (d) issuing partial final awards; (e) the remedies it can grant in a final award and (f) interest?

(a) Procedure, including evidence?

Generally, the parties may - within the framework of the Arbitration Act - freely agree on the rules of procedure. If no such agreement is concluded, the tribunal will determine the rules of procedure at its own discretion. The competence of the tribunal includes determination of the admissibility, relevance and weight of evidence.

(b) Interim relief?

Arbitrators have the power to order interim measures. Such orders are enforceable pursuant to the rules of judicial enforcement.

(c) Parties which do not comply with its orders?

Generally, the tribunal will continue the proceedings and adopt a decision based on the available documents and evidence. The Arbitration Act regulates certain special cases stipulated in the act, such as the following:

  • If the claimant fails to submit its claim, the tribunal will dismiss the proceedings; and
  • If the defendant fails to submit its response, the tribunal will continue the proceedings without considering the omission itself as an acknowledgement.

Some orders are enforceable, such as an order on interim measures.

(d) Issuing partial final awards?

Arbitrators have the power to issue partial awards.

(e) The remedies it can grant in a final award?

The Arbitration Act does not limit the types of remedies that a tribunal may grant.

(f) Interest?

Arbitrators have the power to order interest (even compound interest) if the underlying agreement or the applicable substantive law so provides and the party so request in its statement of claim.

8.7 How may a tribunal seated in your jurisdiction proceed if a party does not participate in the arbitration?

If any of the parties fails to appear in the hearing or fails to submit its evidence, the tribunal may continue the proceedings and adopt a decision based on the available evidence.

8.8 Are arbitrators immune from liability?

The Arbitration Act remains silent on the immunity of arbitrators.

9 The role of the court during an arbitration

9.1 Will the court in your jurisdiction stay proceedings and refer parties to arbitration if there is an arbitration agreement?

The regular (state) court will dismiss a claim if it is submitted despite the existence of a valid arbitration agreement.

9.2 Does the court in your jurisdiction have any powers in relation to an arbitration seated in your jurisdiction and/or seated outside your jurisdiction? What are these powers? Under what conditions are these powers exercised?

If there is a valid arbitration agreement between the parties, the regular (state) court must dismiss the claim if it is lodged contrary to the arbitration agreement. However, the regular (state) courts may provide assistance in a pending arbitration proceeding and may, for example, order preliminary evidence, interim or protective measures or the provision of security in a separate action.

9.3 Can the parties exclude the court's powers by agreement?

No.

10 Costs

10.1 How will the tribunal approach the issue of costs?

The costs of arbitration typically include:

  • registration costs;
  • the arbitrators' fees;
  • costs of the parties (including potential attorney fees)and;
  • administrative costs.

As a general rule, the registration costs must be advanced by the claimant, while the arbitrators' fees must be advanced by both parties, and all costs must ultimately be borne by the losing party. In justified cases, the tribunal may deviate from this general rule. The parties may also agree on an alternative allocation of costs.

10.2 Are there any restrictions on what the parties can agree in terms of costs in an arbitration seated in your jurisdiction?

The Arbitration Act remains silent on any restrictions in this respect.

11 Funding

11.1 Is third-party funding permitted for arbitrations seated in your jurisdiction?

The Arbitration Act remains silent on third-party funding.

12 Award

12.1 What procedural and substantive requirements must be met by an award?

Pursuant to the Arbitration Act, the award must be rendered in writing and furnished with the signatures of the arbitrators. The award must include the decision of the panel and the reasons underlying the decision and, upon the request of a party, the allocation and amount of costs. The award should also include the date and the seat of arbitration.

12.2 Must the award be produced within a certain timeframe?

The Arbitration Act is silent in this regard.

13 Enforcement of awards

13.1 Are awards enforced in your jurisdiction? Under what procedure?

The effect of the arbitration award is the same as that of a final regular (state) court judgment. Upon a request for enforcement, enforcement is carried out in accordance with the rules on judicial enforcement.

14 Grounds for challenging an award

14.1 What are the grounds on which an award can be challenged, appealed or otherwise set aside in your jurisdiction?

An award may not appealed or revised, but can be set aside in justified cases. The New York Convention sets out the grounds for dismissal of an award. Under the Arbitration Act, the court will refuse enforcement of an arbitration award if it deems that:

  • the subject of the dispute may not be referred to arbitration in accordance with Hungarian law; or
  • the arbitration award is in conflict with Hungarian public order.

14.2 Are there are any time limits and/or other requirements to bring a challenge?

A party may turn to the regular (state) court and initiate proceedings to set aside the award within 60 days of receiving the award.

14.3 Are parties permitted to exclude any rights of challenge or appeal?

The Arbitration Act remains silent on whether the parties can rightfully exclude such rights.

15 Confidentiality

15.1 Is arbitration seated in your jurisdiction confidential? Is a duty of confidentiality found in the arbitration legislation?

Pursuant to the Arbitration Act, the arbitration is not public, unless the parties agree otherwise.

15.2 Are there any exceptions to confidentiality?

There are no statutory exceptions, but the parties may agree on such exceptions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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