Introduction

The new Hungarian Arbitration Act (Arbitration Act LX/2017, the ‘Act’)1 has come into force, and applies to all arbitrations with a seat in Hungary commenced on or after 1 January 2018 (65.§). The Act largely mirrors the UNCITRAL Model Law on International Commercial Arbitration as revised in 2006; it expressly states that its provisions shall be construed in light of the UNCITRAL Model Law and explanatory note (3.§(3)). The Act contains some additional provisions stemming from Hungarian litigation concepts, such as the reopening of the arbitral procedure if new decisive evidence comes to light, the participation in the arbitral procedure of third parties in certain circumstances, and also includes an unusual (and somewhat controversial) provision denying fees to arbitrators if the courts annul the award.

The Act applies equally to both domestic and international arbitrations, with only a few limited additional provisions applicable to international arbitrations. The definition provided for in Article 1(3) of the UNCITRAL Model Law applies: arbitration is considered ‘international’ when the parties have their places of business in different States at the time of the conclusion of the arbitration agreement, or when the seat of arbitration or the place of enforcement of the principal contractual obligations are situated outside the State in which the parties have their places of business (3.§(1)). In an international arbitration, the sole arbitrator or the president of the tribunal must be of a nationality other than those of the parties (12.§(5)), a provision which is in line with both the UNCITRAL Model Law and widely used rules like the ICC Rules.

The Act adopts the broad concepts of arbitrability and validity of the arbitration agreement found in the UNCITRAL Model Law2 Although an agreement to arbitrate must be in writing, the condition is satisfied when the agreement is contained in an unsigned electronic exchange, such as through e-mails, telex or facsimile (8.§(3)).

The Act incorporates the principles of severability and kompetenz-kompetenz. The arbitral tribunal thus has priority in determining its own jurisdiction,3 and should not decline jurisdiction merely because the contract containing the arbitration agreement is held to be null or void (17.§).

Constitution of the Arbitral Tribunal

The parties are free to determine the number of arbitrators,4 failing which, the number of arbitrators must be three (11.§). In such case, each party appoints one arbitrator and the two arbitrators appoint the third arbitrator (12.§(3)), unless the parties have agreed upon another procedure for appointment. Such agreement may be found in a referral to a set of rules, such as the ICC Rules. The arbitrators must comply with widely accepted international standards on independence and impartiality and must disclose all relevant information before and during the arbitral procedure (13.§). No person is precluded by reason of his or her nationality from acting as arbitrator, save as provided for in the parties’ agreement (12.§(1)) or because of the parties’ nationality in an international arbitration (12.§(5)).

Interim and conservatory measures

Despite the existence of an arbitration agreement, the Hungarian courts may still play a significant role in support of the arbitration. They may order all necessary interim, conservative and evidentiary measures (10.§). Difficulties in constituting the arbitral tribunal will finally be resolved by the courts (12.§(3)-(4)), unless resolution is otherwise provided for in the arbitration agreement or applicable rules. The courts will also have jurisdiction to decide on all issues raised in relation to a challenge introduced by a party against an arbitrator (14.§(4)) or to the termination of the mandate of an arbitrator in case of inability to perform (15.§(1)).

Under the Act, the arbitral tribunal can order a wide range of interim and conservatory measures. The measures are directly enforced through the courts (26.§). This is in contrast to the practice in some States such as France, in which the narrow definition of an arbitral award often prevents the enforcement of the interim measures ordered by an arbitral tribunal.

Participation of third parties to the arbitration proceedings

The Act allows the arbitral tribunal, at the request of a party, to inform an interested third-party of its possibility to participate in the on-going arbitral procedure in support of the party with whom it shares interests (37.§(1)). This provision aims to allow a third-party whose position may be adversely affected by the outcome of a pending arbitral procedure (e.g. a sub-contractor) to present arguments in order to defend its legal and financial interests, which share a common question of law or fact with the main action. The scope of such third-party intervention seems, however, to be limited to the extent that the non-party is invited to participate in the arbitral procedure by request of one of the parties to the arbitration.

The interested party can submit evidence and attend hearings without becoming a party to the procedure, but may become liable for the costs incurred as a result of the intervention (37.§(3)). Such third-party participation should raise the issue of the arbitral tribunal’s jurisdiction vis a vis the non-party who has not agreed to arbitrate the particular matter. The provision however seems to suggest that the specific context wherein a third-party voluntarily submits to arbitral jurisdiction at the invitation of one of the parties in order to assist that party’s claims under and within the limits of the Act, would allow such third-party intervention without offending the consensual origins of arbitration.

Enforcement and available recourses against the award

Under the Act, an arbitral award5 has the same effect as a final court judgment and can be directly enforced.6 Hungarian courts cannot refuse such enforcement unless the dispute was not arbitrable or the award violates Hungarian public policy (53.§). No appeal can be lodged. Only an action to set aside is available, within 60 days as of the date of delivery of the arbitral award (47.§(3)), and on specifically enumerated limited grounds (47.§(2)).7 The Hungarian public policy ground for annulment does not make any distinction between Hungarian domestic and international public policy, which suggests that all Hungarian mandatory rules must be observed even in case of an international arbitration. However, only an insignificant number of awards are in fact annulled in Hungary on the public policy ground.

Another exceptional form of recourse is available under the Act, which allows, much similar to the ‘recours en révision’ in France, the parties to request the arbitral tribunal, within one year of the delivery of the arbitral award, to reconsider the dispute if new decisive evidence becomes available (49.-50.§§).8

Controversial provision on arbitrators’ denial of fees upon annulment of the award

The Act includes a provision designed to promote ‘heightened’ accountability for arbitrators, who will lose their entitlement to collect or keep their fees in the event their award is annulled (57.§(2)). Aside from the untested practical difficulties this provision may entail, including jurisdiction over foreign arbitrators, this provision has given rise to substantive criticism by practitioners as possibly unwarranted. Critics point out that arbitrators may not be at fault for the annulment decision, that dissenting arbitrators may be unfairly penalized, and that the law of the seat may not be the only law that arbitrators must consider with respect to the enforceability of international awards. In light of the relatively few number of awards that are annulled in Hungary, it is to be hoped that the new ‘sanction’ mechanism will not unduly interfere with arbitrators’ independence vis à vis the Hungarian courts or result in exaggerated due process paranoia.

Conclusion

Despite a few limited idiosyncrasies, the new Hungarian Arbitration Act generally provides a more stable and modern framework for international arbitration, and is in line with widely accepted international standards. The Act should thus ensure the autonomy and efficiency of arbitrations conducted in Hungary and enhance the trust of parties choosing Hungary as a seat of arbitration.


1
The previous Arbitration Act LXXI of year 1994, based on the 1985 UNCITRAL Model Law, was considered as out-dated in some respects. The new Hungarian Arbitration Act containing 69 §§ organised under 13 chapters can be found at https://net.jogtar.hu/jogszabaly?docid=A1700060.TV (in Hungarian).

2
Arbitration is a dispute resolution mechanism chosen by the parties in case of a dispute arising from any relationships of a commercial nature (3.§(1)). Under the 1994 Act, arbitration was restricted to disputes where the parties had free disposal over the subject matter of the dispute.

3
As the ‘positive’ application of the kompetenz-kompetenz principle. Its corollary, the negative application of the kompetenz-kompetenz principle, is embodied in 9.§; according to this provision: unless the court finds that the agreement is void or inapplicable, it has to decline jurisdiction in favour of the arbitral tribunal constituted or to be constituted (9.§).

4
The number of arbitrators must in any event be an odd one (11.§(1)).

5
An arbitral award must comply with the rules as to form and substance under the Act; it must be in writing, dated and signed by the majority of the arbitrators, and the reasons for the Award must be included, as well as the decision on the amount and the allocation of the procedural costs and expenses (44.§). An award by consent is permitted (43.§).

6
The action to set aside the arbitral award does not suspend the enforcement of the award; at the request of a party the competent court can order such suspension until the end of the annulment procedure (7.§(5)).

7
The annulment grounds under the Hungarian arbitration law are those listed in Article 34 of the UNCITRAL Model Law. Hungary has acceded to the New York Convention subject to the reciprocity and commercial relationship reservations.

8
This recourse is only available if the new evidence could not be submitted during the initial arbitral procedure for reasons outside the control of the party invoking it and if this evidence is so material that it would have changed the result in favour of the invoking party, had it been adduced during the initial procedure.