By: József Antal1József Antal is a partner in Baker & McKenzie’s Budapest office. He routinely assists clients in litigation, alternative dispute resolution and procurement matters, and has advised clients in numerous industry sectors from transportation to energy and financial services to telecommunications. and Bálint Varga2Bálint Varga is an associate in Baker & McKenzie’s Budapest office. He works on civil and administrative lawsuits, both domestic and international.
A. Legislation, Trends and Tendencies
A.1 Legislation
International arbitration in Hungary continues to be governed by Act LXXI of 1994 on Arbitration, as amended (the “Hungarian Arbitration Act”). Only one legislative amendment was made in 2015 to the Hungarian Arbitration Act. A previous amendment to the Hungarian Arbitration Act in 2012 excluded the possibility of arbitration to resolve disputes relating to national assets located in Hungary.3The 2015 Amendment changed Section 4 of the Hungarian Arbitration Act. The effect of this previous amendment was terminated by the legislator in 2015. This means that, after a period of three years during which the possibility of arbitration was restricted in a questionable manner, the power of the arbitration courts was restored on 19 March 2015.
A.2 Trends and Tendencies
The restoration of the arbitration courts’ jurisdiction over disputes involving Hungarian national assets is probably reflected in the slightly increasing number of new arbitration cases. However, it remains to be seen whether this positive trend will continue. Further, despite this positive trend, in our view, arbitration still has potential to grow in Hungary.
B. Cases
In 2015, only a few decisions of state courts were published relating to arbitral awards. We present below two decisions of the Curia (formerly known as the Supreme Court of Hungary) and one decision of the Szeged Court of Appeal that had practical impact on the market and on commercial relations.
B.1 Retail Investment Client Not Automatically a Consumer
Pursuant to the Hungarian Civil Code, the use of arbitration clauses must be considered unfair in consumer contracts if the arbitration clause in question is not negotiated individually by the parties. In its published decision no. BH2015. 283, the Curia held that retail clients with natural personality who are involved in contracts concluded with an investment firm cannot automatically be considered consumers, nor the contracts consumer contracts. It must be examined whether the retail client with natural personality is acting outside the scope of his or her trade, business or profession. This decision of the Curia means that an arbitration clause in the contract between a retail (private individual) client and a financial enterprise will remain enforceable even without having been individually negotiated, unless the retail client can prove that he or she signed the contract containing such clause outside the scope of his or her business or profession (i.e., without the knowledge necessary to really understand the embedded risks).
In the same decision, the Curia also reiterated that an arbitration clause in a framework agreement may generally cover the individual contracts concluded on the basis of that framework agreement (even if the individual contracts are silent on this question).
B.2 Failure to Deal with Part of Claim Is a Ground for Annulment
In its decision no. BH2015. 167, the Curia established that if the arbitration court fails to deal with part of the plaintiff’s claim, the resulting arbitration award may be annulled, pursuant to Section 55 (1) e) of the Hungarian Arbitration Act,4Section 55 (1) of the Hungarian Arbitration Act: “The party, furthermore any person who is affected by the award, may file for action – within sixty days of the date of delivery of the award of the arbitration tribunal – at the court of law to have the award overturned if: […] e) the composition of the arbitration tribunal or the arbitration procedure did not comply with the agreement of the parties, unless such agreement was in conflict with any provision of this Act from which the parties cannot derogate, or failing such agreement, was not in accordance with this Act.” as the arbitration procedure did not comply with the agreement of the parties.
B.3 Involuntary Liquidation Prohibits Initiation of Arbitration
According to judgment no. EBD2014. G.4. of the Szeged Court of Appeal, an insolvent debtor company in involuntary liquidation is prohibited from initiating an arbitration procedure due to creditor protection rules. Therefore, an arbitration clause becomes unenforceable when the company that executed it becomes subject to an involuntary liquidation procedure.
C. Costs in International Arbitration
C.1 Allocation of Costs
The Hungarian Arbitration Act is based on the UNCITRAL Model Law and, as far as concerns the allocation of costs, requires only that the award and the ruling terminating the proceedings contain provisions concerning the costs of the proceedings – including the remuneration of the arbitrators – and the manner in which they are to be satisfied.5Section 41 (1) of the Hungarian Arbitration Act.
The most frequently used arbitration court in Hungary is the HCCI Arbitration Court; two other notable permanent arbitration courts are the Energy Arbitration Court and the Arbitration Court of Financial and Capital Markets. These three arbitration courts have very similar rules, as they all largely follow the UNCITRAL Rules. In accordance with these rules, the fees and costs of the arbitration should, in principle, be borne by the unsuccessful party or parties. However, the arbitration court can apportion such costs between the parties if the arbitration court determines that to do so is reasonable, taking into account the circumstances of the case.
C.2 Security for Costs
Pursuant to the Hungarian Arbitration Act – unless otherwise agreed by the parties – the arbitration court can upon request apply interim measures to the extent the arbitration court considers necessary, taking into account the subject matter of the dispute. Relating to such interim measures, the arbitration court can require either party to provide appropriate security. An expert may be engaged only if – in accordance with an order of the arbitral tribunal – the parties, respectively, deposit in advance the expected amount of the expert’s fee and other related costs. The advance of costs and fees are generally to be paid by the parties in equal proportions.
C.3 Recovery of Costs
Arbitration courts and state courts consider outside counsel’s time charges to be recoverable to a certain extent. As set out above, the fees and the costs of the arbitration should, in principle, be borne by the unsuccessful party or parties. Such costs consist of the reasonable travel, translation and other expenses incurred by the arbitrators; the reasonable costs of expert advice and of other assistance required by the arbitration court; the reasonable travel and other expenses of witnesses that have been approved by the arbitration court; and legal and other costs, in particular the costs of legal representation incurred by the parties in relation to the arbitration to the extent these are considered by the arbitration court to be reasonable.
The arbitration court can order a party to pay any surplus costs caused by the party’s inexpedient or unjustified acts or procedural acts carried out in bad faith. In this category are, among others, procedural acts that cause surplus costs due to the taking of measures that prove to be unnecessary (e.g., causing delays in the proceedings that are unjustified by the circumstances of the case).