HUNGARY

Artúr Tamási, Daniella Karacs and Clio Mordivoglia

A. LEGISLATION AND RULES

A.1      Legislation

Arbitration continues to be governed by Hungarian Act No. LX of 2017 on Arbitration (“Hungarian Arbitration Act”). The Hungarian Arbitration Act entered into force on 1 January 2018 and is applicable to procedures initiated following this date. The Act is based on the amended UNCITRAL Model Law of 2006; hence it follows international standards creating an attractive arbitration environment for foreign investors with enhanced reliability and flexibility of procedures.

There have been no major amendments to the Hungarian Arbitration Act since 2018. However, a number of provisions were refined. Among others, the provisions concerning arbitration fees and costs paid in relation to arbitrations in which the award is annulled have been amended. In arbitration proceedings continued as a result of the annulment of the arbitration award, the parties shall not be obliged to pay additional arbitration fees and costs. This is a departure from the previous controversial rule that essentially required the arbitrators to reimburse arbitration fees if the award was annulled. The presidency of the Court of Arbitration regulates in the Rules of Procedure an appropriation of reserves for the fees and costs not payable by the parties for the continued arbitration proceeding upon annulment of the award, and these are ultimately borne by the Hungarian Chamber of Commerce and Industry if such reserve funds prove to be insufficient.

To improve the efficiency of the arbitration proceedings, the Hungarian Arbitration Act has introduced a number of new institutions. The Hungarian Arbitration Act now allows the intervention of third parties having a legal interest in the outcome of the arbitration procedure and permits non-contractual parties to enter the proceedings, subject to that the party entering the procedure must submit to the jurisdiction of the arbitration court.

Other new institutions of the Hungarian Arbitration Act include the controversial possibility of re-trial proceedings and the possibility of adopting non-enforceable preliminary measures besides the more traditional (and enforceable) interim measures. The re-trial proceeding is possible within one year from the receipt of the arbitration award, and is available if a party refers to new evidence that was not available to it during the proceeding, but, if taken into account, could reverse the outcome of the proceedings. Preliminary measures are adopted without hearing the opponent and are meant to be applied as short term temporary measures in cases of extreme urgency until a decision on interim measures can be taken. The parties have the option to exclude the application of these rules in the arbitration agreement.

A.2      Institutions, Rules and Infrastructure

A.2.1 Commercial Arbitration Court

The Permanent Court of Arbitration for Commerce of the Hungarian Chamber of Commerce and Industry (“Commercial Arbitration Court”), the Arbitration Court of the Hungarian Chamber of Agriculture and the Permanent Sport Arbitration Court are the arbitration institutions functioning in Hungary.

The Commercial Arbitration Court is the main arbitration institution of Hungary. It has general competence over all disputes that do not belong to the competence of the Permanent Court of Arbitration for Sports that adjudicates sport law disputes and the Arbitration Court of the Hungarian Chamber of Agriculture designed to adjudicate arbitrations arising from agricultural disputes.

The Commercial Arbitration Court is also a legal successor of the former Permanent Arbitration Court for Money and Capital Markets and of the Permanent Arbitration Court for Energy Matters. Accordingly, if the contracting parties stipulated the competence of these two arbitration forms, the clause shall be meant to point to the competence of the Commercial Arbitration Court.

A.2.2 Rules of Procedure of the Commercial Arbitration Court

The Commercial Arbitration Court has adopted new procedural rules effective as of 1 February 2018 (“Rules of Procedure”). The Rules of Procedure aim to regulate arbitration as a flexible procedure compliant with international standards. The parties can also opt in to apply the rules of expedited procedure if they agree to do so.

The Rules of Procedure regulate the compulsory scheduling of a preliminary hearing within 30 days of the appointment of arbitrators, allowing the parties to establish the frames of the procedure, including the schedule, the applicable procedural rules and admissible evidence and arguments. After the preliminary hearing, the tribunal draws up the terms of reference in the form of an order.

The Rules of Procedure put forward modernized provisions regarding the appointment of arbitrators and the composition of the arbitral tribunal, including the obligation of the arbitrator to disclose in writing any facts or circumstances which might call into question the arbitrator’s independence, as well as any circumstances that could give rise to reasonable doubts as to the arbitrator’s impartiality.

The regulation of costs is also modernized in a way that the proceedings are not delayed by the defendant’s reluctance to pay the arbitration fee, as the applicant can pay the provisional advance of that fee.

A.2.3 List of Arbitrators

The Commercial Arbitration Court has a new list for arbitrators as of 1 February 2018, which contains two special sections for the energy sector and for the financial and capital sector. The main list contains at least 60 arbitrators, while both sectoral lists contain at least 30 arbitrators. For both sectoral lists, acknowledgment of the competent body is required, the Hungarian Energy and Utilities Regulatory Office for the energy list, the Budapest Stock Exchange and the Hungarian Banking Association for the financial and capital sector list.

A.2.4 Infrastructure

Under the Hungarian Arbitration Act, a new organizational structure was implemented for the Commercial Arbitration Court, which is headed by a seven-member presidency. The chairman and two members are delegated by the Hungarian Chamber of Commerce and Industry, and one member is delegated by each of the Hungarian Energy and Utilities Regulatory Office, the Budapest Stock Exchange, the Hungarian Banking Association and the Hungarian Bar Association. The vice-president’s office is held by a member delegated by either the Hungarian Energy and Public Utility Regulatory Authority, the Budapest Stock Exchange, the Hungarian Banking Association or the Hungarian Bar Association, based on an annual rotation.

The Commercial Arbitration Court shares its seat with the Hungarian Chamber of Commerce and Industry. Hearings are held at the premises of the Commercial Arbitration Court. No separate fees or costs are payable for the use of this infrastructure. No transcripts of the hearings are provided, but the hearings are summarized in minutes prepared by the arbitration panel during the hearings in consultation with the parties.

B. CASES

Arbitration awards were historically not published in Hungary, except for the rare case when the arbitration panel decided to publish an anonymized version of the award. However, the new Hungarian Arbitration Act requires the Commercial Arbitration Court to publish anonymized versions of its awards and orders terminating the proceedings within six months from the closing of the proceedings. Cases B. 2 to B. 4 below are based on such published anonymized arbitration awards.

Ordinary court decisions related to arbitration rendered under the new Hungarian Arbitration Act are sparse, and those follow the legislative changes with a few years of delay. One novelty of the Hungarian Arbitration Act is that consumer disputes are no longer arbitrable. Previous court practice already held that stipulating an arbitration clause in general conditions pertaining to a consumer contract is an unfair general term, but the consumer had to invoke this defense. In case B.1 below, we analyze a 2019 judgment of the Metropolitan Court of Appeal addressing the notion of consumer contract in the context of arbitration.[1]

B.1      The notion of consumer contract for the purposes of arbitration

The plaintiff sued the defendant in ordinary courts for damages emerged in connection with a breach of contract relating to an online trading platform service. The defendant lodged its defense asking for the termination of the proceedings with reference to an arbitration clause stipulating the competence of the Permanent Court of Arbitration for Money and Capital Markets.

The court of first instance terminated the proceeding due to the arbitration clause. According to the reasoning of the termination order, the plaintiff entered into multiple extremely high-risk foreign-exchange futures contracts going beyond the purpose of financing his daily needs and therefore the plaintiff cannot be qualified as a consumer. The mere fact that the plaintiff concluded the contract as a private person was not a sufficient reason to qualify those contracts as consumer contracts. The arbitration clause was therefore held valid. The Metropolitan Court of Appeal confirmed the judgment of the court of first instance.

B.2 Special requirements as to the contents of the arbitration agreement[2]

The claimant brought an action against the respondent under a contract of carriage governed by the Convention on the Contract for the International Carriage of Goods by Road (the “CMR”). The contract provided for arbitration before the Commercial Arbitration Court. The defendant had not denied the competence of the Commercial Arbitration Court.

The arbitral tribunal, however, is required to examine its competence on its own motion. The arbitral tribunal found that as a main rule, the CMR provides for the jurisdiction of ordinary courts, with the only exception being if the contract of carriage or the arbitration agreement itself stipulates that the arbitral tribunal shall apply the provisions of CMR. The arbitration agreement of the parties did not include such a provision. The arbitral tribunal informed the parties that they could supplement their arbitration agreement in the arbitration proceedings themselves by submitting a joint statement on the application of the CMR.

As the respondent was unwilling to issue such a statement, the arbitral tribunal terminated the proceeding due to its lack of competence. In the reasoning, the arbitral tribunal explained that as a general rule, an arbitration agreement is entered into by the claimant stating the competence of the arbitration tribunal and the respondent not denying it. However, when separate legislation, such as the CMR prescribes additional requirements as to the contents of the arbitration agreement, the above general rule is not applicable, i.e. an arbitration clause may not be entered into by the respondent’s non-contestation of the competence of the arbitral tribunal submitted by the claimant.

 B.3 Succession in the arbitration agreement in case of legal assignment[3]

The claimant brought an action against the respondent, a consumer for the enforcement of a claim arising from a loan assigned to it by a financial institution. The respondent denied the competence of the arbitration court on grounds that the arbitration clause was stipulated in the general terms pertaining to the loan agreement, and as such, it was an unfair contract term and was therefore invalid.

The arbitration court first pointed out that the old Hungarian Arbitration Act applies to arbitration agreements entered into before the entry into force of the new Hungarian Arbitration Act, and that the old Hungarian Arbitration Act did not prohibit arbitration in disputes arising from a consumer contract. It then went on and found that the arbitration clause at hand was individually negotiated, as the loan agreement specifically drew the attention of the consumer to the arbitration clause stipulated in the general terms.

Finally, the arbitration court found that the assignment of the claim under the loan agreement by the financial institution entering into that agreement also resulted in succession in relation to the arbitration agreement pertaining to the loan agreement. In its reasoning, the arbitration court referred to a rule of Hungarian civil procedure by way of analogy, according to which the prorogation of the (territorial) competence of a specific State court extends to legal successors.

B.4 Entering into an arbitration agreement in several capacities[4]

This arbitration concerned a leasing agreement. The general terms of the leasing agreement provided that the person signing the leasing agreement on behalf of the client undertakes a direct suretyship for the client’s obligations under the leasing agreement. The general terms of the leasing agreement also comprised an arbitration clause.

The leasing company brought an arbitration against the client and the private person signing the leasing agreement on behalf of the client. The respondents did not enter a defense of the claim.

The arbitration court examined its competence on its own motion. It found that the arbitration clause was entered into as the general terms were explained to the person signing the leasing agreement on behalf of the client, and were specifically accepted upon such an explanation.

However, the arbitration clause extended to the “parties” and the person acting on behalf of the client, who signed the leasing agreement only once. The arbitration court, therefore, went on to examine if the arbitration clause extends to the private person acting for the client, and if it is sufficient to become a “party” to the arbitration agreement if the person acting on behalf of the client signs the agreement once instead of signing it separately in his both capacities, i.e. as a representative of the client and as a private person; based on similar cases decided by the Curia (the Hungarian Supreme Court), albeit not related to arbitration clauses, the arbitration court found that it is not necessary for the person acting for the client to sign the leasing agreement separately, also as a private person, if the terms of the leasing agreement make it clear that he should have standalone obligations under the leasing agreement. Then for that reason, he is considered as a “party” to the leasing agreement and the arbitration agreement is compromised.

 

[1] BDT2019.3967.

[2] 2/3/2018. arbitral award.

[3] 12/7/2018. arbitral award.

[4] 1/10/2018. arbitral award.

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