Arbitration in Hungary is governed by Act LX of 2017 on Arbitration (the “Arbitration Act”), which replaced Act No. LXXI of 1994 on Arbitration. The old arbitration act followed the principles set out in the 1985 UNCITRAL Model Law and therefore one of the main reasons for the review and recreation of the act on arbitration in Hungary was the amendment of the rules of the UNCITRAL Model Law in 2006.
With the enactment of the Arbitration Act, a more important role was given to the Permanent Court of Arbitration operating under the aegis of the Hungarian Chamber of Commerce (the “Court of Commercial Arbitration”), which administers commercial arbitration cases in Hungary (except for cases that are subject to the jurisdiction of the Sport Arbitration Court and the arbitration court operated by the Hungarian Chamber of Agriculture).
Scope of Application of the Arbitration Act
According to Section 1, the Arbitration Act applies to the arbitration if the seat of arbitration is in Hungary. This could be the case when the parties opt for the Permanent Court of Arbitration in Hungary or when an ad hoc arbitration is seated in the country. The Arbitration Act therefore does not differentiate between domestic and international arbitrations; the only cases that are excluded from its scope are legal disputes arising from consumer contracts (regulated by the Civil Procedure Code) and procedures governed by the Code of General Administrative Procedure (Section 1.3).
Section 8 contains the definition and the rules of arbitration agreements. The definition follows the text of the 2006 UNCITRAL Model Law and states that an arbitration agreement is “an agreement between the parties to submit to arbitration all or certain specified disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or extra-contractual.”
Such arbitration agreements can take two forms. They may either be a separate agreement or part of a contract.
The most important condition is that the arbitration agreement must always be in writing, although the Arbitration Act allows for a few specific types of departure from this rule. Based on Sections 8.3-8.5, an agreement concluded by electronic communication and an agreement that one party alleges, and the other party does not dispute, also qualify as agreements in writing. Electronic communication without electronic signature, however, is only acceptable if the data in the communication are accessible by the other party and are “suitable for later reference”.
Composition of the Arbitral Tribunal
The rules on the composition of tribunals do not contain any surprising elements. Pursuant to Section 11, as is the general norm in arbitration, the number of arbitrators must always be an odd number.
Section 12 describes the appointment of arbitrators. In arbitration in Hungary, anyone over the age of 24, who is not excluded from participating in public affairs, sentenced to imprisonment, placed under custodianship or disqualified from a profession that is subject to a university degree in law, can serve as an arbitrator.
In the cases where the parties cannot agree on the sole arbitrator, or the party-appointed arbitrators cannot agree on the other member or members of the tribunal, the Arbitration Act gives the right of appointment to either the Budapest-Capital Regional Court (Fővárosi Törvényszék in Hungarian) or, in the cases falling within its jurisdiction, to the Court of Commercial Arbitration.
Jurisdiction of the Arbitral Tribunal
According to Section 17 and based on the international principle of kompetenz-kompetenz, the arbitral tribunal may rule on its own jurisdiction. Any objection shall be presented not later than the submission of the defence. In cases where the parties do not agree with the decision of the tribunal, they may request the Budapest-Capital Regional Court to decide in an order, pending which decision the tribunal may continue the proceedings and make an award.
Decisions of the Arbitral Tribunal
In arbitration in Hungary, according to Chapter V of the Arbitration Act, arbitral tribunals may grant interim measures and in addition may also grant preliminary orders directing a party not to frustrate the purpose of the interim measures requested.
The decisions of the tribunal shall be made by a majority of the members, failing which the presiding arbitrator shall decide (Section 42).
Pursuant to Section 44, the arbitral award and the order terminating the proceedings must be in writing, shall state its date and the place of arbitration, and must be signed by at least the majority of the arbitrators.
Recognition of Foreign Arbitral Awards in Hungary
Hungary is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which regulates the enforcement of foreign arbitral awards in Hungary.
Investment Arbitration in Hungary
Although investment protection and investment arbitration in Hungary is not governed by a separate act, the country has signed a number of bilateral and multilateral treaties on the protection of foreign investment. Hungary is also a signatory member of the Washington Convention (the ICSID), as well as the Energy Charter Treaty.
Hungary to date has been involved in a total of 17 reported investment arbitration cases, including in the communication and energy sectors. The most notable cases against Hungary were:
- concerning the sale of social vouchers: Sodexo Pass v. Hungary (ARB/14/20 – not public), Edenred v. Hungary (ARB/13/21 – not public) and UP and C.D Holding v. Hungary (ARB/13/35);
- concerning the telecommunications sector: Telenor v. Hungary (ARB/04/15);
- concerning the energy sector: Electrabel v. Hungary (ARB/07/19), AES v. Hungary (ARB/01/4 – settled; and ARB/07/22), EDF v. Hungary (not public);
- concerning national radio-broadcasting frequencies: Emmis v. Hungary (ARB/12/2), Accession Mezzanine v. Hungary (ARB/12/3).