ARBITRAL PROCEEDINGS IN HUNGARY – PART I - GENERAL RULES

31 October 2018

What are the basic procedural principles of arbitration proceedings in Hungary? To which extent are the parties free to choose procedural rules? What is the applicable law and is there any time limit to deliver the arbitral award? We address among others these question in this article.

General procedural principles

The Act LX of 2017 on Arbitration (“Arbitration Act”) sets forth the following basic procedural principles:

1. the parties shall be provided with equal treatment and each party shall be given the possibility to submit his case (“equal treatment”)
2. The parties are free to choose the rules governing the procedure, within the limits set forth by the Arbitration Act (“determination of procedural rules”)

Procedural rules - Limited freedom

While the equal treatment is an absolute principle, the party autonomy in relation with the determination of procedural rules is limited, and the following order of priority applies

1. the parties cannot disregard mandatory rules of the Arbitration Act (e.g. impartiality and independence of arbitrators; setting aside as non-waivable remedy etc.). These provisions are always applicable to the arbitration procedure
2. in matters not governed by mandatory provisions, the parties can freely determine the procedural rules. This frequently takes place by adopting institutional rules, like the Rules of Procedure of the Permanent Arbitration Court (“Arbitration Court”) of the Hungarian Chamber of Commerce and Industry (HCCI) (“Rules of Procedure”)
3. in matters not governed by the rules chosen by the parties, the non-mandatory provisions of the Arbitration Act applies
4. finally, the arbitration tribunal can fill the gaps to its best knowledge, if it is necessary (e.g. in relation with taking of evidences. etc.).

Below we summarise the most important procedural rules based on the Arbitration Act and on the Rules of Procedures

Place and Language

The parties may freely agree on the venue of the arbitration. When no such agreement is made, the venue of the arbitration shall be determined by the arbitration panel by taking account the circumstances of the case.

The parties are also free to choose the language of the procedure; in the absence of that the arbitration panel shall determine the language or languages. The Rules of Procedure provides that in the absence of language chosen by the parties, until the arbitral tribunal is constituted, the language of communication with the Arbitration Court shall be the Hungarian or English or German. In case the language of the arbitration is not one of the above languages, the costs of translations shall be equally advanced by the parties.

Duration

The Arbitration Act does not determine the maximum length of the arbitration procedure. The Rules of Procedure provides that the arbitral tribunal shall to the extent possible close the proceedings within six months from its constitution, which is a “soft-law” obligation.

Applicable law to the merits of the dispute

The arbitral tribunal shall resolve the legal dispute in line with the provisions of the law chosen for deciding the disputed issues on the merits, which means the substantive law of the relevant state, not including the international private law rules thereof.

In the absence of choice of law by the parties, the applicable substantive law shall be determined by the arbitration tribunal on the basis of the international private law rules that it considers to be applicable.

According to the Rules of Procedures, the arbitral tribunal may decide “ex aequo et bono” or as “amiable compositeur” only in cases where the parties have expressly authorised it to do so. The arbitral tribunal shall decide on the merits in accordance with the provisions of the contract between the parties, if any, and shall take into account the relevant trade usages applicable to the transaction.

Decision on competence

The arbitral tribunal shall decide on its own competence, including any objection concerning the making and validity of the arbitration court contract. In this respect, the arbitration court stipulation constituting a part of the contract shall be regarded as an agreement independent of the other stipulations of the contract.

Waiver of objection

It is important, that a party that has knowledge of the fact that any provision of the Arbitration Act allowing the parties different agreement or any stipulations of the arbitration agreement has not been satisfied and continues to take part in the proceedings without notifying his objection owing to such omission immediately, or if a deadline for this purpose has been set, within such deadline, then such party shall be considered as having waived the right of objection. This article guarantees the speed and flexibility of the process.