ARBITRATION AGREEMENTS IN HUNGARY

04 January 2024

When you enter a contract with a Hungarian business partner, it is more common that a Hungarian arbitration clause is included in the contract. This provision is crucial because it determines how you can enforce your claim against the other party in case of a legal dispute. In the following we outline the basic Hungarian legal provisions on arbitration agreements.

1. The arbitration agreement under Hungarian law

According to the Hungarian Arbitration Act an arbitration agreement is an agreement in which the parties agree to submit their disputes which have arisen, or which may arise in the future in respect of their determined legal relationship, whether contractual or not, to arbitration.

Under the Hungarian Arbitration Act, an arbitration agreement can be formed in the following ways:

1. the parties conclude an arbitration agreement;
2. the parties’ commercial contract contains an arbitration clause;
3. the claimant states in his statement of claim that the parties entered into an arbitration agreement, and the respondent does not raise an objection in its statement of defence.[1]

According to the Hungarian case-law, an arbitration clause used by any of the parties as general terms & conditions is an unusual contract term, which is ineffective, save if the other party expressly accepted that term.[2]

2. Formal validity

Under the Hungarian Arbitration Act, arbitration agreements must be in writing, and they can be concluded “in writing” through electronic means in case the data set out in the electronic communication are accessible to the other party and are suitable for referring to them later, without the need of an electronic signature.

Based on the Hungarian Arbitration Act, electronic communication shall be any announcement of the parties that is mediated by data transfer. Data transfer means the production, sending, receipt or storage of the information in electronic, magnetic, optical, or similar manner, in particular through electronic data exchange, electronic mail (email), telegram, telex or fax.

3. Separability

Based on the Arbitration Act, an arbitration clause that forms part of another agreement (e.g. commercial contract) shall be treated as an independent arbitration agreement. Accordingly, if the commercial contract, incorporating the arbitration agreement is found to be null and void, this will not necessarily affect the validity of the arbitration clause contained therein.

4. Legal succession

The Arbitration Act provides that in case of legal succession in the parties’ underlying contractual relationship, or in case assignment of the claim, there is a legal succession in the arbitration agreement, too, except the parties expressly provided otherwise.

5. Consequences of a valid arbitration agreement

The so-called positive effect of a valid arbitration agreement in Hungarian law is that it confers exclusive jurisdiction on the arbitral tribunal to hear and decide the parties’ dispute.

The so-called negative effect of a valid arbitration agreement is, that upon request of any party, the state courts are obliged to decline jurisdiction and refer the parties to arbitration in case of either of the parties starts litigation before them, save if the arbitration agreement seems to be null and void, ineffective, or incapable of being performed.[3]

The Hungarian Arbitration Act provides that the certain procedures in front of states courts and authorities are not irreconcilable with a valid arbitration agreement e.g.: payment order procedure; application for preliminary evidence, interim measure, preliminary order.

It is well settled case-law that the party must invoke the invalidity or inexistence of the arbitration agreement at the earliest possible time, failing which the award cannot be challenged on that basis in case the party failed to raise any objection and participated in the proceedings.[4]