06 February 2018

The new Hungarian Arbitration Act, entered into force on 1st January 2018 has reshaped the institutional landscape of Hungarian arbitration, and introduced some noteworthy changes in arbitral proceedings in order to increase the international competitiveness of Hungarian arbitration. We sum up the most important changes in this article.

arbitration, Hungary, dispute resolution

The New Arbitration Act

In Hungary domestic and international commercial arbitration is governed by Act LX of 2017 on arbitration, effective from 1st January 2018 (“New Arbitration Act”), which repealed the former Act LXXI on Arbitration.

The New Arbitration Act was adopted in the framework of a major legislative modification regarding Hungarian civil law, which included the reform of Civil Procedure Code, and International Private Law Act, too both of them entered into force on 1st January 2018. Furthermore, the incorporation of the changes of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) revised in 2006 was another reason to pass a new arbitration law in Hungary.

Arbitration Institutions

The New Arbitration Act introduced a major institutional reform, by merging 3 (three) former distinct arbitration institutions.

From 1st January 2018, the Arbitration Court attached to the Hungarian Chamber of Commerce, the Arbitration Court of Money and Capital Markets and Arbitration Court of Energy merged into the Permanent Commercial Arbitration Court attached to the Hungarian Chamber of Commerce.

The Permanent Arbitration Court for Sport and Arbitration Court attached to the Hungarian Agricultural Chamber continues to operate as distinct arbitration institutions.

Formal validity of Arbitration Agreement

The New Arbitration Act, expressly provides that a valid arbitration agreement can be concluded via e-mail, or other electronic communication, even if the parties do not use electronic signatures.

This is a very important step ahead in the 21st century, given that Hungarian states courts interpret the concept of electronic communication narrowly, requiring the use of electronic signature by the parties, which is not common in commercial transactions.

Considering that states courts have the last word when the question of formal validity of an arbitration agreement arises in a setting aside procedure, this provision of the new law reflects the pro-arbitration approach of the Hungarian legislator.

Preliminary orders and interim measures

When it comes to preliminary orders and interim measures, the New Arbitration Act reflects the changes introduced by the 2006 revision of the Model Law and contains detailed provisions in this subject.

Interim measures may be requested in order to i) preserve the status quo ii) avoid causing harm, or avoid prejudice to the arbitral procedure iii) preserve assets iv) preserve evidences. The party seeking interim measure shall make it likely that the measure is proportional and that there is reasonable chance of success of his claim.

Preliminary orders can be requested in order to prevent the other party to frustrate the interim measure requested, and if granted remains in force for no more than 20 days.

While requests for interim measures shall be disclosed to the other party, preliminary orders can be issued on “ex parte” basis, without the prior hearing of other party. Interim measures can be enforced the same way as arbitral awards, however a preliminary order binds only the other party in the framework of the arbitration procedure, and it can not be subject of judicial enforcement.

Retrial as new remedy

From procedural point of view, one of the most important novelty of the New Arbitration Act is the retrial, which is a new type of remedy against arbitral awards.

The party can request retrial of the case within 1 (one) year from the notification of the award, if there is a fact or evidence that he was unable to present in the proceedings at no fault to him, and it could have resulted an award more favorable for him.

In case the above conditions are met, the tribunal reopens the case and delivers a new award, if necessary.

It must be stressed that parties may opt-out from the new retrial regime, by expressly excluding the possibility of retrial in their arbitration agreement.

Increased Arbitrator liability

The New Arbitration Act introduces the civil liability of arbitrators, which was not regulated under the former legislation. The arbitrator’s liability is limited by the Rules of Procedures of the Permanent Commercial Arbitration Court to damage caused intentionally or by gross negligence.

Furthermore, in case the arbitral award is annulled by the state courts in a setting aside procedure, the New Arbitration Act provides that the arbitral tribunal is not entitled to remuneration at all.

Closing Remarks

Given that nearly 25 years have passed after the entering into force of the former Hungarian law on arbitration, it was time to reflect the changes in such a long period in a new piece of legislation. We hope that the New Arbitration Act will help to achieve the main objective of the Hungarian legislator, and it will increase the international competitiveness of Hungarian arbitration.