SETTING ASIDE ARBITRAL AWARDS IN HUNGARY BASED ON PUBLIC ORDER

27 February 2019

Infringement of the public order is one of the “most popular grounds” of challenging arbitral awards in Hungary. Whether this ground shall be invoked by the parties or it can be considered by the state court from its own motion? What is the standard of review of Hungarian state courts? We summarise the answers in this article.

Infringement of public order

The infringement of “public order” or “public policy” of a state is one of the grounds based on which a state court can set aside arbitral awards in Hungary.

Since Hungary is a “Model Law” jurisdiction, unlike other grounds of setting aside, which shall be invoked by the party wishing to challenge the award, the infringement of public order can be taken into consideration by the judge from his own motion in a litigation.

It means that even if the party challenging the arbitral award does not expressly invoke this reason, the judge can come to the conclusion “ex officio” that the award infringes the Hungarian public order.

The standard of review

Although the infringement of public order shall be reviewed by the state court automatically, without any express request from the parties, the case law of the last decades shows that this is a ground for annulment of an arbitral award, which can be applied only in case of very serious legal faults.

As a guiding principle, it was laid down by Hungarian state courts that the breach of “public order” can lead into setting aside of the award only in case of manifest and serious infringement of the basis of the social-economic order.

In addition, to annul an arbitral award on this ground, the infringement of public policy shall go beyond the bilateral relationship of the parties, to breach the public interest of the whole society.

Based on the above, the standard of review of state courts in respect of infringement of public policy is strict, and arbitral awards are rarely annulled on this ground in Hungary.

Breach of public order

Based on the case law of Hungarian courts the infringement of public order

• was established in a case when the arbitral tribunal awarded unusually high attorney’s fees in high-volume arbitration proceedings, which was “unacceptable for the social common sense”[1], or
• was theoretically admitted in case of “res judicata” had not been respected by the arbitral tribunal[2].

However, Hungarian courts were reluctant to set aside arbitral awards on the basis of public order

• in case of minor breach of procedural or substantive law, without affecting basic social or economic interest of the society;[3]
• when the reasoning of the award had deficiencies, among others the failure to clarify the contradictions of the expert opinion;[4]
• when the arbitral tribunal disregarded the motions for evidence submitted by one of the parties;[5]
• when the arbitral award suffered from error in calculation or other minor error in law;[6]
• when the party invoked the breach of public order because of wrong calculation of limitation period.[7]

Conclusion

Although the infringement of the public order is a ground for setting aside the arbitral award, that shall be taken into consideration by the state court even if the party challenging the award does not expressly invoke this, the practice of the Hungarian courts shows that judges annul arbitral awards on this ground only exceptionally when there is a manifest and serious infringement of the basis of the social-economic order