03 February 2021

Our Managing Partner, dr. Richard Schmidt has been enrolled on the list of arbitrators of the Arbitration Court attached to the Hungarian Chamber of Commerce and Industry, with effect from 1st February 2021. In connection with the above, our colleague, dr.Anita Vereb made a short interview with Richard about arbitration in Hungary.

Anita: We know that you often represent our clients in arbitration, in addition you teach international dispute resolution at your alma mater, the Law Faculty of Pázmány University, and you frequently publish articles in relation with arbitration in various law journals. But what does it mean to be enrolled as arbitrator on a list of an arbitration institution?

Richard: Indeed, in the last years it is a tendency that I focus more and more on dispute resolution, both in practice and in theory. When it comes to your question, theoretically, anyone can become arbitrator, even without a law degree. However, as the old saying goes: “An arbitration only as good as the arbitrator”. I like this proverb, because it really sheds light on the essence of arbitration: the parties subject themselves to the decision of a “private” jurisdiction set up by arbitrators, and they exclude the jurisdiction of state courts.

The parties do this, because they believe that the decision of the private jurisdiction will represent a better quality than that of the state courts. The members of this private jurisdiction are crucial to meet this quality expectation of the parties.

For this reason, most arbitration institutions consider it necessary to publish a list with the names of practitioners representing a certain level of professional quality in the opinion of the institution. The roll of arbitrators can be considered as a quality certificate. By enrolling practitioners, the arbitral institution expresses its view, that practitioners, listed on the roll of arbitrators are capable to meet the parties’ quality expectations based on their theoretical and practical background.

It is a great honour to me, that the oldest arbitral institution in Hungary, the Arbitration Court attached to the Hungarian Chamber of Commerce and Industry, operating for more than 70 years, has enrolled me on the list of arbitrators, among eminent Hungarian and foreign lawyers, committed to arbitration. I interpret this as an acknowledgment of my work in the past years.

Anita: Why should parties choose arbitration instead of state courts?

Richard: The most important pro-arbitration arguments are speed, expertise, flexibility and confidentiality of the procedure, and the neutrality, which comes into the forefront mainly in cross-border disputes.

Anita: Could you explain it in more details?

Richard: Of course. When it comes to speed, it is well-known that litigation in front of state court can take years, or even a decade, because of the remedy system, involving more court levels. Arbitration is much faster, we can say that an enforceable arbitral award is delivered generally within 1 (one) year. For example, the rules of procedure of the Arbitration Court attached to the Hungarian Chamber of Commerce and Industry includes a non-obligatory deadline, according to which the award shall be delivered within 6 (six) months. If we think over that nowadays companies sometimes disappear within few years after a legal dispute broke out, it is clear why rapidity  plays a key role in the present economic environment.

Anita: What about expertise?

Richard: Business transactions become more and more complex, lawyers shall apply a huge body of law, which is growing and changing year by year. A state court judge does not always have the time to keep up with the fast-changing legal environment. The second pro-arbitration argument is that parties can choose those practitioners, who possess up-to-date knowledge on that particular field of the law, which is in the focus in the given legal dispute.

In addition, sometimes the evidence of the legal dispute are available on foreign language only. In case of a litigation in front of state courts, documentary evidence shall be submitted together with translation, in case of witnesses, a translator shall be hired, because we cannot expect judges to speak the relevant foreign language. However, in arbitral proceedings, the parties are free to appoint arbitrators, possessing the relevant language skills, and thereby they can save money, when it comes to the cost of translation and translator.

Anita: Could you explain flexibility and confidentiality?

Richard: In contrast with the obligatory rules of civil litigation, which have become substantially stricter in Hungary with effect from 1st January 2018, with the entering into force of the new Civil Code of Procedure, arbitration is less formalistic. On the one hand, parties are free to agree on the rules of the procedure, for example, they can determine the number of arbitrators, the language of the arbitral proceedings, etc.

On the other hand, the parties have a wider procedural autonomy, so the claimant can modify its claim during the proceedings easier, and in the spirit of the equality of arms, the defendant has more time to enforce its counterclaim in the same procedure.

Due to this flexibility of arbitral proceedings, instead of formal questions, the material issues of the case are in the focus of the dispute resolution, and there is a higher chance that the arbitral award finally closes the parties’ legal dispute, and there will be no further disputes.

When it comes to confidentiality, civil litigations are open for the public, so anybody can be present at court hearings, for example the press can make notes, etc. Given that in arbitration often business secrets or other sensitive information are used by the parties, the exclusion of the public is crucial so that the parties can settle their dispute in a relaxed ambiance, without external pressure.

Anita: How do you mean neutrality?

Richard: Both judges and arbitrators should act impartially, without any bias. However, in cross-border cases state court judges tend to apply the law of their home country, which can have serious impact on the final decision. Given that in international cases, the members of an arbitral tribunal come from various jurisdictions, this issue do not arise.

In addition, the issue of neutrality is even more important in investment cases, where one of the parties of the dispute is the state, or a state body. In these cases, an arbitral tribunal, composed of independent practitioners delivers an impartial award with greater chance, than a judge, who is employed by that state.

Anita: How do you see the future of arbitration in Hungary?

Richard: The situation of this alternative method of dispute resolution was well summarized hundred years ago by Tihamér Fabinyi, a renowned Hungarian lawyer, who wrote a great book on arbitration between the two world wars. In his opinion, the popularity of arbitration is inversely proportional with the quality of civil jurisdiction: the more criticism raises in connection with the work of state courts, the greater is the chance that the popularity of arbitration grows.

As I mentioned, the Civil Code of Procedure, entered into force with effect from 1st January 2018, can be interpreted as a triumph of form over content. Although the lawmaker mitigated the formalism of these rules from 1st January 2021, in my opinion arbitration, and especially the Arbitration Court attached to the Hungarian Chamber of Commerce and Industry, remains to be a real alternative of civil litigation in Hungary, so I am basically optimistic in this regard.

Anita: We wish you success as arbitrator!

Richard: Thanks a lot.