29 October 2018

On what grounds can arbitral awards be set aside by state courts in Hungary? What is the deadline for starting the setting aside procedure, which court is competent to try the case, and what are the main features of the procedure? We summarise the answers to these questions in this article.

Setting aside as primary remedy

Hungary, being a so-called “model law jurisdiction”, significantly limits the remedies available against arbitral awards in comparison with remedies available against ordinary court judgments.

According to the Act LX of 2017 on Arbitration (“Arbitration Act”) the arbitral award may not be appealed, however, the parties may seek to set aside the award, which is the main remedy in Hungarian arbitrations.

Appeal is available only in case the parties expressly stipulate this kind of remedy in the arbitration agreement, which is very rare in practice.

What are the grounds of setting aside?

The grounds for setting aside arbitral awards mirror the Model Law’s respective provisions.

According to the Arbitration Act, the setting aside procedure can take place if the plaintiff evidences that

  1. one of the parties entering into the arbitration court contract did not have the legal capacity or capacity to proceed; or the arbitration agreement is not effective in accordance with the rules of the law it was subjected to or, in the absence of such subjection, in accordance with Hungarian law; or
  2. the party was not properly notified of the appointment of the arbitrator and of the procedure of the arbitration tribunal, or otherwise he was not able to submit his case; or
  3. the arbitration award extends to a dispute that was not considered in or is falling outside the submission to arbitration, or contains a decision beyond the scope of such submission, providing that if the cases submitted and not submitted can be separated from each other, the reversal of the arbitration award may only be requested with respect to the decision adopted on the part outside the submission; or
  4. the composition of the arbitration tribunal or the arbitration proceedings did not comply with the parties agreement - except when the agreement is contrary to an obligatorily applicable rule of the Arbitration Act - or in the absence of such an agreement did not comply with the provisions of the Arbitration Act;

In addition, the court can set aside the arbitral award, if

  1. the subject of the dispute may not be referred to arbitration in accordance with Hungarian law, or (non-arbitrability)
  2. the arbitration award is in conflict with Hungarian public order (public order)

While in case of points a-d), it is the plaintiff, who has to claim and prove that one of the above provisions were non respected in the arbitration, the grounds for setting aside under points e-f) (non-arbitrability; public order) may be taken into consideration by the court from its own motion.

Deadline and competent court

The claim for setting aside shall be submitted to the competent court within sixty days from receipt of the arbitration award, failure to meet this deadline shall entail forfeiture of this kind of remedy.

In Hungary Budapest Metropolitan Court has exclusive competence to hear the case for setting aside an arbitral award rendered in Hungary.

Setting aside procedure and remedy

The setting aside procedure is considered as an “ordinary” litigation, where the court can dismiss the action or set aside the award.

In case the arbitration award is reversed, the arbitration proceedings may continue by appointment of arbitrators. This is possible, because the successful action against the award not results the nullity of the arbitration agreement, except if that was the concrete ground of the efficient claim. However, upon the party’s request, the court also could decide on the merits of the case, if it is possible.

The judgment of the Budapest Metropolitan Court is enforceable, but an extraordinary remedy is still available against it, the request for review in front of the Curia (Hungarian Supreme Court) to be submitted within 45 days as of the receipt of the judgment.

Stay of proceedings for 90 days

The Arbitration Act introduced the “stay of proceedings” for no more than 90 days, in order to give a chance to the arbitration tribunal to remedy the of the eventual invalidity of the award.

At the justified request of any of the parties, the court may stay the hearing of the case for a maximum of ninety days to enable the arbitration tribunal to reopen the arbitration proceedings or take acts of procedure by which the grounds for invalidity can be eliminated.  In this case, the arbitration proceedings  shall continue for the purposes and the duration determined by the court.

Suspension of enforceability

The setting aside procedure does not have automatic suspensory effect on the arbitral award, so during the procedure for setting aside, the arbitral award stays fully enforceable, however, its enforceability may be suspended at the request of any of the parties by the court.

The suspension may be sought if the enforcement of the award would probably result in a harm not-reparable, the suspension is proportional and there is a reasonable possibility that the claim of the party requesting suspension will lead to success on the merits of the case.

Deliberation of this possibility does not bind the court during any of its later deliberations.