ARBITRATION AGREEMENTS IN HUNGARY

23 November 2018

In which cases does Hungarian law govern an international arbitration agreement? What are the basic requirements of formal and substantive validity of an arbitration agreement under Hungarian law? What are the consequences of a valid arbitration agreement in Hungary? We address these question in this article.

When does Hungarian law govern the arbitration agreement?

Before starting summarising the provisions of Hungarian law on arbitration agreements, it is worth to address the question, when Hungarian law is applicable to an arbitration agreement?

Based on the Hungarian International Private Law Act, the arbitration agreement is governed

1. by the law chosen by the parties to the arbitration agreement,
2. in case the parties have determined the place of arbitration, by the law of this country, provided that this law is in closer connection with the arbitration agreement than the law the under point c) below
3. by the law chosen by the parties to the underlying legal relationship, in the absence of which, the law applicable to the parties underlying legal relationship.

So Hungarian law will govern the parties’ arbitration agreement if it is expressly or impliedly chosen by the parties, either by choosing Hungarian law or choosing Hungary as place of arbitration.

What is an arbitration agreement under Hungarian law?

According to the Hungarian Arbitration Act an arbitration agreement as 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, arbitration agreements can be entered into by the parties 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

Formal validity

Under Hungarian Arbitration Act, arbitration agreements must be in writing.

Based on the new Hungarian Arbitration Act arbitration agreements 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 making reference to them later on, without the need of an electronic signature.

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.

According to the case law, an arbitration clause used by any of the parties as general terms & conditions is an unusual contract term, which becomes part of the contract only if the party using this clause expressly informs the other party thereon.

When it comes to international arbitration agreements, the Hungarian International Private Law Act provides a “validation principle” in relation with formal validity, and sets forth that an arbitration agreement cannot be considered invalid on formal grounds, if it meets the criteria of any of the laws mentioned above under points a-c), or the law of the forum (lex fori).

Substantive validity - Arbitrability

Arbitration agreements can be concluded validly in commercial relations, if the underlying dispute may be subject to arbitration.

The Hungarian Arbitration Act expressly excludes the following subjects matters from arbitration: consumer disputes; employment disputes; enforcement cases; actions against notarial resolution adopted in actions in rem ; press remedies; bankruptcy & liquidation; administrative proceedings; competition law proceedings; family law matters.

Separability

Based on Hungarian 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.

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 state courts are obliged to decline jurisdiction in case of either of the parties starts litigation before them, save if the arbitration agreement seems to non-existent, invalid, ineffective, or incapable of complied with.

Hungarian Arbitration Act provides that the following procedures in front of states courts and authorities are not irreconcilable with a valid arbitration agreement: payment order procedure; application for preliminary evidence, interim measure, protective measure, having an enforcement clause affixed to a document, providing security and the party’s petition for similar measures submitted to any foreign court.