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27 April 2017

Hungary: New Arbitration Legislation?

The Ministry of Justice has circulated its initiative for improving the legal environment with the aim of increasing Hungary's competitiveness by amending certain regulations and institutions. Among other things, the initiative concerns cross-border mergers and operation of trustees, and generally aims to lighten administrative burdens. Most notably, if adopted in its current form, it will reform the Hungarian arbitration regulation.

Numerous arbitration courts now operate in Hungary. One is at the Hungarian Chamber of Commerce and Industry and is dedicated to commercial matters; another is at the Money and Capital Markets Arbitration Court operated by the Hungarian Stock Exchange and the Banking Association and is dedicated to finance and capital market issues, and yet another is the Energy Arbitration Court at the Hungarian Energy Office. There are also other smaller arbitration courts.
According to the initiative, the various arbitration courts will be replaced by a single arbitration court that combines them all. The new arbitration court will be the legal successor of these arbitration courts in every respect.

The initiative considers both the shortcomings of the current Hungarian legislation (Act LXXI of 1994 on Arbitration – the "Act") and the amendment of the UNCITRAL Model Law on International Commercial Arbitration adopted in 2006 (the "Model Law"). It envisages a new basis for arbitration and effectively ensures the choice of impartial arbitrators with appropriate expertise. This will make arbitration more attractive not only to national corporations but to their foreign business partners as well. 

Under the initiative the eligibility conditions for arbitrators have been clarified and tightened. For instance, the Act stipulates that a person cannot be an arbitrator if he or she has been barred from public affairs by a court or sentenced to imprisonment. The initiative also adds that a person cannot be an arbitrator if he or she is on probation or barred from exercising a professional activity requiring a university degree. Similarly to the legislation for judges, an arbitrator's position automatically ceases when he or she reaches the age of 70.

Based on the Model Law, the initiative also envisages broader authority for the panel by introducing interim measures and preliminary awards, which have long been unsatisfactorily regulated and thus a grey area in Hungarian arbitration practice. The provisions are adopted almost verbatim from the Model Law. The arbitral tribunal may grant interim measures at the request of the party if (a) there is a reasonable possibility that the requesting party will succeed on the merits of the claim, (b) harm is likely to result if the measure is not ordered, which is not adequately reparable by the final award, and (c) such harm substantially outweighs the harm caused to the party against whom the measure is ordered.

When requesting an interim measure the party may also apply for a preliminary award, which binds not only the parties in the procedure, but also third parties outside of it. A preliminary award thus may be capable of preventing the other party from frustrating the purpose of the interim measure.

In addition, the arbitral tribunal will have the power to order security in connection with the above orders. The tribunal may require the party requesting an interim measure to provide appropriate security in connection with the measure, while the tribunal must require the party applying for a preliminary order to provide security, unless the tribunal considers it inappropriate or unnecessary to do so.

Whether the reform of the Hungarian arbitration system will achieve its goal of getting market players to turn to arbitration and agree in it more frequently depends on the details of the regulation, especially how the independence of the arbitrators will be guaranteed in law and in practice.


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