Before discussing the provisions of Hungarian law on arbitration agreements, it is worth to address the question, in which cases is Hungarian law applicable to an arbitration agreement?
Based on the Hungarian PIL Code, the arbitration agreement is governed
- by the law chosen by the parties to the arbitration agreement;
- 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;
- 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 is 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, an arbitration agreement can be formed in the following ways:
- the parties conclude an arbitration agreement;
- the parties' commercial contract contains an arbitration clause;
- 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.
Under the Arbitration Act, arbitration agreements must be in writing and they 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 referring to them later, without the need of an electronic signature.
Based on the Arbitration Act, 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 PIL Code 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 point 3.1.2 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 Arbitration Act expressly excludes the subjects matters mentioned under point 2.2.3. from arbitration.
Based on the 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.
The Arbitration Act provides that in case of legal succession in the parties' underlying contractual relationship, or in case assignment of the claim, there is a legal succession in the arbitration agreement, too, except the parties expressly provided otherwise.
It must be noted that based on case law, in case of mortgage on real estate, where the personal debtor and the owner of the mortgaged property are different persons and the latter did not sign the arbitration clause, there is no legal succession of arbitration agreement, in case the personal debtor fails to pay and the mortgagee starts proceedings against the mortgager, to enforce the mortgage.
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, as confirmed by case law, 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 be 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, preliminary order,
- having an enforcement clause affixed to a document, providing security and
- the party's petition for similar measures submitted to any foreign court.
It is well settled case-law that the party has to invoke the invalidity or inexistence of the arbitration agreement at the earliest possible time, failing which the award cannot be challenged on that basis.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.