RENAISSANCE OF ARBITRATION IN HUNGARY
A new Act on Arbitration will apply to arbitral proceedings in Hungary commencing on and after 1 January 2018. Following this piece of law the new Rules of Proceedings 2018 of the Arbitration Court attached to the Hungarian Chamber of Commerce and Industry (herein-after: Hungarian Arbitration Court) have been prepared in record time so that they could enter into effect as of 1 February 2018. The Act and the Rules are designed with a view to modernize the proceedings and to regain trust and confidence in the institutional arbitration in Hungary. Practice will show whether the aim will be achieved and commercial players, equally including privately held as well as state owned entities, will perceive institutional arbitration in Hungary as a viable alternative to solve commercial disputes.
By entering into an arbitration agreement the parties exclude the proceedings before State courts that, by default, would otherwise be open to the parties in case of a dispute arising between them. Selecting the alternative dispute resolution method makes especially sense in case of circumstances where one of the parties has doubts whether or not it will be treated in a fair and unbiased way before State courts. Nobody looks forward to playing against the home team in the stadium of the home team with referees of the same country. Thus, if one of the parties is perceived as a local player or even a home champion, while, in contrast thereto, the other party, for whatever reason, is perceived as “foreigner”, the latter is well advised to consider arbitration as an alternative dispute resolution method.
If the circumstances are as outlined above, the next question will be as to whether or not the Hungarian Arbitration might fulfil the “foreigner’s” expectation to be heard by an impartial tribunal.
Partiality is a personal emotion which is sometimes hard to fight. In case of an arbitration tribunal consisting of 3 arbitrators each party will have the chance to nominate one arbitrator. Those two arbitrators will have to agree on the person of the chairman (presiding arbitrator). Although all arbitrators shall be independent and impartial, a party usually would try to select a person that might have some empathy or understanding for the standpoint of the appointing party. If the selecting party cannot identify such person on the official Roll of Arbitrators, it may choose any other person. Also, the person selected must not necessarily be a Hungarian citizen.
In order to get a favourable award, a party will have to win over 2 arbitrators. Accordingly, the presiding arbitrator’s impartiality is very important. Provided that the party appointed arbitrators cannot agree on the person of the presiding arbitrator, it will be the Arbitration Court acting through the so called “Presidium” that appoints the presiding arbitrator. Who are the persons that are acting for the Arbitration Court, when it comes to the appointment of the third arbitrator? The composition of the Presidium as decision making panel is regulated in the Arbitration Act. In this way the Hungarian State takes a certain role in deciding on the persons who will decide on the person of the third arbitrator of an arbitral tribunal. The State in its Arbitration Act has determined the nomination rights as follows:
All members so appointed appear to be dependent upon or strongly tied to the Hungarian Chamber of Commerce and Industry and the public sphere, except for the member nominated by the bar association. Therefore, it remains to be seen whether a party that stands against another party in which there are certain State interests will see the advantage of the Hungarian Arbitration.
It is clear that it will always be too late to consider the options of dispute resolution when a conflict has already arisen. The options: State courts or arbitration, Hungarian Arbitration or any other institutional or ad-hoc arbitration, should be considered at the beginning of the negotiations on the terms of a commercial transaction and not be left to a last minute decision. If it turns out that due to the circumstances of your case neither of the available or remaining options for solving future disputes is fully satisfactory, it will be of highest priority to attend to the details of the contract in order to make sure that all issues are handled in the contract in a legally precise way in order to prevent future disputes as much as possible. No reasonable business person should save on costs for a good contract when, due to the circumstances of the available technique for solving future disputes, the prospects for success in a later dispute before a court or tribunal appear to be low.