The New Arbitration Act, entered into force on 1st January 2018 has introduced major changes in the field of interim measures in arbitration proceedings in Hungary, rarely used in practice. Whether these changes will make interim measures more popular in arbitration proceedings in the future?
In Hungary domestic and international commercial arbitration is governed by Act LX of 2017 on arbitration, effective from 1st January 2018 ("Arbitration Act"), repealing the former arbitration law, which regulated poorly the question of interim measures, becoming more and more important in international commercial arbitration in the last decades.
The new Hungarian Arbitration Act basically reflects the changes introduced by the UNCITRAL Model Law on International Commercial Arbitration ("Model Law"), revised in 2006, and contains more detailed provisions in this subject.
Who can issue interim measures?
It has not changed that a party may request interim measure from both the arbitration tribunal and from state courts.
It is needless to say, that from the submission of the request for arbitration the setting up of the arbitral tribunal may take several weeks, so it is reasonable to provide an opportunity to the party, whose interest must be safeguarded in this period, to turn to state courts seeking interim measure.
In theory, the party can request interim measure from Hungarian state courts after the arbitral tribunal has been set up.
Save if the parties expressly excluded in the arbitration agreement, an interim measure may be requested by any party in order to
- preserve or restore the status quo during the dispute
- avoid causing harm, or avoid prejudice to the arbitral procedure
- preserve assets, out of which the subsequent award may be satisfied, or to request the provision of an appropriate security
- preserve evidence which might be relevant to the resolution of the dispute
In relation with point b) it must be noted that the Hungarian Arbitration Act is broader than the Model Law, since it makes it possible to request interim measure to avoid any kind of harm, while the Model Law protects the arbitral process itself. The same goes for point c) based on which in addition to asset preservation, the provision of appropriate security may be also requested.
Conditions for interim measures
The party seeking the interim measure under points a-c) above shall make it likely that
- harm not adequately reparable by an award of damages is likely to result if the measure is not ordered, and such harm substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted; and
- there is a reasonable possibility that the requesting party will succeed on the merits of the claim. The determination on this possibility shall not affect the discretion of the arbitral tribunal in making any subsequent determination.
In addition, the Rules of Procedure of the Court of Arbitration attached to the Hungarian Chamber of Commerce ("Rules of Procedure") provides that the request for interim measure must be communicated to the other party, who can make its observations on the request.
Finally, the arbitral tribunal may make conditional the granting of interim measure upon the provision of security by the party requesting it.
The Arbitration Act introduce the concept of preliminary orders from the Model Law, by providing that except otherwise agreed, any party may make an application for preliminary order together with the request for an interim measure, in order to prevent the other party to frustrate the purpose of the interim measure requested.
In this case the arbitral tribunal can grant the interim measure requested on "ex parte" basis, ie. without communicating the request for interim measure to the other party. The party requesting the preliminary order must provide security, save the arbitral tribunal grants a relief.
The preliminary order remains in effect for 20 days, and the arbitral tribunal either convert it to an interim relief or it ceases to exist.
Interim measures can be enforced the same way as arbitral awards, however a preliminary order binds only the other party in the framework of the arbitration procedure, and it cannot be subject of judicial enforcement.
The state court may refuse the enforcement of the interim measures if
- the conditions of setting aside of the arbitral awards are met
- the party has failed to provide the security required
- the arbitral tribunal has set aside or suspended the interim measure
- there is no competence to issue interim measure
- it considers that it breaches public policy or non-arbitrability rules
The grounds under no. 1-3 for refusing the enforcement of the interim measures may be taken into account, if invoked by the party concerned, while grounds under no. 4-5. must be taken into account by the court from its own motion.
Interim measures in practice
It must be noted that interim measures in Hungarian arbitration proceedings were rarely used in practice in the past. There might be more reasons behind this reluctant approach of courts and arbitral tribunals.
One of the reasons might be that the former arbitration law has failed to regulate this matter in a detailed manner, another reason is that judges often prefer to avoid the risk of pre-judging any legal issue, which might be relevant in later phase of the dispute.
One thing is true, the New Arbitration Act regulates the issue of interim measures deeply and comprehensively, so the legal environment is ready for a change of the trend.
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.