Arbitration is the resolution of a dispute before a forum the parties themselves have agreed on, under rules they have accepted – outside the state courts, yet with the same binding force as a court judgment.
What we offer
Dr. Zoltán Puskás, attorney-at-law, accepts appointments as ad hoc arbitrator in commercial disputes: as sole arbitrator, as a member of a three-member tribunal or as its presiding arbitrator, in Hungarian and English. Proceedings follow the procedural rules of the Model Rules recommended by the Presidency of the Budapest Bar Association, which have proved themselves in practice for more than a quarter of a century. We also help our clients include arbitration clauses in their contracts that will actually work when a dispute arises.
One point needs to be clear from the outset: an arbitrator is not a party's representative but an independent and impartial decision-maker. We therefore do not sit as arbitrator in matters where one of the parties is our client – there, we act as counsel. Keeping the two roles strictly apart is a precondition for the validity and credibility of the award.
What is ad hoc arbitration?
Arbitration is a form of dispute resolution outside the ordinary courts, recognised and enforced by the state: the parties agree that their dispute will be decided not by a state court but by an arbitrator or tribunal of their choosing. It can be institutional (administered by a permanent body, for example attached to a chamber of commerce) or ad hoc, where the tribunal is constituted for that one case. In Hungary it is governed by Act LX of 2017 on Arbitration, which is based on the UNCITRAL Model Law.
The advantage of the ad hoc form is the absence of institutional administration and institutional fees. By referring to the Model Rules, the parties can settle the procedural framework in a single sentence, and they remain free to agree otherwise on any point – even during the proceedings.
Why choose arbitration?
- Speed: the Model Rules aim for a decision within six months where possible; in the ideal case the first hearing can be scheduled within about six weeks of the statement of claim.
- A single, final instance: an arbitral award has the same legal force and is enforced in the same way as a final court judgment – there is no appeal, so the multi-year appellate phase falls away.
- Flexibility: the parties shape the rules, language, seat and timetable of the proceedings themselves, without the rigid formalities of the Code of Civil Procedure or the risk of a claim being rejected on formal grounds.
- Substantive case management: evidence is taken more freely, any competent expert may be engaged, and the tribunal engages with the commercial context on the merits.
- Confidentiality: hearings are not public, and neither trade secrets nor the existence of the dispute end up in public court files.
- Predictable costs: fees follow the degressive scale of the Model Rules, with a sole arbitrator costing half of a three-member tribunal; for medium and larger amounts in dispute the proceedings are considerably cheaper than institutional arbitration and – once appeal fees are counted – typically cheaper than the state courts as well.
The drawbacks deserve equal candour: for small amounts in dispute arbitration can be more expensive than the courts, there are no fee reductions, and the deadline for the statement of defence is shorter. Arbitration is best suited to business disputes of genuine economic weight that call for a fast, expert decision.
What does it cost? The fee advantage of ad hoc arbitration
The cost of ad hoc arbitration has two components: the procedural duty and the arbitrators' fee. The duty is 1% of the amount in dispute, capped at HUF 250,000 – compared with 6% (capped at HUF 1.5 million) before the state courts plus a further 8% (capped at HUF 2.5 million) on appeal. The arbitrators' fee follows the degressive scale of the Model Rules: the larger the amount in dispute, the smaller the fee in proportion. With a sole arbitrator the fee is half that of a three-member tribunal. There is no institutional administration fee, because there is no institution.
Total costs, based on the comparison presented in the Budapest Bar Association lecture, with a three-member tribunal (state court: first-instance plus appeal duty):
- HUF 5 million in dispute: state court HUF 300,000 + 400,000 · institutional arbitration HUF 611,300 · ad hoc arbitration HUF 410,000
- HUF 15 million: state court HUF 900,000 + 1,200,000 · institutional arbitration HUF 1,538,250 · ad hoc arbitration HUF 930,000
- HUF 50 million: state court HUF 1,500,000 + 2,500,000 · institutional arbitration HUF 3,791,900 · ad hoc arbitration HUF 1,930,000
- HUF 100 million: state court HUF 1,500,000 + 2,500,000 · institutional arbitration HUF 5,742,900 · ad hoc arbitration HUF 2,530,000
The lesson of the figures: at every amount examined, ad hoc arbitration costs considerably less than institutional arbitration – roughly half above HUF 50 million – and less than two-instance state court proceedings as well. With a sole arbitrator the advantage grows further. As before the state courts, the claimant advances the fee and the duty, but the tribunal awards costs to the successful party. The amounts are indicative, based on the scale in force at the time of the lecture; we provide a precise calculation for any specific matter.
What to watch when drafting the clause
A tribunal may only act if the parties have agreed to arbitration in writing – by an arbitration clause in the contract or a separate arbitration agreement – and only in disputes arising from commercial relationships (business, contractual or non-contractual). Precision matters: an ambiguous clause can lead to years of jurisdictional skirmishing or to the award being set aside.
Where the clause forms part of general terms and conditions, Hungarian case law requires that the other party be specifically and verifiably informed of it and be given the opportunity to read the Model Rules; in the absence of such proof, the state court has already annulled an ad hoc arbitral award. The annex to the Model Rules therefore contains a recommended submission clause. For our clients we tailor it to the contract in question and make sure the notification is documented.
How the proceedings work
- 01The claimant sends the statement of claim not to an institution but to the arbitrator it nominates, who confirms acceptance within 8 days and serves the claim on the respondent.
- 02The respondent nominates its arbitrator and files its defence within 15 days; if it fails to do so, the claimant may nominate the missing arbitrator.
- 03The two arbitrators agree on the presiding arbitrator within 15 days; failing agreement, the President of the Hungarian Bar Association appoints the chair at either party's request.
- 04The parties may also agree on a sole arbitrator – faster and cheaper.
- 05Once constituted, the tribunal schedules a hearing, takes evidence and renders an award that is final and enforceable.
An award can be challenged before the ordinary courts only in annulment proceedings, within 60 days of service and on narrow grounds (for example an invalid arbitration agreement, a breach of due process or a conflict with public policy). Under the settled case law of the Curia, the court may not review the merits of the case in such proceedings – which is what gives arbitral awards their stability.
Why Dr. Zoltán Puskás
- Two decades of in-house and law-firm experience with technology, IT, intellectual property, energy and general commercial contracts – sectors where disputes often require an understanding of technical and business context as well as the law.
- Proceedings in Hungarian and English, including in cross-border relationships.
- Transparent fees based on the scale in the Model Rules, predictable from the outset.
- A strict independence and conflict-of-interest practice: on appointment we disclose every circumstance that could bear on impartiality.
If you are considering appointing an arbitrator, or would like a workable arbitration clause in your contracts, get in touch – we would be glad to discuss.
This overview is based on a professional lecture on the Model Rules of the Budapest Bar Association and is provided for general information only; it does not constitute legal advice.