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MEANS OF INTERFERENCE INTO ARBITRATION BY STATE COURTS:

COMPARATIVE ANALYSIS OF THE UNCITRAL MODEL LAW, GERMAN AND

HUNGARIAN LAW

By Dr. Andrea Vincze1

Nordic Journal of Commercial Law
issue 2003 #1

1 Dr. Vincze is researcher in private international law at the University of Miskolc, Hungary.

Nordic Journal of Commercial Law, issue 2003 #1

1. INTRODUCTION

Nowadays, international commercial arbitration is widely considered as an effective alternative
of state court jurisdiction, it has become an essential feature of today’s globalized economy. The
more popular and widespread international commercial arbitration gets, the more urgently the
question rises: what kind of relationship is there between arbitration and the activity of state
courts? Has arbitration been acknowledged as a totally separate institution with is own methods
and devices or is it subsidiary to state courts in the meaning of the word that the latter might
have some effect on it?

Before answering these questions, let us examine the theoretical basis and necessity of
arbitration. The first factor is that the legal culture of a certain country affects the possibility of
institutionalizing arbitration. Furthermore, it is also one of the logical consequences of party
autonomy and freedom of contracting, i.e. if a party obliges himself through private law
contracts, he also has the right to enforce performance of the contract by arbitration and not
being obliged to turn to state courts. This is required by the idea of constitutional state, too,
which implies that in the 21st century, exclusivity of state court jurisdiction is not appropriate
because special needs of special sectors must be taken into account as well. The interests of the
parties are best fulfilled if there are several ways of dispute resolution besides just state courts.

The necessity of arbitration lies in the following factors. First, inflexible and not easily
modifiable procedural rules of state court jurisdiction do not harmonize with the interests of
the parties who would prefer freer, quicker and more effective procedure and a decision serving
their interests at the most. Another factor deriving from strict procedural rules of state court
jurisdiction is that the procedure is public which might be disadvantageous and awkward for
the parties who would prefer not to ‘publicize’ their confidential business-related affairs.
Similarly disadvantageous may be the course of judicial control of court decisions. On one
hand it might be preferable because it allows of avoiding incorrect decisions but on the other
hand, it can unreasonably prolong the procedure and raises its costs. This is not very useful in a
dynamically changing economy. Turning to a broader aspect, in international legal disputes, a
party may be afraid of foreign procedural rules, i.e. those of the state court making the
decision2.

Institutionalization of arbitration has several consequences. Firstly, obligations of the
constitutional state will not be shared between state jurisdiction and arbitration: safeguarding
legality of dispute resolution and excluding arbitrariness will be a common and mutual
obligation of the two institutions. Therefore, state jurisdiction and arbitration are becoming
equal and co-operative entities. State jurisdiction stands by arbitration without interfering into
it unnecessarily. Requesting the help of state courts is not compulsory but a possibility.

Arbitration is a separate legal institution with its own advantages which are the following:

- The procedure is quicker, therefore, it does not interfere into the normal course of
business for a longer time which might reduce the costs as well.

- The procedure is not public, thus, the concerned companies etc. do not have to fear for
being forced ‘to wash their dirty linen in public’.

2 Prof. Dr. Günther Hirsch: Schiedsgerichte – ein Offenbarungseid für die staatlichen Gerichte?, SchiedsVZ Zeitschrift für
Schiedsverfahren 2/2003, p. 49-50.

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- Arbitrators have special skills and knowledge possession of which could not be expected
from state court judges dealing with so many different cases and issues. Thus the parties
may feel the procedure more convenient and favourable, being aware of the fact that the
judges making the decision are experts of the field concerned.

- Coming to the closing point of a procedure, another advantage of arbitration is that the
decision is utter and it can be enforced immediately (with special exceptions of course)
by related international conventions.

The issue of the relationship between arbitration and state court jurisdiction arises at this point
of the analysis. Regarding the status of the two institutions within the system of dispute
resolution, state jurisdiction is situated at one end of an imaginary line of process, while
arbitration, as an alternative of state jurisdiction, can be placed somewhere in the middle
between state jurisdiction and ‘self-help’ which is situated at the other end of the imaginary
line. The ideal relationship between arbitration and state jurisdiction would be a
complementary one where both institutions would add something to the other one according
to the interests and requests of the parties.

State courts have two main functions concerning arbitration: firstly, they ‘roll over’ the
arbitration process if it is stuck (e.g. they nominate an arbitrator if one of the parties failed to
do it, or play an important role in determining the scope of arbitral jurisdiction); secondly, they
have control over arbitration to some extent (e.g. when setting aside an award by the arbitral
tribunal).

This article will examine the relationship between state court jurisdiction and arbitration
according to the UNCITRAL Model Law (hereinafter: MAL), German and Hungarian law.
Before the thorough analysis, these sources of law will be introduced briefly. The MAL,
accepted on 21 June 19853 and adopted by 42 countries so far4, creates the foundations for the
unification of the rules of arbitration by consolidating advantageous characteristics of
regulations and international experience so far and by comprehending requirements in order to
make arbitration more effective. Therefore, the MAL is eligible for implementation into
domestic laws and for winding up ‘double regulation’ by national and international provisions.
The MAL is being revised continuously by UNCITRAL Working Group II. (International
arbitration and conciliation) which plays an important part in specification, actualization and
unification of international commercial arbitration regulations. Both examined countries have
adopted the MAL with slight individual differences which will be introduced in this study. The
German regulation can be found in Book 10 (Zehntes Buch) of the ZPO (German Code of
Civil Procedure) from Art. 1025 to 1048. Hungary, on the contrary, has a separate source of law
on arbitration, i.e. ‘Act of the Parliament No. 71 of 1994 on Arbitration’ (‘1994. évi LXXI.
törvény a választottbíráskodásról’).

3 By UNCITRAL decision no. 40/72 and confirmed by the UN General Assembly.
4 Australia, Azerbaijan, Bahrain, Belarus, Bermuda, Bulgaria, Canada, Croatia, Cyprus, Egypt, Germany, Greece, Guatemala,
Hong Kong Special Administrative Region of China, Hungary, India, Iran (Islamic Republic of), Ireland, Jordan, Kenya,
Lithuania, Macau Special Administrative Region of China, Madagascar, Malta, Mexico, New Zealand, Nigeria, Oman,
Paraguay, Peru, Republic of Korea, Russian Federation, Singapore, Sri Lanka, Tunisia, Ukraine, within the United Kingdom of
Great Britain and Northern Ireland: Scotland; within the United States of America: California, Connecticut, Illinois, Oregon
and Texas; Zambia, and Zimbabwe (status of 26 September 2003, source: http://www.uncitral.org/en-index.htm)

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2. MEANS OF STATE COURT INTERVENTION INTO ARBITRATION – IN

GENERAL

The MAL recognizes state court intervention into arbitration in nine main cases, which are:

1. the substantive claim is brought before a state court (Art. 8.)
2. awardable interim measures by a state court (Art. 9.)
3. appointment of arbitrators (Art. 11.)
4. challenge procedure (Art. 13.)
5. termination of the arbitrator’s mandate (Art. 14.)
6. jurisdiction of the arbitral tribunal (Art. 16.)
7. court assistance in taking evidence (Art. 27.)
8. setting aside an arbitral award (Art. 34.)
9. recognition and enforcement of an arbitral award (Art. 35-36.)

These cases can be divided into two groups.

The first one includes cases in connection with appointment, challenge and termination of the
mandate of an arbitrator (Art. 11, 13, 14.), jurisdiction of the arbitral tribunal (Art. 16.) and
setting aside an arbitral award (Art. 34.). The latter cases are referred to in Art. 6 MAL as
functions which shall be borne by the court or other authority (e.g. chamber of commerce etc.)
designated by each State. This designation does not mean that only one court or other
authority would have the right to deal with these cases, instead, assigning certain types of courts
or authorities would be preferable. Therefore, the wording of the MAL should not be
interpreted too narrowly. Thus, designating a whole court or one of its chambers is not
necessary either, assigning the task to the chairman of a court or a tribunal would suffice as
well, since there are only administrative questions to decide on. The MAL allows for the
designation of other outsider authorities e.g. international arbitration commission, institution
or other institute dealing with international affairs. However, the two examined national laws
stick to the ‘traditional’ solution: the ZPO5 gives this power to the Oberlandesgericht (Provincial
Court of Appeal) distinguishing several cases, and the Hungarian Arbitration Act6 designated
the county court which makes the decision in non-litigation process7.

The remaining functions, i.e. court assistance in taking evidence (Art. 27.) recognition of the
arbitration agreement, including its compatibility with court-ordered interim measures of
protection (articles 8 and 9), and recognition and enforcement of arbitral awards (articles 35
and 36).

After all, what does state court intervention mean? The Explanatory Note to the MAL8 explains
that the current tendency is to urge limitation of state court intervention. Art. 5 MAL provides
that “/i/n matters governed by this Law, no court shall intervene except where so provided in
this Law”. This rule, however, does not answer the question what exact role state courts have

5 ZPO Art. 1062.
6 Art. 51. An exception is the ordering of interim measures which is the obligation of the municipal court on the territory of
which taking evidence can be carried out the most effectively. (Art. 37)
7 Except for the proceedings on setting aside an arbitral award. There is no remedy against the decision. (Art. 53)
8 www.uncitral.org/english/texts/arbitration/ml-arb.htm

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but it “guarantees the reader and user that he will find all instances of possible court
intervention in this Law, except for matters not regulated by it (e.g., consolidation of arbitral
proceedings, contractual relationship between arbitrators and parties or arbitral institutions, or
fixing of costs and fees, including deposits)”9.

In the following chapters, the means of intervention provided for in the MAL, the ZPO and the
Hungarian Arbitration Act will be presented and compared, and practical cases will be analysed.

3. ARBITRATION AND SUBSTANTIVE CLAIM BEFORE COURT (ART. 8 MAL)

According to Art. 8 MAL, a court before which an action is brought in a matter which is the
subject of an arbitration agreement shall, if a party so requests not later than when submitting
his first statement on the substance of the dispute, refer the parties to arbitration unless it finds
that the agreement is null and void, inoperative or incapable of being performed. By such an
action, arbitral proceedings may nevertheless be commenced or continued, and an award may
be made, while the issue is pending before the court. Art. II (3) of the New York Convention
on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter: the New York
Convention) sets out nearly the same criteria but Art. 8 MAL refers to each and every court of a
state and it is not restricted to arbitration agreements where the place of arbitration is in the
same country where the court is. Art.8 MAL is imperative, therefore, a certain legal dispute
must be referred to arbitration unless the exceptions apply. Thus, the possibility of referring a
case to arbitration is a negative consequence of the arbitration agreement because the disputes
are always resolved by arbitration regardless of whether or not the arbitration clause contains
the exclusion of state courts.

Now, let us examine the national laws. The ZPO10 contains exactly the same provision apart
from two differences. While the MAL designates ‘submitting his first statement on the
substance of the dispute’ as deadline, the German law provides for ‘the first oral hearing’. The
other difference concerns the role of state courts by saying that prior to the constitution of the
arbitral tribunal, an application may be made to the court to determine whether or not
arbitration is admissible11.

The Hungarian Arbitration Act is a bit different because here, the court before which an action
was brought in a case which is the subject of the arbitration agreement, must dismiss the claim
without issuing a warrant or terminates the proceedings on the request of any party except
when the court finds that the arbitration agreement is null and void, inoperative or incapable
of being performed12. In the latter case, a party must request termination before the submission
of the counterclaim, and legal effects of the claim remain in force until 30 days13. The
difference compared to the MAL is that, in the latter cases, it refers the dispute to arbitration.
Yet, the Hungarian Act is not against arbitration either, whatsoever it repeats the wording of
the Mal by stating that arbitral proceedings may nevertheless be commenced or continued, and
an award may be made, while the issue is pending before the court14.

9 MAL Explanatory Note, B. 1. b) 16.
10 ZPO Art. 1032.
11 ZPO Art. 1032 (2)
12 Art. 8 (1)
13 Art. 8 (1), (2)
14 Art. 8 (3)

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Practical cases show that interpretation of Art. 8 MAL is not always unanimous. Several courts
have stood for narrow interpretation and exceptionality15, while in the Nanisivik I. case16 the
court explained that referring the case to arbitration is compulsory if the requirements of Art. 8
MAL have been fulfilled, and so is the termination of the state court proceedings even if some
issues are not subject to arbitration. This latter rule was refined in Traff et al. v. Evancic et al17.
where the court ruled that the state court proceedings must be terminated if any aspect of the
dispute must be resolved by arbitration. The contrary point of view, presence of ‘residual
jurisdiction’ of the state courts was stressed in another case18 which contends that the court may
refuse to refer the dispute to arbitration if it finds that one of the parties named in the
proceedings is not a party to the arbitration agreement, the dispute is not subject to the
arbitration agreement, or if the application came too late.

An important feature of a substantive claim before court is the significance of deadline.
Deadline according to the MAL is ‘submitting his first statement on the substance of the
dispute’, i.e. ‘entry of appearance’. The consequence of missing the deadline is that the state
court proceedings cannot be stayed and the dispute cannot be referred to arbitration. The
Working Group drafting the MAL originally intended to include in the provision that “the
failure of the party should have a wider effect precluding that party from relying on the
arbitration agreement also in other contexts and proceedings”19. In the end, these lines were
not incorporated into the text because they could not find a sufficiently general wording which
applies to all aspects of the question. Nevertheless, we can contend in general that the aim of
the provision on pursuing arbitral proceedings is to preclude dilatory tactics by the parties.

Relevant practical cases prove that keeping the deadline is a key issue. The question is how to
interpret the ‘entry of appearance’. The easiest issue is if the defendant participates in the
litigation process from its commencement. The British Columbia Supreme Court20 qualified
this as the defendant’s approval of state court proceedings and did not refer the case to
arbitration. The Ontario Court of Justice stressed that the requests of staying the state court
proceedings is late if it is submitted along with the counterclaim. The right procedure is, the
court stated, to apply for the stay after receiving the statement of claim but before submitting a
statement of defence21. Similar decisions were made when the court stated that there was no
dispute to be referred to arbitration if the defendant had admitted the claim as to liability and
quantum22. However, admission of liability can be a difficult question on its own. For example,
in the Zhan Jiang E & T Dev Area Service Head Co. V. An Hau Company Limited case23, the court
explained that admission of liability in a letter and offering compensation does not constitute
unequivocal admission of liability. Nevertheless, a decision contrary to the few above was made
in A. Bianchi S.R.L. v. Bilumen Lighting Ltd. where the court explained that “the delay in invoking

15 Navionics v. Flota Maritima Mexicana S.A. et al - http://www.interarb.com/clout/clout015.htm
16 Nanisivik Mines Ltd. And Zinc Corporation of America v. Canarctic Shipping Co. Ltd. -
http://www.interarb.com/clout/clout070.htm

17 http://www.interarb.com/clout/clout180.htm
18 Gulf Canada Resources Ltd. v. Arochem International Ltd. - http://www.interarb.com/clout/clout031.htm
19 A/CN.9/246, 22.
20 Queensland Sugar Corp. v. „Hanjin Jedda” (The) - http://www.interarb.com/clout/clout181.htm
21 ABN Amro Bank Canada v. Krupp Mak Maschinenbau GmbH - Mealey’s International Arbitration Report, May 1995, p. 11.
22 Joong and Shipping Co. Limited v. Choi Chong-sick (alias Choi Chong-sik) and Chu Ghin Ho Trading as Chang Ho
Company - http://www.interarb.com/clout/clout063.htm
23 http://www.interarb.com/clout/clout061.htm

Nordic Journal of Commercial Law, issue 2003 #1

the arbitration clause and the step undertaken in the judicial proceedings did not amount the
renunciation of the arbitral procedure (…) and mandatory nature of the provision and the
absence of judicial discretion required that the parties be referred to arbitration”24.

Besides keeping to the time-limits, subject-matter issues play also an important role in admitting
a case to be referred to arbitration. The High Court of Hong Kong favoured the validation of
the parties’ rights at the highest level possible, and laid down that if the parties express their
intention to arbitrate, the dispute can be referred to arbitration even if an unspecified third
country, a non-existent organization or non-existent rules were contained in the arbitration
agreement25. The situation gets a bit more complicated if the parties do intend to arbitrate but
somehow their agreement contains an arbitration and a state court clause at the same time. In
such a case the court ruled that arbitration is not excluded even if there is a provision of
referring legal disputes to a state court, whatsoever, this question must be decided upon by the
arbitral tribunal since the arbitral tribunal decides on its own jurisdiction (Kompetenz-
Kompetenz)26.

Another court decision concerns the scope of referring a case to arbitration. Accordingly, if one
defendant requests stay of the state proceedings and reference to arbitration, a concessive court
decision does not extend to other co-defendants27. A further important subject-matter aspect
may be the personality of the arbitrator. No doubt that the state court did not refer the dispute
to arbitration when it found out that doing so would lead to the awkward situation that one of
the contracting parties would have been an arbitrator, because in doing so, spirit of arbitration
and the principle of impartiality would have been harmed28.

4. INTERIM MEASURES BY A STATE COURT (ART. 9 MAL)

The possibility of ordering interim measures amounts to an important exception from the
general principle that state court cannot interfere into arbitration proceedings. It is also
supported by the fact that, all in all, it is not contrary to the parties’ intentions and does not
stay arbitral proceedings, whatsoever, ordering interim measures fosters the efficiency of
arbitration and the expected results.

Art. 9 MAL, Art. 1033 ZPO and Art. 37. (1), (2) of the Hungarian Arbitration Act provide for
the criteria of ordering interim measures by a state court. “It is not incompatible with an
arbitration agreement for a party to request, before or during arbitral proceedings, from a court
an interim measure of protection and for a court to grant such measure.” (MAL). The wording
‘not incompatible’ should mean that requesting interim measures is not incompatible with the
arbitration agreement, it is neither prohibited, nor to be regarded as a waiver of defence. The
provision applies to any country to the court of which the request is made, it may not be treated
as an objection against or disregard of a valid arbitration agreement. This argumentation was

24 http://www.interarb.com/clout/clout186.htm

25 Lucky-Goldstar International (H.K.) Limited v. Ng Moo Kee Engineering - http://www.interarb.com/clout/clout057.htm
26 Mind Star Toys Inc. v. Samsung Co. Ltd - http://www.interarb.com/clout/clout032.htm; Rio Algom Limited v. Sammi Steel
Co. - http://www.interarb.com/clout/clout018.htm
27 Stancroft Trust Limited, Berry and Klausner v. Can-Asia Capital Company, Limited, Mandarin Capital Corporation and
Asiamerica Capital Limited - http://www.interarb.com/clout/clout017.htm
28 Charbonneau v. Les Industries A.C. Davie Inc et al - http://www.interarb.com/clout/clout066.htm

Nordic Journal of Commercial Law, issue 2003 #1

followed in a court decision29 when stressing that “interim court orders designed to protect the
applicant from the risk of being unable to enforce a final arbitral award were not incompatible
with arbitration”, furthermore, staying the proceeding would not set aside the interim measure
because the original claim does not merge into the arbitration award.

What do national laws provide for the issue of interim measures? ZPO30 uses the expression
‘preliminary interim measures of protection’ which should be related to the subject of
arbitration. The Hungarian law31 deals with measures of protection separately which can be
ordered if the party requesting it proves existence, quantum and expiry of the claim with an
official document or a private document representing conclusive evidence. The certification by
the domestic arbitral tribunal proving that arbitration process has been commenced must be
submitted along with the request.

Practical cases point to the core of ordering interim measures. The most important questions
are: what can be regarded as an interim measure and under what circumstances can a court
order them?

Answering the first question, two examples must be cited. In one case the court decided that a
Mareva injunction falls under the scope of Art. 9 MAL since the protection afforded by it is
capable of reducing in the risk of the amount of the claim32. Yet, in Vibroflotation A.G. v. Express
Builders Co. Ltd.33 the court found that issuing a subpoena duces tecum does not fall under the
scope of Art. 9 MAL but Art. 27 MAL applies to it.

A very general answer was given to the question on the circumstances of ordering an interim
measure in Delphi Petroleum Inc. v. Derin Shipping and Training Ltd.34 where the court explained
that a court jurisdiction to order interim measures according to Art. 9 MAL but it should avoid
taking measures conductive to dilatory tactics of the parties.

As practical cases have shown as well, Art. 9 MAL is closely related to Art. 27 MAL, problems
of interpretation and delimitation might occur. The latter provision will be examined later with
regard to these problems.

5. APPOINTMENT OF ARBITRATORS (ART. 11 MAL)

The main rule in appointing arbitrators is the most entire freedom possible in determining the
procedure of appointing their arbitrators35. This is only restricted by means which can be used
if the parties did not make such an agreement or if any of them acted contrary to it.

According to the examined legal sources, two main spheres must be introduced: the situation if
the parties did not agree on the appointment of the arbitrators at all, and if there is such an
agreement but it is not fulfilled accordingly. Looking at the first issue, the MAL, the ZPO and

29 Trade Fortune Inc. v. Amalgamated Mill Supplies Ltd. - http://www.interarb.com/clout/clout071.htm
30 ZPO Art. 1033.
31 Art. 37. (1), (2)
32 Katran Shipping Co. Ltd. v. Kenven Transportation Ltd. - http://www.interarb.com/clout/clout039.htm
33 http://www.interarb.com/clout/clout077.htm
34 http://www.interarb.com/clout/clout068.htm
35 Art. 11 (2) MAL, ZPO Art. 1035 (1), Hungarian Arbitration Act Art. 14. (1).

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the Hungarian Arbitration Act are unanimous in the question that failing such an agreement,
in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two
arbitrators thus appointed shall appoint the third arbitrator. If a party fails to appoint the
arbitrator within thirty days of receipt of a request to do so from the other party, or if the two
arbitrators fail to agree on the third arbitrator within thirty days of their appointment, the
appointment shall be made, upon request of a party, by the court or other authority specified in
accordance with article 636, and the same applies in cases with a sole arbitrator.37

The second issue is also the same in all three legal sources. This affects the situation when the
agreement on the procedure of appointing the arbitrators is not fulfilled accordingly. The
concordant provisions contain that in such a case a party fails to act as required under such
procedure, or the parties, or two arbitrators, are unable to reach an agreement expected of them
under such procedure, or a third party, including an institution, fails to perform any function
entrusted to it under such procedure, any party may request the court or other authority
specified in accordance with article 6 to take the necessary measure, unless the agreement on
the appointment procedure provides other means for securing the appointment38. These
provisions are aimed at ensuring continuity of the procedure and avoiding dilatory tactics of the
parties39. Therefore, the right to ask for state court assistance cannot be waived either.

After having clarified the procedure of appointing arbitrators, the question rises what factors
the court should consider by the appointment. All three legal sources are unified in the opinion
that regard must be taken to any qualifications required of the arbitrator by the agreement of
the parties and to such considerations as are likely to secure the appointment of an
independent and impartial arbitrator and, in the case of a sole or third arbitrator, shall take
into account as well the advisability of appointing an arbitrator of a nationality other than those
of the parties40. This provision was emphasized and refined by the High Court of Hong Kong
when explaining that when appointing an arbitrator on behalf of the party in default, the court
is obliged to ensure that no sense of grievance is felt, however unreasonable that attitude might
appear to others41.

The two examined national laws govern the question more or less the same but there are slight
differences. The MAL provides that a court decision on appointing an arbitrator shall be
subject to no appeal42 and the MAL Commentary also lays down that the decision is final43.
This rule is not followed by either national laws44.

36 In Germany the Oberlandesgericht (ZPO Art. 1062), in Hungary the county court (Art. 53); cf. Supra 6.
37 Art. 11 (3) MAL, ZPO Art. 1035 (3), Hungarian Arbitration Act Art. 14. (2)-(4).

38 Art. 11 (4) MAL, ZPO Art. 1035 (4), Hungarian Arbitration Act Art. 15.
39 A relevant case is Safond Shipping Sdn. Bhd. V. East Asia Sawmill Corp. - (http://www.interarb.com/clout/clout060.htm) where
the court found that it is contrary to the spirit of arbitration, constitutes a breach of the obligation to arbitrate and
unacceptable defiance to the court proceedings if the party in default, will not, on the order of the court, appoint his arbitrator.
40 Art. 11. (5) MAL, ZPO Art. 1035. (5), Hungarian Arbitration Act Art. 16.
41 Fung Sang Trading Limited v. Kai Sun Sea Products and Food Company Limited - in: Yearbook Commercial Arbitration
XVII, Deventer, Netherlands, Kluwer, 1992, p. 289-303.
42 Art. 11 (5) MAL
43 Analytical commentary on draft text of model law on international commercial arbitration: report of the Secretary-General
(A/CN.9/264)
44 ZPO Art. 1035, Hungarian Arbitration Act Art. 11-17.

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6. CHALLENGE PROCEDURE (ART. 13 MAL)

Similarly to the appointment of arbitrators, parties are free to agree on the challenge procedure
as well45. Next, the structure of the provision follows that of the appointment of arbitrators by
saying that failing such agreement, a party who intends to challenge an arbitrator shall, within
fifteen days (ZPO: two weeks) after becoming aware of the constitution of the arbitral tribunal
or after becoming aware of any ground for challenge, send a written statement of the reasons
for the challenge to the arbitral tribunal. Unless the challenged arbitrator withdraws from his
office or the other party agrees to the challenge, the arbitral tribunal shall decide on the
challenge.46

The next provision is shared by all three regulations concerning the fact that if a challenge
under any procedure agreed upon by the parties or under the request of challenge is not
successful, the challenging party may request, within thirty days (in the wording of the ZPO:
‘one month’ but the parties can agree on a different time-limit as well) after having received
notice of the decision rejecting the challenge, the court or other authority to decide on the
challenge; while such a request is pending, the arbitral tribunal, including the challenged
arbitrator, may continue the arbitral proceedings and make an award47.

The right to turn to state courts in deciding upon the challenge cannot be waived – not even is
cases where the forum provided for in Art. 6 MAL is an ‘other authority’. Also, it is a
“compromise solution with regard to the controversy of whether any resort to a court should be
allowed only after the final award is made or whether a decision during the arbitral proceedings
is preferable. Thus, advantageous features of both apply because it prevents dilatory tactics,
removes the challenged arbitrator in time and saves time and costs as well. The important
requirement of quick procedure in arbitration is not violated either, since the court can
interfere during the course of the arbitral proceedings, there is a strict deadline for the party to
make the request, and the court makes a final decision. Therefore, principles of arbitration are
not harmed even if in the end the court finds that the challenge was unfounded.

7. TERMINATION OF THE ARBITRATOR’S MANDATE (ART. 14 MAL)

The three legal sources48 are unanimous in providing for the termination of the arbitrator’s
mandate except for the order of the rules which is different in the Hungarian Arbitration Act.
All of them lay down that if an arbitrator becomes de iure or de facto unable to perform his
functions or for other reasons fails to act without undue delay, his mandate terminates if he
withdraws from his office or if the parties agree on the termination. Otherwise, if a controversy
remains concerning any of these grounds, any party may request the court or other authority to
decide on the termination of the mandate. This decision shall be subject to no appeal according
to the MAL, but the ZPO and the Hungarian Arbitration Act do not contain such a provision.
Furthermore, if an arbitrator withdraws from his office or a party agrees to the termination of
the mandate of an arbitrator, this does not imply acceptance of the validity of any ground for
challenge. The three sources of law use different expressions in determining the reason for the

45 Art. 13 (1) MAL, ZPO Art. 1037 (1), Hungarian Arbitration Act Art. 19 (1).
46 Art. 13 (2) MAL, ZPO Art. 1037 (2), Hungarian Arbitration Act Art. 19 (2).
47 Art. 13 (3) MAL, ZPO Art. 1037 (3), Hungarian Arbitration Act Art. 20. The MAL does but the two national laws do not
contain that such a decision by the court is subject to no appeal.
48 Art. 14 MAL, ZPO Art. 1038, Hungarian Arbitration Act Art. 21-22.

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termination of the mandate. The MAL and the ZPO include “an arbitrator becomes de iure or
de facto unable to perform his functions or for other reasons fails to act without undue delay
an arbitrator becomes de iure or de facto unable to perform his functions or for other reasons
fails to act without undue delay”, while the Hungarian law mentions “an arbitrator does not
meet the requirements of challenge because a change that occurred after the arbitrator accepted
the nomination, or the arbitrator became de facto unable to perform his duty”. The
Explanatory Note states that the most flexible word of broadest meaning is ‘failure’, and
determines which factors should be taken into account in determining whether the arbitrator
committed such a failure. These are e.g. what the arbitrator was obliged to under the arbitration
agreement; if the arbitrator did not act at all, did he cause undue delay in the exact
circumstances and did it constitute a ‘failure’; how can the failure be evaluated in the light of
efficiency of the arbitrator’s work and his abilities?49

In practice, the most common cases of court (‘other authority’) intervention are in connection
with acting in undue delay, significantly less cases concern the issue of becoming unable to
perform the functions. In addition, Art. 15 MAL50 provides some more reasons for terminating
an arbitrator’s mandate and in those cases a substitute arbitrator is appointed. These reasons
are withdrawal from the office for any other reason or revocation of the arbitrator’s mandate by
agreement of the parties or ’any other case’.

8. JURISDICTION OF THE ARBITRAL TRIBUNAL (ART. 16 MAL)

Before analysing the relevant provisions of the MAL, the ZPO51 and the Hungarian Arbitration
Act52 regard has to be paid to a terminological issue. While the MAL speaks about ‘jurisdiction’,
the ZPO uses the word ‘Zuständigkeit’ and the Hungarian Act ‘hatáskör’. The latter two are not
unambiguous equivalent to ‘jurisdiction’, they rather extend to ‘scope authority’ which comes
into question only a positive decision was made concerning jurisdiction which means in those
legal systems that that particular country has the right to deal with the case. However, the word
‘jurisdiction’ will be used with regard to the latter statement but assuming that they have the
same meaning concerning these provisions.

According to the MAL, the arbitral tribunal may rule on its own jurisdiction53, including any
objections with respect to the existence or validity of the arbitration agreement (Kompetenz-
Kompetenz). For that purpose, an arbitration clause which forms part of a contract shall be
treated as an agreement independent of the other terms of the contract. A decision by the
arbitral tribunal that the contract is null and void shall not entail ipso iure the invalidity of the

49 Explanatory Note by the UNCITRAL Secretariat on the Model Law on International Commercial Arbitration,
www.uncitral.org/english/texts/arbitration/ml-arb.htm.
50 The same as ZPO Art. 1039 and Hungarian Arbitration Act Art. 23.
51 ZPO Art. 1040.
52 Hungarian Arbitration Act Art. 24-25.
53 This means that it is the arbitral tribunal that shall decide on its own jurisdiction first and foremost. The court referred to
this finding in Fung Sang Trading Limited v. Kai Sun Sea Products and Food Company Limited (cf. Supra 40) where the plaintiff
turned to the court to appoint an arbitrator. The court decided that in doing so, it may not deal with the question whether
there was a valid arbitration agreement between the parties, because its first duty is to decide upon its own jurisdiction.
Consequently, it held that the decision of the arbitral tribunal was neither final nor exclusive but subject to immediate review
under Art. 16 (3) MAL. The same opinion was shared by the Supreme Court of Bermuda in Skandia International Insurance
Company and Mercantile & General Reinsurance Company and various others where it found that a challenge to the existence, validity
and scope of the arbitration agreement was a matter to be first determined by the arbitral tribunal under Art. 16 (3)
MAL.(http://www.interarb.com/clout/clout127.htm)

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arbitration clause (separability)54. A plea that the arbitral tribunal does not have jurisdiction
shall be raised not later than the submission of the statement of defence. A party is not
precluded from raising such a plea by the fact that he has appointed, or participated in the
appointment of, an arbitrator. A plea that the arbitral tribunal is exceeding the scope of its
authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is
raised during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later
plea if it considers the delay justified55. The arbitral tribunal may rule on a plea the arbitral
tribunal does not have jurisdiction either as a preliminary question or in an award on the
merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party
may request, within thirty days after having received notice of that ruling, the court specified in
article 6 to decide the matter, which decision shall be subject to no appeal; while such a request
is pending, the arbitral tribunal may continue the arbitral proceedings and make an award56.
The ZPO and the Hungarian Arbitration Act literally follow these rules except that they do not
provide for the fact that the decision shall be subject to no appeal, however, Art. 53 of the
Hungarian Act includes a general provision that “the court – except for the procedure of setting
aside an arbitral award – conducts non-litigation process without the cooperation of lay
assessors. The decision shall be subject to no appeal”. Another difference to the wording of the
MAL is that the ZPO uses a time limit of ‘one month’ instead of ‘thirty days’.

According to Art. 16 MAL, decision of the arbitral tribunal concerning its own jurisdiction is
subject to court control57. If jurisdiction of the arbitral tribunal was decided upon in the award
on the merits, the objecting party may initiate court control by requesting setting aside of the
award. The situation is the same if the jurisdiction of the arbitral tribunal was decided upon as
a preliminary question because dilatory tactics of the parties shall be prevented. Three
protection mechanisms were included into the proceedings: short time-limit of thirty days,
exclusion of appeal and that arbitral proceedings can be continued in between. The
disadvantage of the solution is, however, that lengthy proceedings and taking evidence may lead
to considerable waste of time and money. Advantages and disadvantages are hard to weigh at a
general level, therefore, in exact cases, discretion should be given to the courts in order to be
able to decide with regard to the given circumstances whether instant court control is needed or
a procedural ruling which can be contested only in an action for setting aside the award on the
merits.58

Art. 16 MAL does not deal with the case if the arbitral tribunal finds that it has no jurisdiction
to hear the case. A previous draft of the MAL contained a relevant provision that ”A ruling by
the arbitral tribunal that it has no jurisdiction may be contested by any party within 30 days
before the Court specified in Art.6.”. The aim of the provision was not to force the arbitrators
to continue the proceedings but to obtain a decision on the existence of a valid arbitration
agreement. The drafters had the opinion that such an arbitral ruling is final and binding
concerning these arbitration proceedings but did not answer the question whether the
substantive claim is to be decided by the state court or the arbitral tribunal. Therefore, as such a

54 Art. 16 (1) MAL
55 Art. 16 (2) MAL
56 Art. 16 (3) MAL
57 In International Civil Aviation Organization (ICAO) v. Tripal Systems Pty. Ltd. the court held that once the arbitral tribunal had
declared itself competent, the Superior Court would be competent to review this decision in accordance with Art. 16 (3) MAL,
if a party requested so. (http://www.interarb.com/clout/clout182.htm)
58 Analytical commentary on draft text of model law on international commercial arbitration: report of the Secretary-General
(A/CN.9/264): Article 16, para 13.

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provision was not incorporated in the MAL, it is up to the national source of law on arbitration
or civil procedure to determine whether court control can be requested against the decision of
the arbitral tribunal denying its own jurisdiction59.

9. COURT ASSISTANCE IN TAKING EVIDENCE (ART. 27 MAL)

Significance of the MAL providing for court assistance in taking evidence lies in two main
aspects. First, before the introduction of the MAL, some national laws did not contain any
regulation on the issue, i.e. nowadays, it has become a general requirement for the countries to
implement such rules. Secondly, the MAL creates the frame for a detailed national regulation
which is, of course, elaborated by the countries themselves with regard to national habits and
characteristics of civil procedure.

Again, the MAL and the ZPO contain nearly the same wording, while the Hungarian
Arbitration Act has a little bit different text and structure. According to the MAL and the
ZPO60, the arbitral tribunal or a party with the approval of the arbitral tribunal may request
from a competent court of the State assistance in taking evidence. The first important factor is
that the requesting party must also ask for the approval of the arbitral tribunal which prevents
dilatory tactics. The second one is that the ‘court’ in this place is not the same as what is
provided for in Art. 6 MAL (specified in ZPO Art. 37 and Hungarian Arbitration Act Art. 53 –
cf. para 5-6.). Instead, the court on the territory of which the taking of evidence is the most
expedient. The court may execute the request within its competence and according to its rules
on taking evidence. A Canadian Court decision dealt with the interpretation of this very
question and held that a court may assist in taking evidence but “it should avoid taking
measures conductive to dilatory tactics of the parties”. Since according to the Federal Rules of
Procedure, the witness whose testimony is sought may have information on an issue in the
action. This requirement was not met because the issue concerned was already decided upon by
the arbitrator and the court “was not satisfied that the evidence before it demonstrated that the
witness had any information”61.

Now, there is one difference between the provisions of the MAL and the ZPO. The latter adds
to the above rules that court assistance cannot only be requested in taking evidence but also in
other judicial acts, and that the arbitrators are entitled to participate in any judicial taking of
evidence and to ask questions.

This is how the Hungarian Arbitration Act comprehends the issue: “if taking evidence caused
significant hardship or disproportionate rise of costs, the municipal court, by request of the
arbitral tribunal, provides legal aid in taking evidence and applying coercive instruments
necessary for the latter”62. This is a slightly different wording compared to that of the MAL and
ZPO but a more important one is that the Hungarian law provides for measures of protection
in the same article while the latter two have different articles for interim measures of protection
and court assistance in taking evidence63.

59 Analytical commentary on draft text of model law on international commercial arbitration: report of the Secretary-General
(A/CN.9/264): Article 16, para 15.
60 Art. 27 MAL, ZPO Art. 1050.
61 Delphi Petroleum Inc. v. Derin Shipping and Training Ltd. - http://www.interarb.com/clout/clout068.htm
62 Art. 37 (3)
63 Cf. Chapter 3.

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By examining Art. 9 MAL, the importance of the relationship between Art. 9 and 27 MAL has
already been mentioned. A court decision explained the core of the question64. In the instant
case, the court ruled that a subpoena duces tecum does not qualify as an interim measure in the
meaning of Art. 9 MAL, instead, it is governed by Art. 27 MAL. The court held that the
subpoena was issued in accordance with Art. 27 MAL and with the approval of the arbitral
tribunal. Nevertheless, such a subpoena can only be applied for in relation to an evidentiary
hearing which, in that case, was held months, years before the application. Therefore, the court
clarified that for court assistance in taking evidence, proper integration into the taking evidence
by the arbitral tribunal is needed.

10. SETTING ASIDE AN ARBITRAL AWARD (ART. 34 MAL)

The reason why this provision was incorporated into the MAL is that previously several
national laws had no separate regulation on judicial review of arbitral awards. In many cases the
same rules applied to them as to normal state court decisions. This was not appropriate because
the difference of state jurisdiction and arbitration requires different reasons of recourse and
one of the most essential advantages of arbitration, quick procedure could not be present. MAL
initiated a separate and individual regulation for arbitral awards where setting aside an arbitral
award become the only possibility of recourse. The Working Group did not specify what kind
of awards can be subject to recourse, and , in lack of time, it did not give a definition of
‘award’.65

Again, this provision is nearly the same in all three legal sources66 except that the Hungarian
Act also provides that the arbitral award shall not be subject to an appeal, solely setting aside
the award can be requested. According to the MAL, an arbitral award may be set aside by the
court specified in article 6 in two main cases: if it is requested by a party or if the court finds
any of the reasons to do so. The first group includes the following reasons for setting aside: a
party to the arbitration agreement was under some incapacity in drafting the arbitration
agreement; or the said agreement is not valid under the law to which the parties have subjected
it or, failing any indication thereon, under the law of this State; or the party making the
application was not given proper notice of the appointment of an arbitrator or of the arbitral
proceedings or was otherwise unable to present his case; or the award deals with a dispute not
contemplated by or not falling within the terms of the submission to arbitration, or contains
decisions on matters beyond the scope of the submission to arbitration, provided that, if the
decisions on matters submitted to arbitration can be separated from those not so submitted,
only that part of the award which contains decisions on matters not submitted to arbitration
may be set aside67; or the composition of the arbitral tribunal or the arbitral procedure was not
in accordance with the agreement of the parties, unless such agreement was in conflict with a
provision of this Law from which the parties cannot derogate, or, failing such agreement, was
not in accordance with this Law68.

64 Vibroflotation A.G. v. Express Builders Co. Ltd. - http://www.interarb.com/clout/clout077.htm; cf. Chapter 3.
65 Report of the Working Group on International Contract Practices on the work of its sixth session A/CN.9/246, 129., paras.
192-194.
66 Art. 34 (1) MAL, ZPO Art. 1059 (1), Hungarian Arbitration Act Art. 54.
67 This latter requirement is not fulfilled if the requesting party refers to its breach by stating that the parties did not agree on
the form of the award and objects to incoherent and incomprehensible reasons given by the arbitrators. Navigation Sonamar Inc.
v. Algoma Steamships Limited and others http://www.interarb.com/clout/clout010.htm
68 Art. 34 (2) a) MAL, ZPO Art. 1059 (2), Hungarian Arbitration Act Art. 55 (1)

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The second group contains the circumstances under which a court by itself may set aside an
arbitral award, which are: the court finds that the subject-matter of the dispute is not capable of
settlement by arbitration under the law of this State; or the award is in conflict with the public
policy of this State69. Definition of public policy is not always easy. In international practice a
court held that an award is contrary to public policy if it undermines the integrity of
international commercial arbitration e.g. fraud, corruption, bribery or serious procedural
irregularities70. In Hungarian practice, the High Court of Hungary expressed that public policy
does not mean only the most important constitutional values but also political aims and
conceptions71.

This list of reasons for setting aside an award is exhaustive and cannot be interpreted
extensively72. Looking further at the reasons for refusing enforcement and recognition of an
award, nearly the same list can be found, i.e. the MAL and the ZPO mentions exactly the same
reasons, while the Hungarian law refers only to the last two73. The significance of this lies in the
fact that the party can choose between requesting the court to set aside or to refuse recognition
and enforcement of the award. This results the “salutary effect of avoiding ‘split’ or ‘relative’
validity of international awards, i.e. awards which are void in the country of origin but valid and
enforceable abroad”74. A good practical example for this can be found in Art. 1059 (3) ZPO
which provides that no application for setting aside the award may be made once the award has
been declared enforceable by a German court.

Looking at the time factor concerning requesting the setting aside of an arbitral award, different
solutions can be found: within three months according to the MAL and the ZPO75 and within
sixty days (term of preclusion) according to the Hungarian Arbitration Act76. These time limits
can be extended by not more than one month according to the ZPO77 if the request was made
for correction and interpretation of an award or making an additional award. Art. 34 (3) MAL
refers to correction, interpretation and additional award but it differs from the regulation by
the ZPO, because the MAL provides only that the time limit is calculated from the date on
which that request had been disposed of by the arbitral tribunal.

69 Art. 34 (2) b) MAL and ZPO Art. 1059 (2) 2. are unanimous that these circumstances can only be found by the court, while
the Art. 55 (2) of the Hungarian Arbitration Act does not mention this. Yet, logically, the two are the same because the court
examines the case only if the parties requested it to do so and set aside the award only if it (the court) finds that the dispute is
not subject to arbitration or the award is contrary to public policy. Furthermore, the MAL and the Hungarian Arbitration Act,
by the last reason for setting aside, mentions that the award is contrary to public policy, while the ZPO provides that recognition
and enforcement of the award should be contrary to public policy.
70 Zimbabwe Electricity Supply Commission v. Genius Joel Maposa – The court held that since the arbitrator did not commit any
moral turpitude, the award cannot be set aside by referring to an alleged conflict with public policy. Harare High Court
Judgment No. HH23198.
71 Judgement by the High Court of Hungary No. Gf.VI.30.848/1997/8.
72 See: D. Frampton & Co. Ltd. v. Sylvio Thibeault and Navigation Harvey & Fréres Inc. -
http://www.interarb.com/clout/clout012.htm
73 Art. 36 (1) MAL, New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards Art. V., ZPO Art.
1060, Hungarian Arbitration Act Art. 59.
74 74 Explanatory Note by the UNCITRAL Secretariat on the Model Law on International Commercial Arbitration,
commentary to Art. 34, para 13., www.uncitral.org/english/texts/arbitration/ml-arb.htm
75 Art. 34 (3) MAL, ZPO Art. 1059 (3).
76 Art. 55 (1), (3)
77 ZPO Art. 1059 (3)

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Now let us turn to the question of what special effects the request of setting aside the award
may have. The MAL and the ZPO78 provide for suspension of the setting aside proceedings
incorporated into the latter79. Suspension is important because it enables the arbitral tribunal
to reconsider a special aspect of the case without being obliged to make a completely new
decision. The MAL contains that the court, when asked to set aside an award, may, where
appropriate and so requested by a party, suspend the setting aside proceedings for a period of
time determined by it in order to give the arbitral tribunal an opportunity to resume the
arbitral proceedings or to take such other action as in the arbitral tribunal's opinion will
eliminate the grounds for setting aside. The ZPO simply states that the court, when asked to set
aside an award, may, where appropriate, set aside the award and remit the case to the arbitral
tribunal. In practice, the court sets a time-limit for the arbitral tribunal to reconsider the issue
until which recognition and enforcement of the award are suspended, too and if the arbitral
tribunal fails to take the appropriate measures, the setting aside procedure is continued.
Concerning the scope of remission to the arbitral tribunal, a very characteristic decision was
made in D. Frampton & Co. Ltd. v. Sylvio Thibeault and Navigation Harvey & Fréres Inc. where the
court held that „the court cannot draw authority from Art. 34 (4) MAL to refer the matter back
to the arbitral tribunal and request that it reconsider a question which was not originally
considered by the arbitrators”80.

The two examined national laws contain special provisions in addition to those harmonizing
with the MAL. The ZPO, for example, lays down that setting aside the arbitral award shall, in
the absence of any indication to the contrary, result in the arbitration agreement becoming
operative again in respect of the subject-matter of the dispute81. The Hungarian Arbitration Act
further explains that complementary rules on the procedure of the state court are those of the
Hungarian Code of Civil Procedure, except that the decision of the court should be subject to
no appeal but the party may request recourse against a legally binding court decision82.

11. RECOGNITION AND ENFORCEMENT OF AN ARBITRAL AWARD

(ART. 35-36 MAL)

Recognition and enforcement are not unanimously provided for in the MAL, the ZPO and the
Hungarian Arbitration Act. Therefore, the three sources of law will be analysed separately.

Turning to the MAL, the question is why such a provision was incorporated into the MAL if
the New York Convention deals with the whole issue separately. The reason is that besides
already existing bilateral and multilateral treaties, a supplementary network of recognition and
enforcement was needed in order to provide equal treatment for domestic and international
awards and to unify domestic legal provisions. Art. 35 contains general rules while Art. 36
provides for the grounds for refusing recognition and enforcement.

An arbitral award, irrespective of the country in which it was made, shall be recognized as
binding and, upon application in writing to the competent court, shall be enforced subject to

78 Art. 34 (4) MAL, ZPO Art. 1059 (4).
79 In common law systems, suspension is a separate procedure.
80 http://www.interarb.com/clout/clout012.htm
81 ZPO Art. 1059 (5)
82 Hungarian Arbitration Act Art. 57.

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the latter provisions and those concerning grounds for refusing recognition and enforcement
(i.e. Art. 36)83. During the course of the recognition/enforcement process, the court cannot
reconsider the case84. The binding force mentioned in the provision appears between the
parties from the date of the court decision. In a more general aspects, to achieve the expected
results, reciprocity is not needed between the country where the award was made and the
country at the court of which recognition or enforcement is sought. It is very important that the
provision distinguishes between recognition and enforcement. It is logical that recognition is
not only the condition of enforcement but also an individual institution.

Art. 35 (2) MAL determines the criteria of submitting a request on recognition or enforcement
to the court. Accordingly, the party relying on an award or applying for its enforcement shall
supply the duly authenticated original award or a duly certified copy thereof, and the original
arbitration agreement or a duly certified copy thereof. If the award or agreement is not made in
an official language of this State, the party shall supply a duly certified translation thereof into
such language. This provision, which is the same as Art. IV of the New York Convention, sets
maximum standards, therefore it would not be contrary to the harmonization to be achieved by
the model law if a State retained even less onerous conditions85. This also means that no more
and no stricter rules can be applied by a State, as has been found in Murmansk Trawl Fleet v.
Bimman Realty Inc. Where the court found that, in order to be enforceable, it was not necessary
that a foreign award be confirmed under the law of the place where the arbitral award was
issued. This conclusion was also supported by the fact that public policy favours the avoidance
of delays once the parties have chosen a way of dispute resolution which is aimed at more
efficient (and quick) dispute resolution86.

Art. 36 (1) MAL provides that recognition or enforcement of an arbitral award, irrespective of
the country in which it was made, may be refused only on any of the grounds listed. These
grounds are the same as those in Art. V of the New York Convention and the grounds for
setting aside an award (Art. 34 MAL), yet, compared with the latter there is one more ground
for refusal which can be invoked by the party, i.e. the award has not yet become binding on the
parties or has been set aside or suspended by a court of the country in which, or under the law
of which, that award was made. Apart from this, all grounds are the same in setting aside and
refusal of recognition or enforcement in the MAL, thus, the drafters wanted to give the
possibility to the parties to choose between the two, irrespective of the country in which the
award was made and is intended to be recognized or enforced.

In order to avoid parallel procedures, Art. 36 (2) provides that if an application for setting aside
or suspension of an award has been made to a court referred to in the paragraph containing the
extra ground for refusal87, the court where recognition or enforcement is sought may, if it
considers it proper, adjourn its decision and may also, on the application of the party claiming
recognition or enforcement of the award, order the other party to provide appropriate security.
Detailed procedural rules are not provided for in the MAL because they depend on those of the
certain country dealing with the issue.

83 Art. 35 (1) MAL
84 In Robert E. Schreter v. Gasmac Inc., the court followed this opinion and held that the case cannot be re-opened unless serious
procedural irregularities or conflict with public policy is found. http://www.interarb.com/clout/clout030.htm
85 Note to Art. 35 (2) MAL
86 http://www.interarb.com/clout/clout117.htm
87 Art. 36 (1) a) v.

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Rules of the MAL are not exactly followed by the ZPO and the Hungarian Arbitration Act. The
ZPO deals with recognition and enforcement of domestic and foreign awards separately. Art.
1060 (1) ZPO provides that enforcement of a domestic award takes place if it has been declared
enforceable. Concerning grounds for refusal, Art. 1060 (2) provides that an application for a
declaration of enforceability shall be refused and the award set aside if one of the grounds for
setting aside88. Grounds for setting aside shall not be taken into account, if at the time when
the application for a declaration of enforceability is served, an application for setting aside
based on such grounds has been finally rejected; also in cases where a party may request setting
aside or refusal, if the time-limits of application89 have expired without the party opposing the
application having made an application for setting aside the award. From these provisions it is
evident that the German regulation emphasizes the connection between the alternatives of
setting aside and recognition/enforcement of an arbitral award. Therefore, the procedure is
simpler and dilatory tactics are also avoided because e.g. recognition/enforcement cannot be
refused if a prior application for setting aside the award was refused on the same grounds.

Rules of recognition and enforcement of foreign arbitral awards can be found in Art. 1061 ZPO
which shall be subject to the provisions of the New York convention and other treaties on the
recognition and enforcement of arbitral awards shall remain unaffected90. If the declaration of
enforceability is to be refused, the court shall rule that the arbitral award is not to be recognized
in Germany91. If the award is set aside abroad after having been declared enforceable,
application for setting aside the declaration of enforceability may be made92.

The Hungarian Arbitration Act emphasizes that effect of an arbitral award is the same as that of
a legally binding court judgement and it is to be enforced according to the Act on Court
Enforcement93.

Enforcement can be refused only in two cases: if the court finds that the dispute is not subject
to arbitration according to Hungarian law, or if the award is contrary to the Hungarian public
policy94. These possibilities are consonant to the second group of grounds for setting aside or
refusal in the MAL. Although not all questions are explicitly settled by the Act, the Hungarian
Code of Civil Procedure is not a background source of law in all cases, only if the parties agreed
to its application or if the arbitral tribunal having the right to decide upon its procedure admits
to it. The ‘real’ supplementary source of law to the Hungarian Arbitration Act is the New York
Convention95 according to which grounds for refusal of recognition/enforcement are the same
as those of setting aside an award.

The Hungarian Act uses provisions similar to the German regulation. Hence, recognition and
enforcement are to be refused if the award was set aside by the court; if no setting aside
proceedings were initiated but the court finds that the subject-matter f the dispute is not
capable of arbitration or the award is contrary to public policy. Official commentary to the Act

88 ZPO Art. 1059 (2)
89 ZPO Art. 1059 (3)
90 ZPO Art. 1061 (1)
91 ZPO Art. 1061 (2)
92 ZPO Art. 1061 (3)
93 Act of Parliament No. 53 of 1994, as provided by the Hungarian Arbitration Act Art. 58.
94 Hungarian Arbitration Act Art. 59.
95 Enacted by 1962. évi 25. tvr. Hungary made a reservation to the Convention the application of which it allows only in
connection with recognition and enforcement of awards made in any other Contracting State and deriving from legal
relationships which are qualified as commercial according to Hungarian law.

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explains that ”this is necessary because by those two grounds legal interest if the state is that the
award be not enforceable, therefore, refusal of enforcement does not depend only on whether
the party requested refusal of enforcement. It is also possible that the arbitral award was made
before the court decision on the lack of jurisdiction of the arbitral tribunal and enforcement of
the arbitral award. The court is not obliged to enforce this award, not even when the other
party did not request setting aside, because a court decision affirming its own jurisdiction binds
all parties (this is suggested by public policy)96.

Art. 60 of the Hungarian Arbitration Act harmonizes with Art. 35 (2) MAL in providing that
“the party referring to or requesting enforcement of an arbitral award shall supply the duly
authenticated original award or a duly certified copy thereof (thus, the award shall not be put
into court deposit); and if the award is in a language other than Hungarian, a duly certified
translation is to be supplied.

Summarizing the analysed provisions we can contend that these national provisions are those
which were mentioned before, i.e. which fill in the framework of the MAL with specific
domestic rules harmonizing with the civil procedure regulation of that certain country.

SUMMARY

It is a saluted fact that the UNCITRAL Model Law on International Commercial Arbitration
has been adopted by numerous countries of the world. In order to ensure further unification
and effectuation of arbitral proceedings, even more countries should follow its exemplary
provisions. Implementation of the MAL into national laws and its completion with domestic
legal features enable developed countries to own an up-to-date arbitration regulation. Taking
over this example might help developing countries to create their own rules and integrate their
legal regulation into a globalizing system of arbitration.

German and Hungarian law have fulfilled the latter requirement, as proven in this comparative
analysis. Unification of the rules of arbitration is being realized at a high level but, of course,
with regard to unique legal characteristics of each country, full unification cannot be
effectuated.

In globalizing economy, advantageous features of arbitration may be strengthened by
unification because if the different arbitration rules of different countries have the same core,
participants of an international arbitration procedure shall not have to face unknown legal
provisions and cross-border boundaries of arbitration can easily be eliminated. The model law
provides for protective procedural measures, therefore, international commercial arbitration
cannot be hindered by the countries who wish to protect their own interests by sticking to their
own rules of procedure. Hopefully, more and more countries will decide to adopt the model
regulation in order to ensure a more global system of international commercial arbitration.

96 Commentary to the Hungarian Arbitration Act, Commentary to Art. 58-60.

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Várady Tibor – John J. Barceló – Arthur Taylor von Mehren: International commercial
arbitration: a transnational perspective, West Publishing Co. 1999.

Yearbook Commercial Arbitration XVII., Deventer, Netherlands, Kluwer, 1992

www.dis-arb.de

www.mkik.hu

www.uncitral.org

www.interarb.com/clout

Nordic Journal of Commercial Law, issue 2003 #1

LIST OF LEGAL AUTHORITIES

UNCITRAL Model Law on International Commercial Arbitration

Act of Parliament No. 71 of 1994 (Hungary) on arbitration and official commentary [1994. évi
LXXI. törvény a választottbíráskodásról és a törvény indoklása]

German Code of Civil Procedure [Zivilprozessordnung, referred to as: ZPO]
(http://bundesrecht.juris.de/bundesrecht/zpo/htmltree.html)

New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards

1. INTRODUCTION
2. MEANS OF STATE COURT INTERVENTION INTO ARBITRATION – IN GENERAL
3. ARBITRATION AND SUBSTANTIVE CLAIM BEFORE COURT (ART. 8 MAL)
4. INTERIM MEASURES BY A STATE COURT (ART. 9 MAL)
5. APPOINTMENT OF ARBITRATORS (ART. 11 MAL)
6. CHALLENGE PROCEDURE (ART. 13 MAL)
7. TERMINATION OF THE ARBITRATOR’S MANDATE (ART. 14 MAL)
8. JURISDICTION OF THE ARBITRAL TRIBUNAL (ART. 16 MAL)
9. COURT ASSISTANCE IN TAKING EVIDENCE (ART. 27 MAL)
10. SETTING ASIDE AN ARBITRAL AWARD (ART. 34 MAL)
11. RECOGNITION AND ENFORCEMENT OF AN ARBITRAL AWARD (ART. 35-36 MAL)
SUMMARY
BIBLIOGRAPHY
LIST OF LEGAL AUTHORITIES