Hungary - Country Report - Handbook on Third-Party Funding in International Arbitration- Second Edition

The Third-Party Financing (TPF) market in Hungary, while still developing, presents an evolving landscape. It has been identified that from 2011 to 2017, the number of arbitration proceedings relevant to TPF was 73, indicating a nascent stage without significant growth over the decade. This market could significantly benefit from clearer regulations to foster investor confidence and attract more investments.

It can be determined that TPF in Hungary, in the absence of explicit regulation, is encompassed by the principle of contractual freedom. This principle permits parties significant autonomy in determining whether to enter into such agreements, selecting their contracting partners, and defining the terms of their contracts. Nevertheless, Hungarian law typically prohibits the practice of initiating legal proceedings in one’s own name to assert the rights of another (known as “perbizomány”), indicating a legal boundary within the flexible framework of contracting freedom.

The current regulatory landscape does not provide adequate safeguards to protect the interests of both the financier and the financed party. This deficiency presents potential challenges, particularly concerning the allocation of any awarded amounts between the financing and financed parties, the existence of a cap on such allocations beyond which the terms may be considered void (for instance, due to regulations against usurious contracts), and the obligations of the financier regarding the reimbursement of the winning party’s costs in the event of a lawsuit’s dismissal. These issues underscore the necessity for formal regulation.

Furthermore, it is imperative to note that if TPF operations are executed as a commercial venture, they are likely to be classified as financial services under Act no. CCXXXVII of 2013 concerning Credit Institutions and Financial Enterprises. Being categorized as financial services, such activities would subsequently be subject to regulation and oversight by the Hungarian National Bank, emphasizing the need for compliance with established financial regulatory standards.