IV. The Law Applicable to the Substance of the Dispute

Austrian arbitration law enshrines the principle of party autonomy. Consequently, the arbitral tribunal shall base its decision primarily on the law agreed on by the parties. Such choice of law can be made explicitly but also implicitly. If there is no agreement between the parties, the arbitral tribunal has full discretion to determine the statutory provisions it considers applicable.

4.1 Party Autonomy

In general, the parties are entirely free to agree on the substantive law which shall be applied by the arbitral tribunal in deciding their dispute. Hence, the parties can either choose a specific national law, or also agree on the application of certain rules or principles (e.g. UNIDROIT Principles on International Commercial Contracts. Moreover, the parties can give the arbitral tribunal the power to base solely their decision on reasons of equity. However, to allow the tribunal to decide ex aequo et bono, the parties have to agree expressly to such course of action.

The autonomy of the parties is only curtailed by mandatory rules of public policy and objective arbitrability. Consequently, an arbitral award adjudicating on non-arbitral matters, or violating Austrian public policy, would be subject to challenge in Austria, even if this award were based on a foreign law according to which the subject matter of the dispute was indeed arbitrable or the outcome of the dispute based on the chosen law did not violate the public policy of that jurisdiction.

4.2 Arbitrator’s Discretion

Failing an explicit or implicit choice by the parties, the arbitral tribunal shall apply the statutory provisions it considers appropriate. Hence, Austrian law gives the arbitrator (arbitral tribunal) a wide discretion when determining the applicable law. It can choose the applicable law directly, without any recourse to the conflict of law rules. Nevertheless, the arbitral tribunal should consider basic conflict of law rules as the closest connection test when determining the applicable law.

However, the legislator has limited the arbitral tribunal’s wide discretion insofar as it is only allowed to apply national laws. Therefore, the application of mere rules of law is only possible when the parties have chosen so, or if the institutional rules choosen by the parties, allow the arbitrators to apply “rules of law” (e.g. Vienna Rules).