Islamic Law in Domestic Arbitration

Some Thoughts on a Recent Austrian ‘Scandal’. Case Note on Vienna Regional Court for Civil Matters, 2 May 2025, 47 R 65/25v and 47 R 66/25s

Abstract

In the summer of 2025, private international law briefly captivated Austrian media. Two merchants had agreed that any dispute arising out of their legal relationship should be resolved by arbitration in accordance with principles of Islamic law. A dispute arose and resulted in a domestic award ordering the defendant to pay damages exceeding EUR 1,000,000. The award creditor successfully moved for enforcement. On appeal, the award debtor alleged that an application of Islamic law in arbitral proceedings violates Austrian substantive public policy. The appellate court rejected this argument, finding that the resolution of a commercial dispute under Islamic law does not upset fundamental notions of the Austrian legal system. The case caused an uproar, first in the Austrian tabloids, then in wider society, resulting in calls for banning the application of Islamic law in Austria. The Austrian government has created a working group studying the possibility of law reform in this sense. Potential clashes with EU and international law loom.