Disputes in Taiwan: an overview for Korean firms

In Taiwan, a “three-level and three-instance” system is adopted for civil proceedings. Three-level refers to the courts, including the District Court, the High Court and the Supreme Court. Three-instance means a case is initially heard by the District Court (first instance) and may be appealed to the High Court (second instance), and further to the Supreme Court (third instance) if applicable.

The factual and legal issues of a case are heard in the first and the second instances, and only an erroneous application or violation of laws and regulations can be reviewed in the third instance.

No appeal may be taken in the third instance unless the judgment is in contravention of laws and regulations. An appeal to the Supreme Court is also subject to a threshold of value of the subject matter.

Arbitration and mediation are the most commonly adopted alternatives to civil dispute resolution. Civil proceedings usually commence without pre-action procedures, except for certain matters where mediation before the commencement of litigation proceedings is required. Mediation may also be initiated on a party’s motion before or during the litigation proceedings. The court usually recommends the petition for mediation before any lawsuit is filed.

Under Taiwan’s legislative system, the Code of Civil Procedure (CCP) acts as the main law governing civil court proceedings in Taiwan. The CCP governs the proceedings for both general commercial disputes and disputes regarding general personal affairs (i.e. marriage, family relationships, declarations of guardianship and declarations of death).

Depending on the claims raised by the plaintiff, different procedure requirements will apply. In addition to the general court proceedings, the CCP also provides the general rules on provisional measures and judgment enforcement. The details of execution procedure are provided under the Law of Compulsory Enforcement.

In addition, other supplemental regulations will apply to civil court procedures (e.g., the Enforcement Rules of the Code of Civil Procedure, and the Notes for Civil Procedure and the Guidelines for Handling Civil Actions).

PROCEEDINGS, INTERIM REMEDIES

The Taiwan court system is friendly to foreign companies and individuals. For example, if a foreign party does not understand Mandarin, the court should appoint an interpreter to ensure the rights and benefits of the foreign party are protected. However, all briefs and documents submitted to the court should be in Chinese.

A provisional attachment, a provisional injunction and an injunction for maintaining a temporary status quo are examples of interim remedies available before a trial. A provisional attachment is an interim remedy for monetary claims, or claims that can be converted to monetary claims, while a provisional injunction is an interim remedy for non-monetary claims. An injunction for maintaining a temporary status quo is an interim remedy used to prevent material harm or imminent danger, or other similar events.

The CCP states that no provisional attachment or provisional injunction will be granted by the court unless it is impossible or extremely difficult to satisfy the claim by compulsory execution in the future. Where necessary, for the purposes of preventing material harm or imminent danger or other similar circumstances, a petition may be filed for an injunction to maintain a temporary status quo with regard to a legal dispute.

To successfully obtain a provisional attachment, a provisional injunction, or an injunction for maintaining a temporary status quo, the applicant must satisfy the respective requirements, including the type of claim and the urgency and necessity for securing such claim.

A payment order and an issuance of a promissory note are also common interim remedies available before a trial. A payment order is an interim remedy for a creditor to claim for the fulfilment of monetary or security payment obligations; an issuance of a promissory note is an interim remedy for a creditor to request enforcement.

The CCP also identifies an interim measure for evidence preservation. Where the evidence may become lost, destroyed or difficult to be adduced in court, or with the consent of the opposing party, a party may move the court to preserve evidence.

Furthermore, to secure legal rights and interests, a party may move for expert testimony, inspection or preservation of documentary evidence to ascertain the current status of a matter or an object. The motion for evidence preservation may be made before or after filing a lawsuit.

The main differences between expedited procedures and regular civil court proceedings are their duration and the integrity of the content of claims. Under Taiwan laws, there is no time limit for the court to complete a case of litigation, interim measures or appeal.

From the authors’ experience, it takes 12 to 24 months, respectively, to complete the litigation proceedings for the first and second instances, and 12 to 18 months for the third-instance proceedings. The normal timeframe for obtaining interim measures is two to three weeks for a provisional attachment and one to two months for a provisional injunction and an injunction for maintaining a temporary status quo. The duration varies depending on the complexity of a case.

FOREIGN JUDGMENTS

A final and irrevocable foreign court judgment or decree can be recognised and enforced by a Taiwan court. Pursuant to article 402 of the CCP, a final and binding judgment rendered by a foreign court shall be recognised, except in the following circumstances:

• Where the foreign court lacks jurisdiction pursuant to Taiwan law;
• Where a default judgment is rendered against the losing defendant, except where the notice or summons of the initiation of action had been legally served in a reasonable time in the foreign jurisdiction, or had been served through judicial assistance provided under Taiwan law;
• Where the content of the judgment or its litigation procedure is contrary to the public order or good morals of Taiwan; or
• Where there exists no mutual recognition between the foreign jurisdiction and Taiwan (i.e. where judgments given by the courts in Taiwan are not reciprocally recognised by the concerned foreign courts).

The Taiwan courts generally apply the principle of reciprocity. The existence of diplomatic ties is not an absolute factor when determining reciprocal recognition. Recognition and enforcement of foreign judgments in Taiwan is subject to the court trial process.

In practice, South Korean judgments are recognised by Taiwan courts. Under article 47 of the Arbitration Act, a foreign arbitration award is an arbitration award issued outside the territory of Taiwan or issued pursuant to foreign laws within the territory of Taiwan. It is enforceable after an application for recognition has been granted by the Taiwan court.

The grounds for a court to reject an application for recognition of a foreign award are provided in articles 49 and 50 of the act. The South Korean arbitration award is recognised by Taiwan courts based on the principle of reciprocity.

COMMON DISPUTES

In the authors’ experiences, the most common disputes in South Korean-Taiwan joint ventures would be the pursuit of control on the JV entity’s board of directors and shareholder meetings, and minority investor protection issues.

To allow the Korean partner to exercise control as the major shareholder, it is advisable that it stipulates, under the JV, shareholder agreement or articles of incorporation, the allocation of board seats and key positions (e.g. the CEO and CFO) and how shareholders can exercise their voting rights at shareholder meetings. To protect its rights as a minority shareholder, the Korean partner may demand a higher quorum or voting threshold, such as a 100% consent of all shareholders, in matters requiring the approval of the board and at shareholder meetings under the JV agreement.

However, only certain matters provided by the Taiwan Company Act can be subject to a higher quorum or voting threshold under the articles of incorporation. To further protect minority shareholders’ rights, any protection mechanism (e.g. the right of first refusal, right of first offer and tag-along rights) can be further included in the agreement.

In the case of a dispute, in practice, the Korean partner may file a claim against the Taiwanese partner based on a breach of agreement, violation of the company act, and torts law, as the case may be. A provisional measure is normally filed to prevent the expansion of the damages or freeze the status quo.

South Korea and Taiwan are significant trade partners under the trend of a global value chain, and as relations strengthen, it is anticipated that outstanding Korean investors in Taiwan may have more investment opportunities, which may require more knowledge of Taiwan’s dispute resolution mechanisms prior to investing.