DISPUTE RESOLUTION

Both mechanisms are effective in Taiwan. What decides the question is the type of dispute this contract is likely to produce. Arbitration means that the parties agree in advance to submit future disputes to arbitration rather than litigation, under the rules of an arbitral institution they select. The resulting decision is called an arbitral award. In practice, foreign companies mostly choose arbitration where the dispute involves highly specialized technology, where confidentiality matters, or where the award may have to be enforced outside Taiwan. Where the amount at stake is small, or where a party outside the contract is involved, litigation has advantages of its own.

Arbitration has both advantages and drawbacks. 1. Confidentiality is stronger. Litigation in Taiwan is heard in open court as a matter of principle, and judgments are published in the Judicial Yuan database. Arbitration is confidential, and the arbitrators and everyone taking part in the proceedings owe a duty of confidentiality, which gives commercial disputes involving trade secrets a higher level of protection. 2. It takes less time. Ordinary civil and criminal litigation runs through a three-tier, three-instance system, so the same case may be heard by courts at three levels, which takes a long time. Arbitration ordinarily concludes with the tribunal's award in a single proceeding. That award has the same effect as a final court judgment and is not, as a rule, open to appeal. Only where a statutory defect exists, such as the award exceeding the scope of the arbitration agreement, an invalid arbitration agreement, or an arbitral tribunal that was not lawfully constituted, may a party ask the court to set the award aside, in what is called an action to set aside the arbitral award. The period during which the legal relationship remains uncertain is therefore much shorter. 3. An additional court step is required before compulsory enforcement. Once a court judgment becomes final, the winning party can apply directly for compulsory enforcement and satisfy the claim out of the other side's assets. An arbitral award carries the same effect, but in principle the party must first obtain an enforcement order from the court. An exception applies where the parties have agreed in writing that no court order is required and the award concerns payment of money, fungible goods, securities, or specified movables; in that case, the party may apply directly for compulsory enforcement.

How do you decide whether to make arbitration your main mechanism? 1. Start by assessing whether disputes under this contract are likely to involve highly specialized technology. For disputes over matters such as AI algorithms, semiconductor processes or complex engineering, arbitration lets you and your counterparty each select an expert in that field to sit as arbitrator, which lowers the risk that a judge unfamiliar with the industry reaches the wrong conclusion. 2. Confirm where your counterparty's principal assets are located. If those assets are outside Taiwan and you may need to enforce a decision rendered in Taiwan in that jurisdiction, an arbitral award is generally easier to have recognized and enforced there than a judgment of a Taiwan court. This may not be so where the assets are in a jurisdiction that has a judicial assistance agreement with Taiwan or that, in practice, readily recognizes Taiwan judgments; in such a case, a court judgment may be no less enforceable than an arbitral award. 3. Assess how much time matters to you. Under Taiwan law, an arbitral tribunal must issue its award within six months from the date of receipt of notice that an arbitrator has been selected, and may extend that period by three months where necessary. In practice most arbitrations conclude within a year, whereas civil litigation through all three instances in Taiwan commonly runs three to five years. 4. If you are concerned that a Taiwan court may favor a local company, you can agree on a neutral third jurisdiction as the seat of arbitration. How to choose that seat is covered separately. Case: A multinational technology consortium became the core partner of a Taiwanese company and signed a technology cooperation agreement, and on the strength of the consortium's technology the Taiwanese company won a government concession. The consortium's technology system later suffered a serious safety incident overseas, and the board of the Taiwanese company, weighing risk control and commercial considerations, changed the policy it had settled on and turned to the technology system of another major Asian supplier. The consortium took the view that its Taiwanese partner had breached its prior legal commitments and contractual obligations, and commenced commercial arbitration before the International Court of Arbitration of the International Chamber of Commerce (ICC), claiming substantial damages. The tribunal appointed experts from multiple jurisdictions with expertise in international commercial contracts, specialized technology and engineering procurement, and the parties exchanged multiple rounds of submissions and arguments in a neutral third country. The tribunal held that the Taiwanese partner was liable for breach of contract and had to compensate the consortium. The tribunal issued a legally binding award, and the parties then entered into commercial negotiations on the basis of that award. The consortium settled for less than the amount of the award and was actually paid, while the new technology system on the Taiwanese side operated successfully.

Four recurring situations tend to favor litigation over arbitration: the amount claimed is small, the dispute involves a third party outside the contract, you need a public judgment, or urgent action is required to freeze assets or stop particular conduct. Cost is especially important in the first situation. Arbitration is not necessarily cheaper than litigation, and in practice this is one of the points foreign companies most often misjudge when drafting dispute resolution clauses.

1. The cost of commencing litigation is easier to calculate. Court fees are calculated under a statutory schedule, making them predictable and relatively low, and there is no separate arbitrator remuneration. A Taiwan court does not charge a flat fee per case. It charges by reference to the amount you claim from the party you are suing: the more you claim, the more you pay, although the rate falls as the amount rises. Suppose the contract is worth NT$50 million, but you claim only NT$8 million in outstanding payment for goods. The court fee is calculated on the NT$8 million claim by applying the relevant brackets below. Under the fee schedule currently in force, the first-instance court fee for a civil action involving property rights increases with the amount in dispute and is calculated as follows: a. On a claim of NT$100,000 or less, NT$1,500. b. On the portion above NT$100,000 up to NT$1 million, NT$130 for every NT$10,000. c. On the portion above NT$1 million up to NT$10 million, NT$117 for every NT$10,000. d. On the portion above NT$10 million up to NT$100 million, NT$88 for every NT$10,000. e. On the portion above NT$100 million up to NT$1 billion, NT$77 for every NT$10,000. f. On the portion above NT$1 billion, NT$66 for every NT$10,000. On a claim of NT$100 million, the first-instance court fee comes to roughly NT$910,000. An appeal to the second instance, and again to the third, each costs 1.5 times the first-instance fee. The losing party bears this cost, so if you win you get it back. If the court finds that you have prevailed in part and lost in part, however, it may apportion litigation costs between the parties in proportion to the outcome. 2. Arbitration is priced in a completely different way. It takes less time than litigation, but it is not necessarily cheaper, for three reasons. (1) A Taiwan arbitration fee is also calculated on a sliding scale based on the amount you claim. As with court fees, the higher the amount, the lower the marginal rate. (2) Arbitration fees include the arbitrators' remuneration. In a complex case requiring a three-member tribunal, the arbitration procedure fee itself does not increase with the number of arbitrators, but other expenses—such as arbitrators' travel, meals, and accommodation for taking evidence outside the hearing venue—may rise. The total cost can therefore sometimes exceed the court fees in litigation. (3) Arbitration proceedings are concentrated and specialized, so legal fees also tend to be higher, and expert witness fees may be payable on top. A simple way to assess this: as the amount claimed decreases, arbitration's cost disadvantage relative to litigation generally becomes more pronounced.

In a dispute resolution clause, when should you choose litigation? 1. Choose litigation where the amount claimed is small. The minimum fee for arbitration is higher than the minimum court fee for a civil action involving property rights, so for a small claim the arithmetic does not work in your favor. 2. Choose litigation where the dispute may involve a party outside the contract. An arbitration clause binds only the parties that signed it. Without the third party's consent, it cannot be joined to the arbitration. A court, by contrast, can resolve a multi-party dispute in one set of proceedings through intervention, joinder, or other multiparty procedures. 3. Choose litigation where you need a public judgment. If you want to establish that a business model is lawful in Taiwan, or to give other potential infringers pause, a public judgment carries more weight with the wider market than a confidential arbitral award. 4. Choose litigation where the matter is urgent. You may need the other side's assets frozen at once so that they cannot be dissipated, which Taiwan law calls provisional attachment, or you may need the other side ordered to stop doing something before judgment, which Taiwan law calls an injunction maintaining a temporary status quo. The Arbitration Law permits parties to apply for these measures, but they are still implemented through the courts in practice. Commencing proceedings directly in court therefore makes procedural coordination more straightforward. This matters even more in a cross-border dispute: once assets start moving between countries, freezing them later becomes much harder.

Yes. Taiwan offers four mechanisms for resolving commercial disputes, listed here in increasing order of third-party involvement: settlement, mediation, arbitration and litigation. You can pick the one that fits your situation, rather than filing suit at the outset and damaging the prospect of working together later. Where you want to preserve the relationship, the amount is modest and you need speed, most foreign companies try mediation or settlement first. Where you want a single, confidential decision, they choose arbitration. If the contract contains no arbitration clause and the other side does not respond, litigation becomes necessary. The biggest difference among these options is whether you can turn straight to the court for enforcement if the other side fails to honor what was agreed.

1. Not all settlements have the same enforceability. An unnotarized private settlement has only the force of an ordinary contract, so if the other side does not perform, you still have to sue, obtain the court's basis for enforcement, and only then apply for compulsory enforcement, unless that settlement agreement has been notarized and states that the other side agrees to submit directly to compulsory enforcement. Direct compulsory enforcement is limited to obligations involving payment of a fixed amount of money, fungible goods, securities, specified movables, or, under specified conditions, return of leased or loaned real property; not every settlement term qualifies. A settlement reached in the course of litigation, or a successful mediation, is stronger than a private settlement: both carry the same effect as a final judgment, and you can apply for compulsory enforcement directly. 2. Mediation is not an informal private arrangement. It is conducted by a neutral third party, who may be a judge or a mediator. The proceedings are closed to the public, so the two sides do not have to confront each other face to face. Once court mediation is successfully concluded, or township or city mediation is successfully concluded and approved by a court, it carries the same effect as a final judgment and can be enforced directly. For a foreign company that wants a quick resolution without a public hearing, this is a strong alternative. 3. Filing suit does not shut off settlement, and it does not mean the court fee is wasted. Taiwan's civil procedure includes a feature foreign companies often overlook: once a case has been filed, the parties can still refer it to mediation, with the judge making the referral. If the mediation succeeds, the plaintiff may apply to the court, within three months of the date it succeeds, for a refund of two thirds of the court fee already paid. If a limitation period is running out and you still want to talk, you can file first to prevent the claim from becoming time-barred, then return to negotiations.

Four situations, and what to choose in each. 1. Where you want to preserve the relationship, choose mediation or a settlement reached in the course of litigation. In mediation a neutral third party helps the two sides communicate, which cushions the tension of direct confrontation, and because the proceedings are closed, both sides can save face. 2. Where you need speed, first look at whether the two sides agree. Where the parties are largely in agreement and both are willing to perform immediately, a private settlement or mediation is fastest. If you choose a private settlement, however, first confirm that its terms are eligible for direct compulsory enforcement, then have the settlement agreement notarized and state that the other party agrees to submit directly to compulsory enforcement, which makes up for its weaker enforceability. Where a genuine dispute remains and legal force is needed, arbitration is fastest. 3. Where you want a single, final outcome, choose arbitration or litigation. If the dispute may have to be enforced outside Taiwan, an arbitral award is generally easier to have recognized abroad. If enforcement will take place only within Taiwan, a final court judgment and a mediation agreement approved by the court both carry strong enforceability. 4. Where the contract contains no arbitration clause and the other side does not respond, litigation is the only option. Arbitration takes the agreement of both parties, so if the contract has no arbitration clause and the other side ignores you, you have to file directly with the court. The court can order service by publication, meaning that documents are posted at the court and deemed served. After lawful service, if the other side remains unresponsive and fails to appear without good cause, the court may, on your application, give judgment following argument by the appearing party, so that the proceedings move forward until you obtain a basis for enforcement. Conversely, if the contract does contain an arbitration clause but the other side refuses to appoint an arbitrator, you have to ask an arbitral institution or the court to appoint one, which makes the process more cumbersome. 5. If you are going to mediate, choose the right forum first. Taiwan has both court mediation and township mediation. Township mediators do not necessarily have commercial or legal expertise, so a foreign company should prefer court mediation, conducted by a mediator with a legal background or by a judge, which gets to the commercial issues more precisely. Mediation also costs far less than court fees in litigation or arbitration fees. 6. The best approach is to plan for this when you sign, by writing the successive stages of dispute resolution into the contract. Such a clause can run in three stages. In the first stage, once a dispute arises, senior executives on both sides negotiate, at CEO or VP level, for a period the parties set in the contract themselves, commonly 30 days in practice. In the second stage, if that negotiation does not succeed, the parties must first apply to the court for mediation, and may not commence litigation or arbitration until the mediation process has been completed. In the third stage, if mediation does not succeed, the dispute proceeds to arbitration or litigation. Case: An aesthetic medicine clinic bought a device worth several million New Taiwan dollars from a medical equipment supplier, using brand-new patented chip technology. After putting it into use, the clinic found the output unstable and several patients were injured, so it withheld the final payment and demanded that the supplier take the device back and pay compensation. The supplier maintained that the doctor had set the parameters incorrectly and that the device was not defective. Before formal litigation began, the parties went through pre-litigation mediation as required. The mediator first assigned was a layperson who did not understand aesthetic medical technology and could only urge them in general terms to keep things amicable, so the mediation broke down quickly. Once the case reached the Intellectual Property and Commercial Court, matters changed. Judges at that court are supported by technical examination officers, specialists with a technical background who help the judge follow the technical issues. The technical examination officer went straight to the heart of the matter and identified anomalies in the device data. The supplier realized that the technical flaw had been seen through by someone who understood it, and did not want the defect written into a judgment published online. With the judge and the technical examination officer leading the discussion, the parties settled in court. The supplier took the device back and refunded the deposit, and both sides signed a confidentiality agreement.

There is no single answer that fits every case, but there is one straightforward guideline: put the seat of arbitration where your Taiwanese partner's assets are. The final decision the arbitral tribunal issues is what Taiwanese law calls an arbitral award, and you will take it to the jurisdiction in which the other party's money, equipment and inventory are located and apply for enforcement there. Whether the courts of that jurisdiction will give effect to the award determines whether you get your money back. The New York Convention, the most important instrument in the field of arbitration, has been joined by more than a hundred and seventy countries, and Contracting States generally recognize and enforce awards made in the territory of another Contracting State. Taiwan has not joined. If that leads you to place the seat in your home country or in a third country, then when the time comes to enforce the award in Taiwan you have to go through one further step, an application to a Taiwanese court for recognition, which means additional time and legal costs.

1. Taiwan is not a Contracting State, but Taiwan's Arbitration Law drew heavily on the New York Convention when it was drafted. Once a foreign arbitral award has been recognized by an order of a Taiwanese court, it has the same effect as a final judgment of a Taiwanese court and can serve as a basis for enforcement. So the question for your decision is not whether Taiwan will recognize the award, but what recognition in Taiwan costs you in time and in money. 2. When a Taiwanese court examines a foreign arbitral award, it conducts a procedural review, which is to say the court looks at whether the arbitration was procedurally defective in one of the ways the law lists, and does not decide again who was right and who was wrong. As long as none of the statutory grounds for refusing recognition is present, the court will in principle recognize the award. For a foreign company doing business in Taiwan this means that an arbitration already completed in your home country does not have to be fought a second time in Taiwan. 3. The other situation is that your Taiwanese partner's assets are in your home country, and the result you obtain from arbitration in Taiwan has to be enforced there, in which case your home country's law governs. Some countries apply the New York Convention directly to awards made in Taiwan, while others limited its scope to Contracting States when they joined, which leaves awards made in Taiwan outside that scope. This issue is governed by the law of your home country, not by Taiwanese law, but you can find out where you stand: before you sign, ask a lawyer at home one question, whether your country recognizes awards made in Taiwan. The answer will inform whether the seat should be in Taiwan, your home country or a third jurisdiction. 4. Whichever direction enforcement will take, a dispute referred to arbitration is generally easier to enforce across borders than one taken to court. Taiwan is itself an example. A Taiwanese court will not give effect to a foreign judgment where the reciprocity requirement is not met. A foreign arbitral award is different: even where the other country has never recognized an award made in Taiwan, a Taiwanese court may rule to dismiss the application for recognition, but is not bound to do so.

Decide the seat in this order. 1. First establish where the other side's assets are. The place where you will one day take the award to recover is the primary candidate for the seat. If the other side's money, equipment and inventory are all in Taiwan, choose Taiwan as the seat. 2. Then look at four further points. (1) Is it easy to find suitably qualified arbitrators there, and are local lawyers easy to work with? (2) Are the costs of arbitration reasonable? (3) Is the local legal framework able to support this type of dispute? If the dispute turns on technology licensing, for instance, look at how much experience the local courts and arbitral institutions have with technical disputes. (4) Will an award made there have effect in the place where you need to enforce it? 3. If you are concerned that seating the arbitration in Taiwan puts you at a disadvantage because it is the other party's home jurisdiction, there are three things you can agree in the contract. (1) Agree on a neutral third place as the seat. (2) Adopt the rules of an international arbitral institution, such as the rules of the International Chamber of Commerce (ICC) or the Singapore International Arbitration Centre (SIAC). (3) Agree that the presiding arbitrator is of a nationality different from that of either party. The purpose of all three is to keep the procedure from favoring either side. 4. Whatever seat you choose, address the following three points in the contract to reduce the risk of problems arising during recognition and enforcement. (1) State an address for service for each party to facilitate proper service of documents in the arbitration. (2) Choose a permanent arbitral institution, that is, one with established rules and administrative staff, rather than putting a tribunal together yourselves on an ad hoc basis. (3) Agree that the language of the arbitration is English. Case: Company A, a foreign company, applied to a Taiwanese court for recognition of an arbitral award made in its home country. Its home country had no diplomatic relations with Taiwan, and Taiwan is not a Contracting State to the New York Convention, so two apparently unfavorable conditions were present at once. The Taiwanese court nevertheless recognized the award. Its reasoning was that reciprocity does not require the other country to have recognized a Taiwanese arbitral award first before Taiwan may recognize an award made in that country. Reciprocity may be found where the foreign country's courts have previously recognized a Taiwanese judgment or where there are objective grounds to expect that they would do so in the future.

As a rule, not immediately. In a late-delivery case, you must first distinguish between delay in performance and impossibility of performance, because the procedure differs. Delay in performance means that performance remains possible but is overdue. For this type you must first give written notice demanding performance within a reasonable period, and only if the other side still fails to perform once that period has run can you validly rescind. A purported rescission made without first giving such notice has no legal effect. Impossibility of performance means that the other side can no longer carry out its contractual obligations. For this type no notice is needed: you may claim damages directly and rescind the contract. Rescinding the contract does not prevent you from claiming damages, as the two do not conflict. How much you ultimately recover depends on how the contractual-penalty clause and the recoverable scope of damages were drafted when you signed.

1. It is not enough to give the notice; you also need to keep records that prove its contents and how it was delivered. Your notice must set a reasonable period that gives the other side a fair chance to perform. The failure foreign companies most often run into in practice is not the absence of a notice but the inability, later on, to produce evidence that it gave notice demanding performance within a specified period. If that cannot be proved, the court will find the rescission unlawful: the contract remains in force, and you may be unable to recover the price already paid on the basis of rescission. 2. One situation does not require a notice, and it is called a time-critical transaction, meaning one in which timely performance is essential to the purpose of the contract. Where the nature of the contract or the agreement of the parties places you in that situation, for instance seasonal goods or a performance on a particular date, and the other side does not deliver on time, you may rescind without giving notice. Set this out clearly when you sign, to reduce the risk of a later dispute over whether the exception applies. 3. Where the other side can no longer perform, the procedure is different. If the impossibility of performance is attributable to the other side, you do not need to give notice and may claim damages directly and rescind the contract. This differs greatly from a missed delivery date, so determine which situation you are facing before you send anything. 4. Rescinding is not the same as giving up the right to claim damages. Exercising the right of rescission does not affect your claim for damages, and after rescission you may still claim for the loss caused by the other side's breach. Foreign companies often assume they have to choose between the two, and so lose valuable time in dealing with the matter. 5. Whether the penalty clause says “punitive” makes a large difference. Unless the contract expressly provides otherwise, the penalty is treated as the total amount of damages for the other side's non-performance, so once you recover that amount you cannot go on to prove your loss and ask for more. Where the contract states that it is a punitive contractual penalty, you may claim that sum and also require the other side to perform, or claim damages for non-performance separately. Either way, a court may reduce the sum to a reasonable amount if it is excessive; the party arguing that the sum is excessive has to prove it, and the court will not gather evidence on that party's behalf. 6. In Taiwanese civil litigation, the fees for counsel you appoint yourself at first and second instance do not count as court costs, so even if you win, the other side does not have to pay your legal fees. Only at third instance, where the law requires you to appoint counsel, do counsel's fees form part of the court costs. If you want legal fees to be recoverable from the other side, state them expressly as part of the scope of damages when you sign.

If the other side has already missed a delivery date, start with the first two. If you have not yet entered into the contract, put the last four into it. 1. Send a written notice demanding performance and keep the evidence. The notice should state how long you are giving the other side to perform, and the period should be reasonable. Send it by a method that leaves a record of dispatch and receipt, and file that record. It is that record that will later determine whether your rescission was lawful. 2. Only once the period has run and the other side has still not performed should you send the notice of rescission. If the steps are taken in the wrong order, the attempted rescission may not have the intended legal effect. 3. Specify in the contract the circumstances in which no prior notice demanding performance is required. For example, the contract may provide that a delay of more than 30 days permits rescission without further notice, or may separately define the conditions under which it terminates automatically. The 30-day period is agreed by the parties; it is not prescribed by law. 4. State the nature of the contractual-penalty clause expressly. If you want to keep the option of requiring performance or claiming damages on top of the penalty, say expressly in the clause that it is a punitive contractual penalty. If the clause is silent, the amount will be treated as the agreed total amount of damages. 5. Define the scope of damages expressly. State that it covers legal fees, court costs and arbitration costs, as well as loss arising from damage to goodwill. 6. Include a contractual right of set-off. Provide that, where one party is in breach, the other may deduct the penalty or the damages from any deposit it holds or any sum that has fallen due but has not yet been paid, and state expressly that this right of set-off is unaffected by rescission of the contract.