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The Arbitration Act of Taiwan (AAT), enacted and promulgated in 1998, is principally modelled on the 1985 UNCITRAL Model Law on International Commercial Arbitration.

Although Taiwan is not a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, its Arbitration Act substantially adheres to the underlying principles of the convention. Taiwan courts have demonstrated a consistent pro-arbitration stance in their approach to the recognition and enforcement of foreign arbitral awards.

This article gives an overview of the recognition and enforcement of foreign arbitral awards in Taiwan. It also examines two recent decisions rendered by the Supreme Court of Taiwan that illustrate the judiciary’s adaptive approach to promoting arbitration while upholding fundamental legal principles.

The first decision shows judicial flexibility in interpreting arbitration agreements lacking an institutional arbitration clause, while the second evinces a more robust stance on safeguarding due process rights in arbitral proceedings.

Recognition of foreign awards

In recent years, Taiwan has cultivated a favourable environment for the recognition and enforcement of foreign arbitral awards. Taiwan courts have recognised awards from a variety of jurisdictions including but not limited to Hong Kong, Singapore, Japan, South Korea, the US, Germany, France, Italy, Belgium, Canada, South Africa, Thailand, Australia, Russia, the Czech Republic and Finland.

The AAT provides for the recognition and enforcement of foreign arbitral awards. According to the AAT and the majority opinions of the courts, the recognition and enforcement procedure does not extend to a substantive examination of the merits of the arbitral award.

Except as otherwise stipulated in articles 49 and 50 of the AAT, courts are generally obligated to recognise foreign arbitral awards. The statutory grounds for refusal under article 49 include violations of public policy, non-arbitrability, and lack of reciprocity.

Article 50 gives further grounds for denial such as incapacity of a party, invalidity of the arbitration agreement, failure to observe due process, awards exceeding the scope of arbitration and irregularities in the composition of the arbitral tribunal or arbitral procedure.

Taiwan courts have consistently recognised foreign arbitral awards. Judges are typically liberal when interpreting and applying the formal criteria for recognition. The prevailing view of Taiwan courts is that the reciprocity requirement under paragraph 2, article 49 of the Arbitration Act does not demand recognition of Taiwan awards by the jurisdiction where the foreign arbitral award was rendered.

This interpretation effectively facilitates the recognition of foreign arbitral awards, and is reinforced by the statutory language, which stipulates that where the foreign jurisdiction in which the award was rendered has refused to recognise arbitral awards issued by Taiwan, the Taiwan court may, rather than shall, deny an application for recognition of such an award.

Institutional v ad hoc

Pursuant to paragraph 1, article 37 of the AAT, arbitral awards are binding on the parties and have the same force as a final court judgment.

Several rulings of the Supreme Court of Taiwan have indicated that only awards issued by arbitral institutions approved by the Ministry of the Interior are recognised as binding and enforceable. This jurisprudential approach raises questions as to the enforceability and binding effect of awards rendered in ad hoc arbitrations.

This same approach likely underpins the Supreme Court’s recent judgment No. 112 Tai Shang Zi 1561 (2024). The judgment indicated that, even in the absence of an explicit reference to a particular arbitral institution or type of arbitration in the arbitration agreement, an interpretation of the agreement on institutional arbitration remains permissible unless expressly excluded.

The case was remanded to the High Court, which further opined that the respondent’s substantive defences and arguments on the merits of the dispute in that case constituted implied consent to institutional arbitration. It seems to have adopted an aggressive approach in finding agreement on the arbitral institution.

A possible and expansive interpretation of the judgment is that, even in instances where the arbitration agreement is silent on or does not specify the choice of arbitration institutional rules or administering institution, the claimant may still be entitled to initiate arbitration by an arbitral institution.

A reasonable reading of the judgment is that the broader interpretation of the institutional arbitration agreement is to accommodate Taiwan courts’ traditionally conservative stance regarding the nature and enforceability of ad hoc arbitral awards.

Due process review

Just like the New York Convention and the UNCITRAL Model Law, due process is integral to the AAT. Article 23 of the AAT requires that the arbitral tribunal:

1. 1. affords each party a full opportunity to present its case; and
   2. investigates the parties’ claims.

Subparagraph 3, paragraph 1, article 40 of the AAT permits a party to petition the court to set aside an arbitral award on the grounds that the arbitral tribunal failed to give either party the opportunity to present its case before the proceedings ended, or that either party was not properly represented during the arbitration.

However, Taiwan courts have generally adopted a loose standard regarding reviewing the accusation of due process violations in an arbitration. The prevailing judicial interpretation holds that once the parties have been duly notified and afforded an opportunity to present their views, the arbitral tribunal is not obligated to permit exhaustive debate on every disputed issue, particularly where the tribunal considers the current statements sufficient for adjudication.

Even where a party asserts that it had not fully articulated itself, or that the arbitral tribunal had failed to clarify or direct the parties to address each issue separately, such circumstances do not constitute a breach of due process. See, for example, Supreme Court of Taiwan judgment No. 112 Tai Shang Zi 2778 (2024).

The courts have rarely set aside an award on the basis of article 23, and subparagraph 3, paragraph 1, article 40 of the AAT. But in Supreme Court Judgment No. 113 Tai Shang Zi 924 (2024), which annulled an arbitral award on the grounds of a violation of procedural due process, the court signalled a subtle yet noteworthy opinion in its interpretation of due process in arbitration.

The Supreme Court stated that the legislative intent of article 23 of the AAT embodies adherence to the principles of due process in arbitral proceedings. This due process requirement constitutes the fundamental basis for the binding effect of arbitral awards, ensuring the protection of the parties’ right to be heard.

The arbitral tribunal shall afford both parties a reasonable opportunity to be heard prior to issuing any unforeseen legal findings based on specific facts. Failure by the tribunal to provide such an opportunity to present their case before the hearing is closed shall constitute valid grounds for the setting aside of the arbitral award.

It then explained that the arbitral tribunal had based its decision exclusively on the “doctrine of change of circumstances”, while neither party had invoked or addressed this doctrine at any stage of the arbitration.

The tribunal had failed to allow the parties to comment on this legal basis before the hearings ended. On these grounds, the court held that the arbitral award constituted a serious breach of due process and was therefore set aside.

This 2024 Supreme Court judgment arguably showed a more rigorous approach to procedural fairness in arbitration and is particularly significant as it forecast a judicial inclination towards harmonisation with international arbitration standards.

LEE AND LI ATTORNEYS-AT-LAW
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