By: Tiffany Huang1Tiffany Huang is a principal and the partner responsible for the Energy, Environment and Infrastructure group in Baker & McKenzie’s Taipei office. and Jun Chen2Jun Chen is an associate of the Energy, Environment and Infrastructure group in Baker & McKenzie’s Taipei office.
A. Legislation, Trends and Tendencies
International arbitration in Taiwan continues to be governed by the Arbitration Law. On 2 December 2015, Article 47(2) of the Arbitration Law was amended to better align with Article 37(1), which provides that “the award shall, insofar as relevant, be binding on the parties and have the same force as a final judgment of a court.”
Before the amendment, the previous version of Article 47(2) read “A foreign arbitral award, after an application for recognition has been granted by the court, shall be enforceable.” This seemed to deny res judicata status to foreign awards by only mentioning enforcement rather that the status of a final judgment. To resolve the inconsistency between Article 37(1) and 47(2), the Supreme Court has in practice recognized the res judicata status of a recognized foreign award (not including those made in mainland China) between the parties in court precedents. The amendment adopts the court practice. The new Article 47(2) states that “A foreign arbitral award, after an application for recognition has been granted by the court, shall have the same force as a final judgment of a court between the parties, and shall be enforceable.”
B. Cases
B.1 Arbitrations That Changed the Public Transportation Landscape
On 17 February 2015, three massive cases were filed with the Chinese Arbitration Association (CAA) in Taipei by the Taiwan High Speed Rail Corporation (THSRC) against the Ministry of Transportation and Communication (MTC) of the government of the Republic of China (Taiwan). The disputes between the parties mainly concerned (1) compensation under the “Force Majeure” and “Change of Circumstances” clauses in the Build-Operate-Transfer (BOT) agreement of the high-speed railway in the west part of Taiwan due to the massive earthquake that occurred on 21 September 1999; (2) compensation for the inaccuracy of the transport volume forecasts in the procurement documents; and (3) subsidies of charity tickets. The total disputed amount reached in excess of US$1.8 billion.
The development of the high-speed railway attracted lots of attention because it was the first and largest BOT project in the field of transportation and public works. The three cases, jointly or severally, also made history for arbitrations in Taiwan in terms of the scale, complexity and claim amount.
After rounds of discussions in the parliament and between the parties, the THSRC eventually withdrew the arbitrations on 13 November 2015 in exchange for an amendment to the BOT agreement, in which the government promised a capital injection of NT$30 billion (approximately US$1 billion) and the extension of the concession period for another 35 years as a part of the THSRC’s financial improvement plan. The filing of the three arbitrations was influential on public opinion and was also deemed a critical leverage tool to accelerate the negotiation.
B.2 Revisiting Res Judicata and Issue Preclusion
Previously, in the 2013-2014 version of the Baker & McKenzie International Arbitration Yearbook, we discussed “Res Judicata and Issue Preclusion” in Section B.1. Regarding whether an arbitral award will have the binding effect of issue preclusion, a current case before the Taiwan Supreme Court and Taiwan High Court3See, e.g., Taiwan High Court, Judgment 100-Chung-Shang-Zhi No. 110 (24 September 2014), sustained by Taiwan Supreme Court, Judgment 104-Tai-Shang-Zhi No. 1423 (30 July 2015). suggests that on disputed issues other than the immediate subject matter, arbitration may not have the same binding effect as a court judgment.4See, e.g., Taiwan Supreme Court, Judgment 97-Tai-Shang-Zhi No. 2688 (25 December 2008).
The courts considered that compared to court proceedings, arbitration does not have an appeal system, and the tribunal’s limited ability as well as the short period of time does not favor the investigation of the facts. As the doctrine of issue preclusion was developed by precedent rather than clearly defined by laws, it would be improper to expand the application of the binding effect to disputed issues other than the immediate subject matter to arbitral awards. Thus, a court may reconsider disputed issues other than the immediate subject matter of the arbitration in court proceedings without the binding effect of issue preclusion.
Notwithstanding the above, the effect of res judicata is applicable to arbitral awards subject to Article 37(1) and 47(2) of the Arbitration Law. A current case before the Taiwan Supreme Court and Taiwan High Court5See, e.g., Taiwan High Court, Judgment 101-Jieng-Shang-Zhi No. 2 (5 November 2011), sustained by Taiwan Supreme Court, Judgment 104-Tai-Shang-Zhi No. 1171 (24 June 2015). also suggests that any relevant defense or supportive method in relation to the subject matter of the arbitration will be governed by this principle, so the parties will not be allowed by the court to present any evidence or reason that it should have been able to present to the arbitration tribunal in the previous arbitration.
B.3 Special Rules for the Arbitral Award Rendered in China
A recent case in the Taiwan Supreme Court6See, e.g., Taiwan Supreme Court, Judgment 104-Tai-Shang-Zhi No. 33 (8 January 2015). emphasized that, unlike court decisions and arbitral awards rendered in Hong Kong or Macau, which are governed by the Laws and Regulations Regarding Hong Kong & Macau Affairs, or in the rest of the world, which are governed by the Civil Procedure Law under the principle of reciprocity, those decisions and awards rendered in Mainland China cannot be automatically recognized by the court and the enforcement department in Taiwan. Even if the decisions or awards are recognized by a writ of execution issued by a Taiwanese court, the writ will only allow enforcement in Taiwan, rather than create any effect of res judicata. This is a special practice that only applies to judgments and tribunal awards rendered in Mainland China.
C. Costs in International Arbitration
C.1 Allocation of Costs
Parties and tribunals in Taiwan may not be familiar with the guidelines or rules of the ICC, so they may not directly apply relevant rules or decisions on costs. Instead, as the Arbitration Law in general governs arbitration in Taiwan, Article 54(2) of the Arbitration Law authorizes the legislative authority to promulgate the Rules on Arbitration Institution, Mediation Procedures and Fees (“Rules on Arbitration Fees”). Article 19 of the Arbitration Law also allows relevant procedure rules in the Civil Procedure Law to be applied in arbitration, which such adaptations as may be necessary.
Under Article 34 of the Rules on Arbitration Fees, the tribunal must decide in its award on a proportion of costs to be reimbursed and, upon request by either party, an accurate figure for the costs. As a general rule, by reference to Articles 78 and 79 of the Civil Procedure Law, the losing party will be required to reimburse the costs in proportion to the awarded amount that is not favorable to it. For example, a claimant that succeeded in only 30 percent of its claim will bear 70 percent of the costs. Nevertheless, the Rules on Arbitration Fees do not prohibit the tribunal from exercising discretion when allocating costs, so in practice, the tribunal will have the right to determine the allocation of the costs between the parties on a case-by-case basis.
However, except for outside counsel’s charges, which are subject to the parties’ particular requests, the tribunal may not determine the amounts of the arbitration costs at its own discretion. For further details please see Section C. 3.
C.2 Security for Costs
Under the Arbitration Law in Taiwan, the claimant must pay the arbitration costs in advance at the filing of the arbitration, and the tribunal does not have the right to order a party to provide security for either the disputed amount or the other party’s costs. Under Articles 39 and 42(1) of the Arbitration Law, the right to issue an injunctive order as security or an interim measure before or during the arbitration remains with the Taiwanese court. However, in practice, the court will not deem the arbitration costs to be a “debt” that can be secured by an injunctive order, because the allocation of the arbitration costs will not be determined until the arbitral award is issued by the tribunal.
C.3 Recovery of Costs
The arbitration costs mainly consist of three parts: (a) the arbitrators’ fee; (b) the fee of the arbitration institution; and (c) a prepaid NT$30,000 (approximately US$1,000) for administrative costs, including expenses for post, fax, translation, travel costs for witnesses, etc. The amount of (a) and (b) will be calculated respectively under Articles 25 and 28 of the Rules on Arbitration Fees, while the amount of (c) will be determined by actual expenses and is thus refundable in the event of overpayment or subject to a supplement in the event of a shortfall at the end of the procedure.
Legal counsel’s charges are not listed here because they will only be included in the award as a part of arbitration costs if each party particularly claims for it. This is not commonly seen in Taiwan because, according to Article 466-3 of the Civil Procedure Law, in a civil proceeding, only the charges of outside counsel in the final instance (i.e., the Taiwan Supreme Court) can be deemed a part of the litigation costs to be allocated to the parties by the court. Therefore, in practice, each of the parties tends to bear outside counsel’s charges as its own cost. Outside counsel’s charges are calculated based on the instance, with a cap determined by the judicial administrative authority, rather than by hourly charges.
Given that neither the Arbitration Law nor the Rules on Arbitration Fees prohibit a claim for outside counsel’s charges in an arbitration, it is still possible for each party to seek full recovery of outside counsel’s charges by providing payment invoices in the arbitration. A reasonable amount for representation costs will be determined in the award at the tribunal’s discretion. However, compared to the other arbitration costs mentioned, which are clearly defined in the relevant regulations, it is still rarely seen in practice.
Neither the court nor the arbitration tribunal in Taiwan will deem costs related to a party’s in-house counsel or staff recoverable under a judgment or an arbitral award. This is because their salaries would be incurred even if there were no proceedings or arbitration in the first place.