• Application of Model Clauses for Arbitration Agreement, Agreement on Preliminary Proceedings and the Procedural Options of the Parties
  • February 24, 2014
  • Law Firm: Lee Tsai Partners Attorneys-at-Law - Taipei Office
  • Arbitration is preferred by the parties due to its autonomy, professionalism, speed, secrecy, harmony, effectiveness and non-sovereign characteristics.  Article 1 of the ROC Arbitration Law provides: "parties to a dispute arising at present or in the future may enter into an arbitration agreement designating a single arbitrator or an odd number of arbitrators to constitute an arbitral tribunal to determine the dispute.  The dispute referred to in the preceding paragraph is limited to those which may be settled in accordance with the law.  The arbitration agreement shall be in writing.  Written documents, documentary instruments, correspondence, facsimiles, telegrams or any other similar types of communications between the parties evincing prima facie arbitration agreement shall be deemed to establish an arbitration agreement."  Pursuant to this article, an effective arbitration requires resolvable disputes under the agreement, written form and an arbitration agreement between the parties.  Since an arbitral award has the same effect as a final court judgment (compare Article 37, Paragraph 1 of the Arbitration Law), the parties are required to agree that arbitration should be the ultimate means of dispute resolution when entering into the arbitration agreement.  

    To avoid omissions and oversight between the parties when they enter into an arbitration agreement, all arbitration organizations provide model clauses for the reference of the parties: 

    (I)     Depending on the application purposes, the model clauses of the Chinese Arbitration Association (hereinafter, the "CAA") vary as follows, : 

    1.     Typical clauses: 

    (1)     English clauses:

    Version 1:
    Any dispute, controversy, difference or claim arising out of, relating to or in connection with this contract, or the breach, termination or invalidity thereof, shall be finally settled by arbitration referred to the Chinese Arbitration Association, Taipei in accordance with the ROC Arbitration Law and the Arbitration Rules of the Association.  The place of arbitration shall be in Taipei, Taiwan.   The arbitral award shall be final and binding upon both parties. 
    Version 2:
    All disputes, controversies, differences for claims arising out of, relating to or in connection with this contract, or the breach, termination or invalidity thereof, shall be finally settled in accordance with the CAA Arbitration Rules.  The place of arbitration shall be &under;&under;&under;&under;&under;.  The language of arbitration shall be &under;&under;&under;&under;&under;.  The award rendered by arbitrator(s) shall be final and binding upon the parties concerned. 

    (2)     Chinese clauses [with English translation provided below]:
    All disputes arising from or relating to this Agreement shall be referred to the Chinese Arbitration Association to be resolved through arbitration in &under;&under;&under;&under; (place) in accordance with the ROC Arbitration Law and the arbitration rules of the association. 

    1.     The version slightly varies when it comes to cross-strait business contract: 
    All disputes arising from or relating to this Agreement shall be referred to the CAA in the Taiwan area to be resolved in accordance with the Arbitration Law of Taiwan and the arbitration rules of the CAA.  The seat of arbitration shall be &under;&under;&under;&under;&under;, Taiwan (location), provided that arbitration hearings may be conducted in &under;&under;&under;&under;&under;&under; (location) as determined by the arbitration tribunal or with the mutual agreement of the parties.

    2.     With respect to financial disputes, other disputes are included in the model clauses to avoid limiting the disputes to the so-called "financial consumption" under Article 5 of the Financial Consumer Protection Law: 

    (1)     All disputes arising from or relating to this Agreement, regardless of whether they are the financial consumption disputes within the meaning of Article 5 of the ROC Financial Consumer Protection Law, may be referred to the arbitration association to be settled through arbitration in accordance with the ROC Arbitration Law and the arbitration rules of the association. 

    (2)     Any dispute, controversy, difference or claim arising out of, relating to or in connection with this contract, or the breach, termination or invalidity thereof, whether or not such dispute is one under Article 5 of Financial Consumer Protection Act of the Republic of China, may be firstly and finally settled by arbitration referred to the Chinese Arbitration Association, Taipei in accordance with the ROC Arbitration Law and the Arbitration Rules of the said Association.  The place of arbitration shall be in Taiwan. The arbitral award shall be final and binding upon both parties.

    1.     With respect to the arbitration agreement on public construction projects, the CAA, which considered the need to accelerate arbitration proceedings to the extent that Article 85-1 of the Government Procurement Law applies, still recommended that the parties expressly provide for the arbitration agreement in their public construction contract and provided the following example for reference: 
    Before, during or after the construction of a project under this Agreement and regardless of whether there is any default or termination or rescission of the Agreement, all conflicts, disputes or disagreements regarding the establishment, no establishment, validity or invalidity of the Agreement or arising from or caused by the interpretation or performance of the Agreement, or any argument or disagreement about construction shall be resolved in good faith by negotiation between the parties.  If consensus still cannot be reached through negotiation or disputes between both parties still cannot be resolved within 30 days since either party made a request for good-faith negotiation, any party may refer such disputes to the procurement appeal review board for mediation.
    If the mediation in the preceding subparagraph fails because the procuring agency does not accept medication recommendations, the supplier's referral of such disputes to the CAA for arbitration shall not be refused by the procuring agency.  Both parties also agree to conduct arbitration in &under;&under;&under;&under;&under;&under;&under; (Taipei City/ Taichung City/ Kaohsiung City (Please choose one location)) in accordance with the Arbitration Law and the arbitration rules of the CAA.

    (II)   Model Clauses of the International Center for Dispute Resolution (ICDR): 
    In the event of any controversy or claim arising out of or relating to this contract, or a breach thereof, the parties hereto shall consult and negotiate with each other and, recognizing their mutual interests, attempt to reach a satisfactory solution.  If they do not reach settlement within a period of 60 days, then, upon notice by any party to the other(s), any unresolved controversy or claim shall be settled by arbitration administered by the International Centre for Dispute Resolution in accordance with the provisions of its International Arbitration Rules. 

    (III)  The model clauses provided by the International Chamber of Commerce (ICC): 
    All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. 

     

    All of the above-mentioned model clauses have the following characteristics: (1) The specific disputes, whether they have or have not occurred, mostly refer to any present or future disputes arising from the same contract; (2) an arbitration organization has been designated; (3) the governing law for the arbitration proceedings has been designated; and (4) there is the expression "finally settled" in the English version of the arbitration model clauses of the CAA and the ICC.  The current attitudes towards such arbitration agreement in the legal practices of the ROC when litigation and arbitration are both stipulated in the arbitration agreement as means of dispute resolution or when the arbitration organization is not agreed-upon or when preliminary proceedings should be conducted before disputes are referred to arbitration are discussed below. 

    1.     When both litigation and arbitration are stipulated in the agreement as means of dispute resolution

          According to the 95-Tai-Kang-390 Civil Ruling of the Supreme Court, the appellant and the appellee executed with the appellee an operation and management agreement, in which Section 9.01 of Chapter 9 provides that "in the event of any unresolvable dispute between Party A and Party B regarding the enforcement of this Agreement, mediation, arbitration or litigation may be sought."  The Supreme Court affirmed that the arbitration agreement exists between the parties to this case, holding that "when the parties agree to resolve disputes through arbitration or litigation in a contract, this has granted procedural options to the parties, and when one party has exercised a procedural option with pending proceedings, the other party shall be bound by such proceedings.  If one of the parties chooses arbitration proceedings while the other opts for litigation, the proceedings that become pending first shall govern.  If the arbitration proceedings become pending first, Article 4 of the Arbitration Law will apply.  According to the above-mentioned ruling, a positive attitude is adopted in practice when the parties concurrently agree to dispute resolution by mediation, arbitration and litigation, and the procedural options of the parties are considered as the basis of affirmation.  The Supreme Court also concurred in its 96-Tai-Shang-1491 Decision and stated as follows: "when the parties agree by contract that disputes may be resolved by arbitration or litigation, this grants procedural rights to the parties.  When one party exercises a procedural option which becomes pending, the other party shall be bound by it.  If one of the parties chooses arbitration proceedings while the other opts for litigation, the proceedings which become pending first shall govern." 

    1.     Effect of no agreement on the arbitration organization

          The objective of the arbitration system is to have the parties appoint their arbitrators to achieve speedy dispute resolution.  Article 5, Paragraph 2 of the Arbitration Law provides that if the parties agree to any juristic person or organization other than an arbitration organization as the arbitrator in the arbitration agreement, it shall be deemed that no arbitrators are agreed-upon.  Under Article 9 of the same law, if the arbitrators and the methods of their appointment in the arbitration agreement are not stipulated, each party shall appoint one arbitrator before another arbitrator is appointed as the chief arbitrator by the arbitrators appointed by the parties and a written notice will then be served upon the parties by the arbitral tribunal (Paragraph 1).  If the arbitrators fail to jointly appoint a chief arbitrator within 30 days after they are appointed, the parties may file a motion to the court to appoint the chief arbitrator (Paragraph 2).  Where it is stipulated in the arbitration agreement that arbitration will be conducted with only one arbitrator, if either of the parties fails to agree within 30 days after receipt of a written request for the appointment of the arbitrator from the other party, the other party may file a motion to the court to make the appointment (Paragraph 3).  If the parties agree to have an arbitration organization handle such arbitrated matter under the circumstance of Paragraph 2 above, the arbitration organization will appoint the arbitrator (Paragraph 4).
    Pursuant to the provisions of such article, the arbitration agreement is essentially about the agreement on the arbitrator(s) and the appointment methods.  The arbitration organization is not an essential component of the agreement, as indicated in Paragraph 4 of this article, which stipulates that the arbitrator will be appointed by the arbitration organization separately agreed by the parties.  However, if the parties separately agree to the arbitration organization, such organization is required to meet the criteria under Article 54 of the Arbitration Law.  Pursuant to this article, an arbitration organization may be set up by all levels of occupational or social organizations single-handedly or jointly to take charge of the registration and cancellation registration of arbitrators and handle arbitrated matters.  In addition, pursuant to Articles 3 and 9 of the Organization and Dissolution Procedure and Fee Rules of Arbitration Organizations, an arbitration organization is set up for public-interest purposes by all levels of organizations independently or jointly with the approval of the competent authority and the competent authority for specified business to handle the registration, training and workshops of arbitrators and to handle arbitrated matters.  The arbitration organization is also required to be registered as a foundation.  To establish an arbitration organization, the organization that applies for the establishment of arbitration organizations independently or jointly shall submit the application, the registration certificate of such organization, its roster of members, the draft charter of the arbitration organization, the list of promoters, the draft code of conduct for arbitrators and relevant supporting documents.  The approval will be granted after the Ministry of the Interior obtains the consent of the Ministry of Justice after it consults all competent authorities for specified business.  If the arbitration organization agreed by the parties does not meet the above-mentioned criteria, it is held in current practices that it should be deemed that no arbitrator is agreed upon.  Please compare the 91-Tai-Kang-634 Ruling of the Supreme Court. 

    III.  The effect of an arbitral award rendered when it has been agreed that preliminary proceedings should be followed before disputes may be referred to arbitration but one party has elected to refer the disputes to arbitration:

          In the 93-Tai-Shang-992 Decision of the Supreme Court, it was stipulated in the agreement between the parties that in the event of any doubt regarding issues such as the enforcement of the agreement, compensation, extension of the construction period and other disputes relating to the agreement, a written notice shall be submitted to the chief engineer of the Appellant for a decision.  In the event of any doubt, objection should be indicated to the chief engineer by stating the reasons within seven days upon receipt of the decision, and the chief engineer should decide on the objection.  In the event of further objection, submission should be made to the Department of the Rapid Transit Systems (hereinafter, the "DORT") of Taipei City Government for a decision.  It was only when the final decision was still objected can the objection be referred to arbitration.  Article 93.5 of the general provisions of the agreement between the parties also specifically stipulates: "the DORT and the Contractor shall be both bound by the arbitral award.  If the arbitral award is repealed by an irrevocable court decision, such disputes shall be referred to arbitration again, and no further litigation or any other remedies may be sought."  The Supreme Court concurred with the preliminary proceedings set forth in the arbitration agreement and rejected the Appellant's appeal on the following grounds: "the arbitration system is a vital mechanism based on the principles of private right autonomy and the freedom of disposition of the parties to resolve private right disputes according to procedural options.  Therefore, since the parties may agree to resolve disputes by arbitration, it is certainly permissible that the parties agree that certain preliminary proceedings should be followed before the disputes are referred to arbitration to balance the advantages and disadvantages between "acceptance of compensation" and "referral to arbitration."  Such preliminary proceedings mutually agreed by the parties are valid arbitration agreement clauses and can confirm the specific disputes between the parties and further filter out simple procedures for consultation and negotiation such as settlement out of court or mediation by a third party to save labor expenses by avoiding arbitration proceedings.  However, if one party perceives that settlement or mediation is no longer possible and that disputes cannot be resolved by any simple procedure, or if the parties agree that disputes can only be finally settled by arbitration, direct referral to arbitration to avoid the delay and waste in the preliminary proceedings certainly does not violate the original purpose of agreeing to resolve disputes by arbitration and contradict the nature of preliminary arbitration proceedings." 


     Based on the foregoing reasons, relatively relaxed views are adopted in practice due to the consideration that the parties agree to arbitration mostly because of the speedy, professional and autonomous characteristics of arbitration.  Under the principle of private right autonomy and freedom of disposition, the parties are allowed to expand the application of arbitration agreement according to the procedural options of the parties.