While it boasts an arbitration-friendly culture, there are notable gaps in Taiwan’s dispute resolution framework, not least its battle to accede to the New York Convention.
Ranked among the top 10 economies in Asia and sitting just outside the world’s top 20, Taiwan – officially the Republic of China (ROC) – is no small player. Yet, while it is well established as a commercial powerhouse, particularly in the technology sector, the island country faces unique hurdles when it comes to resolving commercial disputes through arbitration.
As Taipei-based Jones Day partner Simon Yu notes: "Using arbitration in Taiwan is becoming more and more popular. The legal framework is clear, procedures are flexible and a balance is maintained between party autonomy and judicial oversight. However, compared with mature arbitration markets in Europe and the US, Taiwan’s arbitration culture is still developing, and international recognition and caseload remain limited.”
The country’s major arbitration institution is the Chinese Arbitration Association (CAA), which handles approximately 150 domestic and international arbitration cases per year, with others including the Taiwan Arbitration Association, the Chinese Construction Industry Arbitration Association and the Chinese Real Estate Arbitration Association, while the governing arbitration regulation is the Arbitration Law of the ROC, first passed in 1961.
Small amendment
The last changes to the Arbitration Law took place in 2015. However, this was merely a minor amendment concerning foreign arbitral awards, clarifying that once recognized by a Taiwanese court, a foreign award shall have the same substantive finality and enforceability as a final and binding Taiwanese court judgment. In reality, the main comprehensive revision to the Act took place over 25 years ago in 1998, with most provisions referencing the UNCITRAL Model Law on International Commercial Arbitration.
“Although Taiwan’s Arbitration Act was modelled on the UNCITRAL Model Law and the legislation of other advanced countries, significant gaps remain in structure and content compared with the Model Law,” Yu says, adding: “Arbitration today is increasingly transcending national boundaries. Taiwan’s current legal framework – unlike the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the UNCITRAL Model Law – still treats foreign arbitral awards separately, which creates practical difficulties and indicates a need for legislative revision.”
Taipei-based senior counsel Pijan Wu and counsel Jasmine Feng of LCS & Partners agree, jointly stating that despite the country’s solid legal infrastructure, the main challenge the arbitration sector is facing is the Act, which has not yet been fully incorporated to reflect the latest developments in the Model Law. “For instance, the current Act does not provide for tribunal-ordered interim measures or their judicial enforcement, which limits procedural flexibility and makes Taiwan’s arbitration framework less aligned with international arbitration practice. This gap has practical consequences, as parties may only rely on the court to order urgent interim relief.”
Anna Hwang, executive partner and chair of Baker McKenzie’s dispute resolution group in Taipei, says arbitration in Taiwan works well, though it “faces challenges, as do all sectors in a rapidly changing era”. She highlights several positives, including relatively low arbitration fees compared to other international arbitration institutions, while the country offers a neutral venue for cross-strait disputes, which is particularly valuable given geopolitical tensions.
The big sticking point
However, as well as limited international visibility compared to other arbitration hubs such is one significant sticking point that continues to loom over Taiwan: not being a signatory to the New York Convention.as London, Singapore and Hong Kong, there
Most nations, including EU member states and the US, do not formally recognize Taiwan as a state. While the convention is not strictly limited to sovereign states, Taiwan’s complex political status has made accession to this treaty a formidable struggle, with the People’s Republic of China consistently blocking Taiwan’s participation in international organizations and treaties that require statehood status.
“Regrettably, China’s attitude appears likely to continue in the future,” Yu remarks. He points to the practical consequences, highlighting the 2014 Clientron Corp v Devon IT case in which the US District Court for the Eastern District of Pennsylvania refused to recognize an international arbitral award made in Taiwan, citing that the country was not a signatory to the New York Convention and that its Arbitration Law does not fully follow the UNCITRAL Model Law.
“Taiwan’s exclusion from the New York Convention inhibits international commerce by making trade and investment with a major, and growing, economy less predictable and more risky,” Yu says. “It also makes that commerce less efficient and fair. It is of vital importance to both Taiwan and its trading partners to facilitate the efficient and effective resolution of cross-border commercial disputes – as the New York Convention does.”
Despite these constraints, Taiwanese courts typically exhibit a consistent willingness to recognize and enforce foreign arbitral awards, Yu adds, with judicial authorities tending to interpret and apply the formal requirements for recognition with a certain degree of flexibility. “Although Taiwan is unlikely to become a signatory to the New York Convention […] it should be considered that a series of smaller-scale bilateral and multilateral trade agreements would make the same effect. Each of these types of international agreements are fully compatible with international law and would also remedy the current, irrational exclusion of Taiwan from the Convention,” Yu states.
Leading tech position
Commenting on how Taiwan has distinguished itself from other jurisdictions, Yu says the country’s technology industry has established a leading position in the global economy, particularly in the semiconductor, electronics and information technology markets. “As these industries continue to expand their international reach, commercial disputes among technology companies are expected to become increasingly complex and cross-border in nature. Consequently, it is foreseeable that the use of arbitration in Taiwan will gradually increase, as it offers a more efficient and confidential mechanism suited for resolving high-value technological and commercial disputes.”
Hwang concurs, noting that in regard to technology-related commercial agreements, Taiwanese parties are having more of a say on where to resolve the dispute. “[Their] negotiation power is increasing, and that’s why Taiwan arbitration could be considered. Also, many Taiwanese arbitrators can speak English well, so we can conduct arbitration in foreign languages. Maybe not in French or Italian, but definitely English. In addition, Japanese culture seems very reluctant to go to arbitration. So, when there is a commercial dispute, if you don’t want to go to Japan, you can come to Taipei.”
Since both Taiwan and the People’s Republic of China use Mandarin as the primary language and cross-strait economic and trade relations have become increasingly close, the ability to effectively resolve commercial disputes between the two sides is an important factor for foreign enterprises, Yu emphasizes. “According to Article 74 of the Act Governing Relations between the People of the Taiwan Area and the Mainland Area, and the mainland’s Supreme People’s Court Provisions on the Recognition and Enforcement of Arbitral Awards from Taiwan, cross-strait courts not only mutually recognize each other’s arbitral awards but also grant them enforceability, and in practice, there are instances of mutual recognition and enforcement.”
Government hesitancy
Another obstacle facing the Taiwanese arbitral community is the reluctance among government agencies to adopt this type of dispute resolution due to the conservative nature of the public sector, Yu explains: “Many civil servants tend to believe that only court judgments, issued through formal litigation with clear procedural safeguards and defined avenues for appeal, carry sufficient legitimacy and credibility.”
“This has only become a trend in the past decade,” Hwang says. Before this, governmental agencies were the most frequent users of arbitration because the government procurement contract largely included arbitration clauses. “That was the golden age of our arbitration. However, due to repeated unfavorable arbitration rulings against these agencies, they developed significant distrust toward the arbitration mechanism. As a result, they became unwilling to resolve performance disputes through arbitration and even excluded arbitration clauses when drafting contracts.” But the people, practitioners and governmental bodies are beginning to reconsider this stance, because while the Taiwanese court system tries to be speedy, it is still slower than arbitration, Hwang says, adding: “In an era of rapid change where business activities must continue, priority should be given to choosing arbitration agreements to handle contingencies.”
Through gradual reform, demonstration projects and stronger institutional support, Taiwan’s administrative agencies could increase their confidence in arbitration, ultimately fostering a more balanced and modern dispute resolution environment aligned with international standards, Yu believes.
Change on the horizon?
In a concerted move to develop Taiwan’s arbitration framework, the CAA has established an Arbitration Law Revision Task Force. Among its recommendations is to strengthen the functions of arbitration institutions, Yu says. This would include emphasizing the importance of arbitrators’ character and conduct. It also recommends revising the procedure for arbitrator challenges. “Article 17 of the Arbitration Act, originally modelled on Article 13 of the 1985 UNCITRAL Model Law, did not explicitly provide that an arbitrator challenged for recusal could still participate in the decision on the recusal before it is confirmed. This has led to significant disputes in practical cases,” Yu says. By allowing the arbitration institution, instead of the arbitral tribunal, to decide on recusal requests, it would avoid the contentious issue of whether the challenged arbitrator can participate in the recusal decision and enhances the institution’s management of arbitrators, thereby improving arbitration quality, Yu adds
The task force’s other recommendations include introducing expedited arbitration procedures, full adoption of the New York Convention and UNCITRAL Model Law, and establishing interim measures and preliminary orders.
“Further amendments to the Arbitration Law are needed to reflect global commercial trends,” Hwang states. “Practitioners and arbitrators in the international arbitration community should be encouraged to attract more cases and participate in more activities organized by arbitration institutions. Promotion of arbitration among Taiwanese government agencies and businesses is necessary, [while] publicizing the recognition of Taiwan arbitration awards in other jurisdictions would enhance the confidence of international parties in using Taiwan arbitration.”
In addition to legislative reforms, Taiwan should focus on capacity building by expanding the pool of arbitrators with international experience, Wu and Feng say, while stronger institutional promotion and public education are required to raise awareness among local businesses, many of which still prefer litigation over arbitration.
Future possibilities
With its position in technology and legal infrastructure, Taiwan can differentiate itself and has the potential to become a regional arbitration hub in East/Northeast Asia, Hwang believes, especially for technology, commercial and IP-related matters. However, competing with London or New York in the near future will be challenging due to numerous factors such the New York Convention issue and Taiwan not being a common law jurisdiction, she adds.
As Taiwan’s economy continues to expand and its industries grow more internationalized, the proportion of disputes resolved through arbitration is expected to rise and Yu is optimistic that Taiwan’s bilingual capacity and expertise in supply-chain and technology-related disputes make it a natural candidate to emerge as a leading regional arbitration venue in Asia. “To truly compete with leading arbitration centers such as London or New York, however, Taiwan must expand beyond its technological success and develop a broader ecosystem. This means not only modernizing its Arbitration Law and enhancing the international visibility of its arbitral institutions, but also strengthening surrounding industries that support arbitration, finance, insurance, professional services and logistics,” he concludes.
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