Taiwan: Can A Forum Selection Clause Divest Taiwan Courts Of Jurisdiction?

Whether and to what extent is a foreign forum selection clause enforceable? Taiwan's courts take a liberal view of this question.  Parties to a contract are free to create such a clause to have their disputes tried at a foreign court even if the foreign court does not have inherent jurisdiction over the disputes, but the clause must meet a three-part test to get recognized as enforceable by a Taiwan court: first, the dispute must not be subject to exclusive jurisdiction of a Taiwanese court (e.g. a dispute over a piece of land in Taiwan); second, the foreign court must not be subject to a rule that prohibits against acquired jurisdiction through consent; and third, the clause must not be "obviously unfair."

Despite this liberal attitude, Taiwan's courts take a stricter stance when such a clause might be interpreted to have the disputes tried exclusively at a foreign court at the expense of divesting a Taiwan court of its inherent jurisdiction.  When the parties' intention is unclear, parallel jurisdiction is usually the preferred interpretation for this sort of clause (just as dual citizenship is basically allowed for a Taiwanese national who becomes a naturalized foreign citizen.)  This position has been reaffirmed in a recent decision by Taiwan's Supreme Court. Overseas Credit Guarantee Fund (OCGF) v. Chung, 108 Tai-Kang 373, Taiwan's Supreme Court (May 2019).

Brought before the Supreme Court were actually two forum selection clauses, one nesting within the other, because the dispute arose from a tripartite relationship among (1) OCGF, a credit insurer created by Taiwan's government, (2) Chung the borrower who holds dual Taiwanese and US citizenship, and (3) a bank in Los Angeles, California as the lender.  At the outer layer, the agreement produced in English between OCGF and Chung contains a clause that reads:

Any indebtedness owed by Borrower to OCCGF (the old name of OCGF—the writer's note) shall be governed by and construed under the laws and submitted to the court specified in the Credit Facility Agreement between the Bank and the Borrower.

Linked to the above clause was the clause in the Credit Facility Agreement (also produced in English) which specifies the forum consented by the bank and the borrower. It reads:

If there is a law suit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of LOS ANGELES County, the State of California.

The OCGF sued the borrower based upon a subrogation claim to recover OCGF's insurance payment to the bank triggered by the borrower's default in repayment to the bank loan, and it chose to file the lawsuit in Taiwan.  To be more precise, the lawsuit was filed with the District Court of the Kaohsiung City, where the borrower's household registration was kept.  That is because, number one, under Article 1 of Taiwan's Code of Civil Procedures, a district court has inherent and general personal jurisdiction over any person residing within its jurisdiction.  Number two, more importantly, under a long-standing court practice, an individual defendant is deemed to be a resident of Taiwan suppose he or she holds a Taiwanese household registration, while evidence of actual residence is not necessary.

Did the Taiwanese district court have jurisdiction over this subrogation claim dispute? Or, to put it in another way, did the two-fold forum selection arrangement as described above create exclusive jurisdiction of the LA courts over the subrogation claim dispute between the OCFG and the borrower?  The lower courts' answer was "no" to the first question and "yes" to the second, and so they ruled in the borrower's favor and dismissed the case on the ground of lack of jurisdiction.

However, the Supreme Court adopted the opposite view, holding that:

A consent to jurisdiction in the international level should normally be presumed to have merely the effect of allowing the consented court to exercise general jurisdiction (over the parties regarding the disputes of concern), but not necessarily exclusive jurisdiction, unless there is an explicit expression by the parties or a special circumstance indicating otherwise to support a finding of acquired exclusive or sole jurisdiction (of the consented foreign court).

In the present case, the Credit Facility Agreement between the borrower and the bank includes a clause which, as the district court found, stipulates that the courts of Los Angeles are consented to exercise exclusive jurisdiction over this dispute.  However, the disputed clause in the agreement between the OCGF and the defendant merely stipulates that these two parties agree to be subject to the jurisdiction of the court specified in the agreement between the borrower and the bank, but it does not stipulate explicitly that the courts of LA shall be the courts with exclusive or sole jurisdiction by consent.

Moreover, OCFG the plaintiff is a legal person incorporated under this country's laws, and the defendant is again a national of this country and holds a household registration in Kaohsiung City.  Therefore, the (district) court of this country has inherent jurisdiction over civil disputes between the said two parties.  Since no consent from the same parties can be found to preclude any court of this country from exercising its jurisdiction, the law shall not deny OCFG's filing a lawsuit with the district court of the county where the defendant's residence is located.

Interestingly, the lower courts' decisions did not reflect (as the Supreme Court's decision did) a presumption for retaining Taiwan courts' jurisdiction in face of a foreign forum selection clause whose textual meaning is found to be obscure.  Instead, the lower courts held that where a foreign forum selection clause is obscure in meaning, the court should "probe into the parties' intention" by taking into consideration all relevant facts.  More, instead of taking the defendant's household registration at face value, the district court judges delved into the issue and discovered that, despite his Taiwanese household registration, the defendant had been a naturalized US citizen since 1995, had been living in California since 1984, and had seldom visited Taiwan since 1997.  It was based on these facts, coupled with the defendant's assertion that the loans he borrowed in 1998 were for the use of his company which was again located in LA, that the lower courts ruled to divest themselves of jurisdiction over this case.  However, the Supreme Court did not accept this approach.

At the end of the day, parties to a contract shall be more well-advised with wordings of a contract by the force of which they intend to get totally detached from a Taiwan court's inherent jurisdiction, especially when at least one party is an individual and still holds a household registration in Taiwan.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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