With ongoing globalization, international trade has become a significant driver of economic growth for many countries. As businesses engage in cross-border transactions and contract signing, disputes inevitably arise, which may require resolution through international litigation. To effectively manage potential disputes, it is essential to include a clause in the contract specifying the exclusive jurisdiction of a preferred court. This proactive approach can significantly minimize the complications of litigation in the future.

This article provides an overview of recent rulings in Taiwan related to international jurisdiction, highlighting key considerations concerning exclusive jurisdiction clauses in contracts. We aim to provide guidance for businesses entering into international trade agreements.

1. Clearly Stipulate that a Specific Foreign Court has Exclusive Jurisdiction

For instance, in the Supreme Court Civil Ruling No. 111-Tai-Kang-173 (2022), a bill of lading between a Danish company and a Taiwanese company stated: “In all other cases, this bill of lading shall be governed by and construed in accordance with English law and all disputes arising here under shall be determined by the English High Court of Justice in London to the exclusion of the jurisdiction of the courts of another country.” In this case, the Supreme Court acknowledged that the parties had expressly agreed to designate the “English High Court of Justice in London” as the exclusive and sole jurisdiction for all disputes arising from the contract. Consequently, even if there were other grounds for jurisdiction by Taiwanese courts, such jurisdiction would be nullified by the parties’ exclusive agreement.

Conversely, if a contract merely designates a specific foreign court as having jurisdiction without explicitly excluding the jurisdiction of other courts, it indicates that the designated foreign court has jurisdiction but does not confer exclusivity. In this case, the Taiwanese courts still retain jurisdiction over disputes arising from the contract.

For example, in the Supreme Court Civil Ruling No. 108-Tai-Kang-373 (2019), a Taiwanese individual borrowed money from a credit bank in Los Angeles, USA. The promissory note included a clause stating: “If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of LOS ANGELES County, the State of California.” The Supreme Court concluded that this clause merely stipulated the mutual agreement to designate the “Los Angeles court” as the court of jurisdiction, but did not explicitly grant that court exclusive jurisdiction. Therefore, since the parties did not agree to exclude the jurisdiction of Taiwanese courts, the Taiwanese courts still retained jurisdiction over disputes arising from the contract.

2. The Designated Foreign Court Must Recognize the Agreed Jurisdiction

In addition to clearly stipulating that a specific foreign court has exclusive jurisdiction, the parties must also ensure that the designated foreign court recognize the agreed-upon jurisdiction.

For example, in the Taiwan High Court Civil Ruling No. 111-Kang-1487 (2022), two Taiwanese companies included the following clause in their bill of lading: “The Contract evidenced by or contained in this Bill of Lading shall be governed by laws of Singapore, except as maybe otherwise provided for herein, and any action hereunder shall be brought exclusively before the courts in Singapore.” The Taiwan High Court determined that this wording did not designate a specific court in Singapore, and under Singaporean law, agreements on jurisdiction for shipping contracts are not permitted. Therefore, as the Singaporean courts did not recognize the agreed jurisdiction, Taiwanese courts had jurisdiction over the matter.

3. Agreements on Jurisdiction Must Not Be Unconscionable

To prevent one party to the contract from exploiting its superior position and stronger bargaining power to draft standardized contracts with terms that significantly disadvantage the other party, Taiwan’s legal practice holds that if an agreement on jurisdiction exhibits unconscionability, it is deemed invalid.

For example, in the previously mentioned Taiwan High Court Civil Ruling No. 111-Kang-1487 (2022), the shipping contract was a standardized contract drafted by one party, with the total amount in dispute being approximately TWD420,000 (around USD13,100). Considering that all evidence was located in Taiwan, requiring the other party to travel to Singapore for litigation was clearly not cost-effective and would increase the inconvenience of the lawsuit. Therefore, the court ruled that the clause designating exclusive jurisdiction to the Singaporean court was invalid due to unconscionability, and concluded that Taiwanese courts had jurisdiction over the matter.

In summary, if a domestic company enters into a contract with a foreign company and both parties wish to designate a specific court for exclusive jurisdiction, we advise clearly stipulating in the contract that all disputes arising therefrom will be under the exclusive jurisdiction of a specific court. Additionally, it is important to consider whether the local laws of that court impose any restrictions on the agreed jurisdiction. Furthermore, one should ensure that the agreement on jurisdiction does not result in unconscionability or significant disadvantages for the other party. This approach will help ensure that, when disputes arise, the originally designated court will have jurisdiction.

Co-written November 1, 2024 by Gary Kuo, Pei-hsu Wu, and Shin Chiang.

If you would like to know more about relevant regulations or issues, please contact Gary Kuo at gkuo@winklerpartners.com or Pei-hsu Wu at pwu@winklerpartners.com.

[1] Supreme Court Civil Ruling No. 480-Tai-Kang of (2022).