In June 2020, the United States Court of Appeals for the Fifth Circuit affirmed a U.S. $439 million judgment against Taiwan-based technology company Quanta Storage Inc. (“Quanta”) for antitrust violations. To satisfy the judgment, the Fifth Circuit ordered Quanta to surrender all of its assets, including cash, equipment and intellectual property rights. Ultimately, Quanta settled with the plaintiff, HP Inc. (“HP”) after the judgment was delivered. Nonetheless, one issue that has lingered and inspired debate is had the sides not settled, whether and how the judgment could be enforced in Taiwan, where Quanta is incorporated and most of its assets are located.
As a result of globalization, individuals and corporations often have assets in places other than their home country. Likewise, parties to a legal dispute often have assets outside the jurisdiction in which judgment against them is rendered. In Taiwan, the demand for enforcement of foreign judgments has been on a steady rise. Since 2015, courts in Taiwan have handled close to 50 such cases.
This article offers an introduction to the current mechanism and key considerations on enforcing foreign judgments in Taiwan. Please note that “foreign judgments” as defined in this article do not include those rendered by courts in China. Judgments involving parties from China are dealt with under the Act Governing Relations between the People of the Taiwan Area and the Mainland Area. For more information on enforcing those judgments, please refer to this article.
Generally, a final court judgment produces two distinct effects. First, the doctrine of res judicata gives the judgment preclusive effect and prohibits the original claimant’s re-litigation of the claims upon which judgment was rendered. Second, the executability of the judgment makes it enforceable. Under Article 402 of the Taiwan Code of Civil Procedure (the “Procedure Code”), Taiwan automatically recognizes the preclusive effect of foreign judgments except under certain circumstances. By contrast, there is no automatic recognition of foreign judgments’ executability in Taiwan. Under Article 4-1 of the Compulsory Enforcement Act, a foreign judgment must receive an “approving judgment” from a court in Taiwan to be enforceable.
Anyone seeking to enforce a foreign judgment must first file an “approving action” with a court in Taiwan. In terms of where to file, the court sitting in the judicial district where the foreign judgment debtor resides is competent to hear such actions. Thereafter, the court examines whether any of the circumstances under Article 402 of the Procedure Code exists. If so, the foreign judgment is unrecognizable and thus unenforceable. If not, the foreign judgment will be recognized with an approving judgment, and the creditor can file for compulsory enforcement. The following flowchart illustrates the procedure discussed above:
The most critical aspect of the recognition and enforcement procedure is judicial examination under Article 402 of the Procedure Code. The next section offers a detailed analysis of the examination.
Article 402 of the Procedure Code
There are four circumstances under which a foreign judgment is unrecognizable and thus unenforceable. We discuss each circumstance in turn below.
1. The foreign court lacks jurisdiction
The foreign court must have had jurisdiction, as determined under Taiwan law, to hear the original dispute and enter judgment. Often, approving actions are dismissed for this reason because of the existence and breach of a forum selection clause. Say we have a contract dispute between a U.S. plaintiff and a Taiwanese defendant. The plaintiff files suit in a Canadian court, which enters judgment for the plaintiff. The plaintiff then files an approving action with a court in Taiwan for recognition and enforcement. Under the Procedure Code, if the contract that gave rise to the original dispute includes a choice of forum other than the Canadian court (e.g. a U.S. federal court), then the Canadian court’s judgment is unrecognizable and unenforceable. Therefore, parties looking to sue abroad and enforce judgments in Taiwan would be well advised to first become familiar with Taiwan’s jurisdictional rules before proceeding with suit.
2. The foreign judgment is a default judgment against the defendant
This is the most common circumstance under which a foreign judgment is unrecognizable. Under the Procedure Code, foreign default judgments are recognizable only if the notice or summons of the initiation of action had been legally served in a reasonable time in the foreign country or had been served through judicial assistance provided under Taiwan law.
In terms of exemptions, there are two conditions which are service in the foreign country, and service in Taiwan. Courts in Taiwan generally recognize service of process in a foreign country if it is legal where carried out. However, as a matter of policy, courts in Taiwan have in the past refused to recognize substituted service in foreign countries, because such a method denies the defendant the opportunity to receive the physical notice or summons in person. It is thus best to ensure that the defendant or defendant’s counsel receive the notice or summons in person.
As for service in Taiwan, the Taiwan Supreme Court has held that service in Taiwan must be made in accordance with the procedures set out in the Law in Supporting Foreign Courts on Consigned Cases. Without it, service is ineffective even if the defendant in fact received the notice or summons via direct mail.
Most of the approving actions dismissed in the past five years are default judgments rendered without effective service of process. Therefore, it is essential to ensure that process is legally served before proceeding with any legal action abroad where subsequent enforcement in Taiwan is foreseeable.
3. The relief granted by such judgment or its litigation procedure is contrary to public policy or morals under Taiwan law.
The Taiwan Supreme Court has held that although courts in Taiwan generally do not inquire into the validity of foreign judgments, in order to maintain public policy and protect public morals, courts can undertake limited review of foreign judgments. Examples of unrecognizable judgments on public policy or morality grounds include transferring illegal goods and approving bigamy.
One particularly controversial issue is punitive damages. As a matter of policy, Taiwan only recognizes actual injury or loss to the plaintiff’s person or property as valid bases for relief. As such, a damage award greater than the plaintiff’s actual loss is likely to be deemed punitive under Taiwan law. In practice, a court ruling on an approving action for a punitive damage award would likely only approve the amount equal to the plaintiff’s actual loss and not recognize any amount in excess thereof. That said, Taiwan law does provide for punitive damages in select types of cases, such as those under the Fair Trade Act and the Consumer Protection Act, with awards up to three times the plaintiff’s actual loss. The Taiwan Supreme Court has ruled that if a foreign judgment is based on facts that would give rise to punitive damages under Taiwan law, and the amount of the award does not exceed three times the plaintiff’s actual loss, the judgment would not be contrary to public policy.
In the Quanta case mentioned at the beginning of this article, Quanta’s counsel contended on appeal that the $439 million judgment was a punitive damage award as it was triple the amount of HP’s alleged loss. Several Taiwanese legal commentators echoed the contention, raising skepticism as to whether HP could enforce the entire judgment in Taiwan. On the other hand, the U.S. District Court that had rendered the original treble damage award against Quanta opined that the award was in fact compensatory in nature, because U.S. antitrust law expressly allows for the tripling of damage awards. It remains to be seen whether a court in Taiwan would accept such an interpretation and recognize the judgment.
In addition to punitive damages, other judicial orders that may offend public policy or morals under Taiwan law include the allocation of attorney fees and the rate of prejudgment interest. In general, courts in Taiwan do not award attorney fees to the prevailing party in a suit unless the case is in the third instance, i.e. before the Supreme Court. The rate of prejudgment interest is usually 5% per annum. However, the Taiwan Supreme Court has held that foreign judgments that include awards of attorney fees and rates of prejudgment interest higher than 5% per annum can still be recognizable for enforcement purposes. Taiwan counsel should be consulted on whether attorney fees and interest are likely to be accepted by the court.
4. There exists no mutual recognition between the foreign country and Taiwan
The concept here is straightforward. The Procedure Code already provides for automatic recognition of foreign judgments’ preclusive effect. Therefore, the general principle of courts in Taiwan is to recognize the executability of foreign judgments as well unless extraordinary circumstances exist, such as where a foreign court explicitly refuses to recognize judgments rendered in Taiwan.
File for compulsory enforcement
Upon obtaining an approving judgment, the foreign judgment creditor can file for compulsory enforcement with a court in Taiwan. The filing must include both the foreign judgement itself and the approving judgment. The former provides the content and amount of the judgment, while the latter proves that the judgment is enforceable in Taiwan.
Moreover, if the foreign judgment award was calculated in foreign currency, it must be converted into New Taiwan Dollar. The enforcing court normally adopts the exchange rate as of one day before the approving action was filed.
In sum, before enforcing a foreign judgment in Taiwan, an approving judgment must be obtained. Article 402 of the Procedure Code stipulates four circumstances under which a foreign judgment is unrecognizable and unenforceable. It is best practice to become familiar with relevant laws and procedures in Taiwan before filing a claim in a foreign court that might lead to the need for enforcement in Taiwan.
For more information on enforcement matters in Taiwan, please contact Gary Kuo at email@example.com.Written November 30, 2020 By Gary Kuo, Yi-Kai Chen.