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  • Interpretation
  • No.591【Under Translation】
  • Date
  • 2005/03/04
  • Issue
    • Is the Arbitration Act, in failing to specify a contradiction in reasoning of an arbitral award as a ground for bringing an action to set aside such award, in violation of the Constitution?
  • Holding
    •        The right of instituting legal proceedings as guaranteed under Article 16 of the Constitution is aimed to ensure that when the people*s rights are infringed, they may institute legal proceedings pursuant to procedures set by the law, and shall be entitled to fair trials.  In respect of the procedures to be followed and the relevant requirements, however, the legislature may set forth reasonable and equitable rules after weighing such various factors as the type and nature of cases, the functions of a litigation system, as well as the statutory means to resolve a dispute out of court.  As long as the relevant provisions tally with the aforesaid intentions and are necessary, they are not contrary to the constitutional intent to guarantee the right of instituting legal proceedings.
      
    •        The types of civil disputes have tended to become more and more diverse as the social and economic circumstances have constantly changed.  In order to determine the relative duties of disputing parties and thus to resolve disputes, the State has established such mechanisms as arbitration and other non-litigious means in addition to the litigation systems.  Under the doctrine of national sovereignty and the constitutional guarantee of the people’s fundamental rights, the people should assume principal roles in the procedure so as to enjoy the rights of procedural disposition and procedure option whereby they are enabled to choose through mutual agreement to resolve a dispute by means of litigation or any other statutorily prescribed non-litigious dispute resolution procedure to the extent that public interests are not contravened since they are the subjects of rights under private law.  Arbitration is a system under which the parties, according to the law and based on the principle of freedom of contract, choose through mutual agreement to resolve a dispute via non-litigious means.  The system has the dual effects of both procedural and substantive laws and possesses the quality of autonomous resolution of disputes arising from private causes, which is acknowledged by the Constitution.
      
    •        The Arbitration Act as amended and promulgated on June 24, 1998, provides that, “where an arbitral award shall state the reasons upon which it is based but fails to do so,” one party may bring an action against the other to set aside the arbitral award (See Articles 40-I (i) and 1st half of 38 (ii) thereof).  Although the said Act does not list contradiction in reasoning of an arbitral award as a ground for bringing such an action, it may well be a systemic design made by the legislature for purposes of developing a healthy environment necessary to preserve the arbitration system after considering the characteristics of arbitration, as well as consulting the common practices of international commercial arbitration.  Therefore, it has not gone beyond the bounds of legislative liberty and thus does not contravene the intent of Article 16 of the Constitution to protect the people’s right of instituting legal proceedings.
  • Reasoning
    •        Article 16 of the Constitution unambiguously provides for the people’s right of instituting legal proceedings.  There is no doubt it is intended to ensure the people’s right to bring an action pursuant to procedures set by the law if and when their rights are infringed, for which the courts have a duty to hold fair trials.  In respect of the procedures to be followed and the relevant requirements, however, the legislature may set forth reasonable and equitable rules after weighing such various factors as the type and nature of cases, the functions of a litigation system, as well as the statutory means to resolve a dispute out of court.  As long as the relevant provisions are in line with the aforesaid intentions and are necessary, they are not contrary to the constitutional intent to guarantee the right of instituting legal proceedings.
      
    •        The types of civil disputes have tended to become more and more diverse and varied, as the social and economic circumstances have constantly changed.  In order to determine the relative duties of disputing parties and thus to resolve disputes, the State, in formulating its legal systems, has not only established the litigation system, but also created such non-litigious mechanisms as arbitration, mediation, conciliation and intercession.  Under the doctrine of national sovereignty and the constitutional guarantee of the people’s fundamental rights as espoused by a contemporary state ruled under law, the people should assume principal roles in a lawsuit or other proceedings so as to enjoy the rights of procedural disposition and procedure option whereby they are able to evaluate the substantive and procedural interests involved in various disputes and then choose through mutual agreement to resolve a dispute by means of litigation or any other statutorily prescribed non-litigious dispute resolution procedure to the extent that public interests are not contravened since they are the subjects of rights under private law.  Arbitration is a system under which the people mutually agree to submit to an arbitral tribunal any private dispute arising out of a defined legal relationship between the parties for purposes of resolution of such a dispute (See Articles 1, 2 and 37 of the Arbitration Act).  Under such dispute resolution mechanism, the parties, according to the law and based on the principle of freedom of contract, choose through mutual agreement to resolve a dispute via non-litigious means.  The system has dual effects of both procedural and substantive laws and possesses the quality of autonomous resolution of disputes arising from private causes, which is acknowledged by the Constitution.
      
    •        In order to promote the healthy development of the arbitration system, the State should render necessary assistance and supervision.  It is the common practice of the international community, however, that the legislatures will, after considering the characteristics of arbitration, as well as respecting the mutual agreement of the parties to resolve their disputes by means other than litigation, enact reasonable and appropriate legal provisions for the grounds under which a party may make an application for setting aside an arbitral award.  Under the UNCITRAL Model Law on International Commercial Arbitration as adopted and recommended by the United Nations in 1985, when it is a matter of the recourse to a court for setting aside an arbitral award, except where “the award is in conflict with the public policy of a State” and thus concerns a substantive matter, all other grounds are considered material procedural defects, e.g., a party to the arbitration agreement was under some incapacity; the said agreement is not valid; a party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his or her case; the arbitral award contains decisions on matters beyond the scope of the submission to arbitration; the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the arbitration agreement of the parties or was not in accordance with the arbitration law; and the subject matter of the dispute is not capable of settlement by arbitration (See Articles 34 and 5 thereof).  The foregoing provisions are intended to preserve the autonomy and independence of the arbitration system and to bring its function of speedy resolution of disputes into full play by preventing the judiciary from easily conducting a general review of the substantive issues of an arbitral award.
      
    •        Article 40-I of the Arbitration Act (formerly known as the Commercial Arbitration Act prior to its amendment on June 24, 1998) unambiguously provides for the various situations under which a party may make an application against the other for setting aside an arbitral award.  The grounds provided for under Subparagraph (i) thereof include: “the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration”; “the arbitral award shall state the reasons upon which it is based but fails to do so”; or “the arbitral award orders that a party engage in any conduct not permitted by the law.”  Therefore, an action may be brought to set aside an arbitral award not only if the material contents of the award are contrary to any mandatory or prohibitive regulation under the law, but also if the award fails to state the reasons upon which it is based when it should do so.  Nevertheless, contradiction in reasoning of an arbitral award is not a ground for bringing such an action.  A look into the legislative history of the Arbitration Act shows that, under Article 33-II (v) thereof, an arbitral award, in principle, shall state the facts and reasons upon which it is based, but the facts and reasons may be omitted where the parties have agreed that no reasons are to be given.  Given this, the court may determine whether an arbitral award fails to state the reasons upon which it is based when it should do so in light of the records contained in relevant documents such as the arbitral award and arbitration agreement.  On the other hand, however, it is not possible to decide if there is any contradiction in reasoning unless and until a substantive review of the merits of the matter at issue is conducted in respect of the relevant facts of the matter and the appropriateness of the reasons for the award.  Hence, the latter situation is obviously different from one in which “the reasons should have been stated.”  Having considered the characteristics of arbitration, which are aimed at resolving disputes between the parties under the principle of procedural autonomy, the legislature has enacted reasonable provisions after consulting the common practices of international commercial arbitration so as to develop a healthy environment necessary to preserve the arbitration system.  Therefore, it has not gone beyond the bounds of legislative liberty and thus does not contravene the intent of Article 16 of the Constitution to protect the people’s right of instituting legal proceedings.
      
    • *Translated by Vincent C. Kuan.
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