Facts

In a recent case, disputes with respect to deferred performance and termination of a construction contract between the I-Lan county government and the contractor were referred to the Republic of China Arbitration Association for resolution. The arbitral award went against the county, which then brought an action with the court to vacate the award.

The county raised two major arguments in the judicial proceeding. First, it argued that the arbitrators did not express their reasons with respect to part of the county's important arguments, in violation of Article 38 of the Arbitration Law, which provides that an award must be rendered with the arbitrators' reasons for their decision. Second, it alleged that the arbitral tribunal decided the disputes ex aequo et bono (ie, according to what is right and good) or as amiable compositeur (ie, according to legal principles that it believes to be just, without being limited to any national law), without authorization expressly given by the parties, and thus violated Article 31 of the Arbitration Law, which provides that the arbitral tribunal may decide the disputes ex aequo et bono or as amiable compositeur if the parties expressly authorize it to do so.

Decision

Both the district court and the High Court dismissed the county's claim. The Supreme Court upheld the High Court's decision and ruled as follows:

• An arbitral tribunal is not in violation of Article 38 of the Arbitration Law if it renders reasons for its decision but does not express its opinions in its award on every argument put forward by the parties. Article 38 provides that an arbitral award must be rendered with "reasons" rather than "sufficient reasons addressing every argument or allegation put forward by the parties". In other words, in order to violate Article 38 an arbitral award must contain no reasons at all, rather than insufficient reasons.
• The arbitral tribunal referred to the criteria stipulated in certain provisions of the Government Procurement Law, which had not been promulgated when the construction contract was signed, in order to decide facts and interpret some ambiguous provisions of the construction contract. Therefore, this reference was merely a method of interpreting the contract rather than improper application of a law that did not exist when the construction contract was signed.
• With regards to the issue of whether the county had to pay to the contractor the retained prices after termination of the construction contract, the arbitral tribunal reached its decision by applying the 'change of circumstances' principle stipulated in the Civil Code rather than by deciding the dispute ex aequo et bono or as amiable compositeur.
• Article 31 of the Arbitration Law, which was amended on June 24 1998 and modelled on Paragraph 3 of Article 28 of the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration, allows the arbitral tribunal to dispense with the strictness of the codified law in favour of natural equity and decide the disputes ex aequo et bono or as amiable compositeur if the parties expressly authorize it to do so. However, if the contract is ambiguous, the arbitral tribunal must apply general principles of law, the good faith principle and the change of circumstances principle stipulated in the Civil Code in order to explore and interpret the real intention of the contractual parties. Therefore, the arbitral tribunal in this case neither refused to apply the statutory provisions nor decided the disputes ex aequo et bono or as amiable compositeur.

Comment

The implications of the Supreme Court decision seem to be that an arbitral award cannot be challenged merely on grounds of insufficient reasons, regardless of how insufficient or disagreeable the reasons in the award may be.
In addition, the decision shows that it is very difficult to draw a line between (i) an arbitral tribunal's decision by application of the general principles of law, the good faith principle and the change of circumstances principle stipulated in the Civil Code, and (ii) a decision ex aequo et bono or as amiable compositeur.