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Awards Cannot be Vacated for Improper Application of Statutory Provisions
 
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Awards Cannot be Vacated for Improper Application of Statutory Provisions
  By Joseph B.H. Chang
 

Facts

An arbitral tribunal ordered Taiwan Water Supply Corporation to compensate its contractor for monetary losses resulting from its fault in ordering the contractor to start the construction work before it had obtained the necessary construction permit and was able to provide the construction site.

Taiwan Water Supply sought to have the award vacated by the courts. It argued that the major part of the construction project was a dam, which is not a "building" or "miscellaneous construction work" needing a construction permit in accordance with Article 28 of the Construction Law. In its award, the arbitral tribunal did not refer to any specific provisions of the Construction Law or any other law or regulation related to construction to explain why the construction at issue needed a construction permit. Therefore, Taiwan Water Supply argued, since the arbitral tribunal committed improper application of laws - which includes wrongful application and non-application of laws - and also failed to give reasons for the decision, the award should be vacated on the grounds of violation of Article 38(1)(2) of the Arbitration Law, which provides that an award must be delivered with the arbitrators' reasons for their decision.

Taiwan Water Supply further argued that the arbitral tribunal did not refer to any specific provision of the Civil Code in deciding the categories and amounts of damages for which Taiwan Water Supply was liable. It therefore maintained that the arbitral tribunal decided the contractor's damages 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 express authorization from the parties, and thus violated Article 31 of the Arbitration Law. This article provides that an arbitral tribunal may decide disputes ex aequo et bono or as amiable compositeur only if the parties have expressly authorized it to do so.

Decision

Both the Taipei District Court and the Taiwan High Court dismissed Taiwan Water Supply's claim. The Supreme Court upheld the Taiwan High Court's decision and ruled as follows:

  • An arbitral tribunal is not in violation of Article 38(1)(2) if the tribunal delivers improper reasons, rather than no reasons at all, for its decision. Therefore, the tribunal did not violate Article 38(1)(2), although its wrongful holding that a construction permit was required was an improper reason for its decision.
  • Arbitrators need not necessarily invoke statutory provisions of substantive laws for every decision made in their arbitral awards, and an arbitral tribunal cannot be accused of failing to apply the substantive laws in its arbitral award merely because it has not spelled out every relevant statutory provision of substantive law. As both parties to the arbitration knew that the need for and issuance of a construction permit are governed by the Construction Law, the arbitral tribunal could not be accused of non-application of the Construction Law merely because it did not explicitly mention Article 28 of the Construction Law in its holding that a construction permit was required. The tribunal also held that the project needed a construction permit because it made a wrongful factual finding that the major part of the construction project was buildings and miscellaneous construction works rather than a dam, and not because it wrongfully applied the Construction Law instead of the Water Resource Law.
  • While the arbitral tribunal did not explicitly refer to Article 216 of the Civil Code in its award, the reasoning of the arbitral award implied that the tribunal decided the categories and amounts of damages for which Taiwan Water Supply was liable in accordance with Article 216 of the Civil Code rather than ex aequo et bono or as amiable compositeur.

Comment

The implications of the Supreme Court decision seem to be as follows:

  • An arbitral award cannot be challenged merely on grounds of improper application of substantive law or failure to make reference to the specific provisions of substantive law on which the award is based;
  • The mere lack of an explicit reference to the specific statutory provisions of substantive law will not be regarded as evidence that the award was decided ex aequo et bono or as amiable compositeur; and

The Supreme Court is restrained in exercising its power on the substantive aspect of an arbitral award.

   
   
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