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Tips on entering into agreements with Taiwanese companies

by Ling-ying Hsu and Peter Lavelle

Foreign parties entering into contracts with Taiwanese entities are often surprised by the simplicity of the proposed terms. While contracts drawn up between two Western parties are likely to be lengthy and exhaustive, Taiwanese contracts tend to be shorter and lighter on detail. For businesses making their first foray into the Taiwanese market, this unfamiliar style of contract may be cause for alarm, and may raise certain questions – is the other party leaving out certain important terms intentionally? What are our obligations and liabilities under the contract? And how will such a concise agreement be enforced by a court?

If you find yourself asking these or similar questions about a Taiwanese contract you’ve been asked to sign, we have good and bad news for you. The good news is that the other party is not necessarily trying to take advantage of you, and while the contract they’ve draw up might appear to be overly short, this is not unusual in Taiwan. The bad news is that such contracts tend to be short because they only contain the parties’ major rights and obligations, leaving out other potentially important details that would likely have been included if the foreign party had drafted the agreement.

This discrepancy in contractual style is largely due to differences between common law and civil law jurisdictions, as well as to differences in how Taiwanese and Western parties may view the role of the contract. In common law jurisdictions, the law is generally silent regarding the parties’ obligations, whereas in civil law jurisdictions the law already defines the parties’ obligations to some extent. Furthermore, for many Western companies the goal of a contract is to make the obligations and liabilities of the parties as explicit as possible, providing an exhaustive set of rules for how the parties’ relationship will be governed, and attempting to account for every possible eventuality. By contrast, for Taiwanese parties the contract itself is often viewed as something more like a memorandum of understanding between the parties, with the idea being that the parties can hash out the remaining details over the course of their cooperative and trust-based relationship.

In attempting to bridge this gap, instead of providing a lengthy version of revisions, foreign parties negotiating with Taiwanese entities might consider drafting a point-form summary of their proposed additions to the agreement as a start. This approach can give the Taiwanese party an overview of those added terms and conditions, making them easier to understand.

In addition to a point-form summary, foreign parties who are unsure of how to proceed in negotiations with a Taiwanese entity might consider adopting the following rules of thumb:

1. Make the wording of your clauses as concise and understandable as possible, and avoid using redundant lists of synonymous terms as a way of exhaustively covering a single concept. For example, if you want to include a requirement that your Taiwanese partner not deploy your technology or copyrighted work in any way, consider just stating this directly in plain language, rather than saying that you shall not “use, develop, extend, enhance, or deploy” the work, etc. While foreign parties may be used to this kind of “legalese”, it could be confusing and unfamiliar for a Taiwanese party.

2. Make efforts to ensure that the parties’ obligations are feasible, and do not include any unrealistic requirements that neither party will actually comply with in practice. For example, if you would like to include a requirement that your Taiwanese partner submit any and all marketing materials for your approval before their use, be sure that you also have a workable mechanism in place for them to do so. If you do not expect to actually enforce such a requirement in practice, consider leaving it out entirely.

3. Emphasize the key points of your proposed additions to the agreement. If you regard some aspect of an additional clause as being particularly important, make this clear in the wording of the clause itself. For example, if you would like your Taiwanese partner to keep certain specific information strictly confidential, it might be better to explicitly identify the information you are concerned about, rather than to rely on a blanket confidentiality requirement.

4. Localize your agreement to ensure that it does not violate any laws in Taiwan that could render the clause invalid or unenforceable. For example, the Fair Trade Act prohibits imposing restrictions on the resale price of goods, and the Personal Data Protection Act requires notice and consent to collect, process, and use personal information.

For large foreign entities using standard templates for their contracts, it might seem inconvenient or inefficient to customize an agreement in the ways suggested above. That said, localizing an agreement in this way can reduce the risk of a bad outcome in your contractual relationship with a Taiwanese party. It is also advisable to highlight the major obligations that you would like your Taiwanese partners to pay attention to in your email correspondence with them.

For more information on contract matters in Taiwan, please contact Ling-ying Hsu at lhsu@winklerpartners.com, or Peter Dernbach at pdernbach@winklerpartners.com.

 

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