The provisions for contributory negligence under Paragraph 1 of Article 217 of the Civil Code may also apply to the calculation of contractual damages except for a special agreement that stipulates otherwise (Taiwan)

Nora Shih

The Supreme Court rendered the 107-Tai-Shang-310 Civil Decision of December 6, 2018 (hereinafter, the “Decision”), holding that the provisions for contributory negligence under Paragraph 1 of Article 217 of the Civil Code may also apply to the calculation of contractual damages except for a special agreement that stipulates otherwise.

According to the facts underlying this Decision, Company A, which is not a party to this lawsuit, became insolvent on February 22, 2007.  As a result, Company A’s creditor banks including the two parties in this lawsuit began to meet to discuss arrangements to secure their claims in March of the same year.  In the meetings, the representative banks attending the meeting adopted a resolution to apply for the reorganization of Company A and to enter into a retainer agreement to retain the Appellant to apply for the reorganization of Company A and to take relevant emergency measures.  After applying to the court for Company A’s reorganization, the Appellant assigned the entirety of its NT$567 million claim against Company A to the Appellant’s fully-owned Company B, not a party to this lawsuit, during the hearing of the reorganization case.  As a result, Company B could additionally apply for compulsory enforcement against Company A outside of the reorganization procedure pursuant to relevant laws and regulations at that time and received over NT$460 million out of the claim so assigned as a result of the enforcement.  The Appellees asserted as follows.  The above behavior of the Appellant violated the retainer agreement, and the ancillary obligations such as protection, care, notification and confidentiality under the reorganization agreement were not fulfilled, either.  As a result, they could not receive the distribution of the enforcement proceeds received by Company B which they would otherwise have been entitled to as Company A’s entire creditors according to the reorganization sequence in the course of the reorganization procedure and thus each sustained damage.  Therefore, a complaint was filed to seek compensation.  The original trial court ruled in favor of the Appellees.  Dissatisfied, the Appellant appealed.

According to this Decision, Article 217, Paragraph 1 of the Civil Code provides: “If the injured person has negligently contributed in causing or aggravating the injury, the court may reduce or release the amount of the compensation.” This provision stipulates the principle of contributory negligence.  The legislative objective is to pass through any damage caused by the negligence of a person to another person.  This is a legal principle established based on the fairness principle, which dictates the damages system, and the principle of good faith, which guides the relationship of indebtedness.  The application of this provision is not limited to statutory damages claims for tort.  To wit, it is difficult to conclude that the contractual damages do not apply to the calculation of a compensation except for a special agreement that stipulates otherwise. Therefore, if a party contends that the victim has contributory negligence, the court shall order the party to make a necessary statement and produce evidence before the parties are presented with relevant materials for a debate in order to decide if the compensation of the debtor should be reduced or waived.  The court shall not ignore this; otherwise, the decision will be illegal for a lack of sufficient grounds.

In addition, according to this Decision, the Appellant contended as follows.  The banks who are Appellees were also the reorganizers who prepared the reorganization plan.  In addition, the Appellees took up as high as 98.8% of the voting rights over Company A’s secured reorganization claim and had the right to veto the reorganization plan.  However, they did not exercise the right.  As a result, after the execution and distribution conducted by the reorganizers based on the reorganization plan which had been adopted during the meetings among related parties and submitted to the court for recognition, the Appellees neither appealed or raised an objection against the reorganization ruling nor filed a motion to terminate the reorganization procedure.  Even if the Appellant should assume damages liability to the Appellees, still the Appellee also contributed to the negligence since they were negligent in preventing or reducing the damage when they were obviously aware of the damage to them as a result of the execution of the reorganization plan.  Failing to explore this and to provide reasons for granting or denying the objection, the original trial court elected to make a determination unfavorable to the Appellant.  Since the original trial court was unlawful for insufficiency of grounds, the original decision was reversed and remanded.