July 2017
To interpret a standard contract, the purposes of the contract should be considered first, and the principle of interpretation favorable to consumers under the Consumer Protection Law applies only when doubts over contractual terms remain unresolved(Taiwan)
2017.3.29
Sean Liu
The Taiwan High Court rendered the 106-Chung-Shang-1028 Civil Decision of March 29, 2017 (hereinafter, the "Decision"), holding that to interpret a standard contract, the purposes of the contract should be considered first, and the principle of interpretation favorable to consumers under the Consumer Protection Law applies only when doubts over contractual terms remain unresolved.
According to the facts underlying this Decision, A asserted that after B had issued a domestic unsecured convertible corporate bond (hereinafter, the "Corporate Bond at Issue"), A applied to convert the Corporate Bond at Issue into common shares. However, B rejected the conversion request on the ground that the transfer of shares was suspended during the lock-in period at issue. Therefore, A filed a complaint to compel B to convert A's Corporate Bond at issue into common shares, transfer the same to A's settlement account and pay stock dividends. B contended that since Article 9, Paragraph 1 of the conversion rules at issue exclude the lock-in period from the conversion period, A's conversion request certainly did not effectively lead to the conversion.
According to the Decision, Article 11, Paragraph 2 of the Consumer Protection Law provides that in case of any doubt concerning the terms of a standard contract, interpretation favorable to consumers shall be applied. This is known as the interpretation principle for ambiguous clauses in academic theories. However, the purposes of a contract, general social concepts, trading convention and ordinary and objective circumstances should be considered first in the sequence of contractual interpretation with the principle of good faith included in the interpretation. The interpretation for ambiguous clauses applies only when the meaning of any dubious contractual clause still cannot be determined. Therefore, it is not true that whenever there is any doubt about a contractual clause, interpretation favorable to the party who is a consumer should be directly applied purely in the interest of the consumer.
It was further pointed out in the Decision that since the conversion rules at issue did not contain specific requirements as to whether the beginning and ending dates of the "period of suspended stock transfer pursuant to law" should be notified in writing or via public announcement, there were still doubts as to which notification method was more appropriate and thus there was a lack of clarity. However, the changes of the holders of the Corporate Bond at Issue took place according to the turnover of the trading market. It was obviously difficult to notify the holders one by one. In addition, B did not have a list of the holders, either. Moreover, stock market investors are very familiar with the Market Observation Post System and are accustomed to collecting material information of listed or OTC-traded companies through such system, and corporate bond holders are supposed to pay attention to the period in which their rights can be exercised instead of unilaterally imposing notification cost on the Appellee. In addition, the Taipei Exchange only requires announcements on the Internet. Apparently, notification of the beginning and ending dates of "period of suspended stock transfer pursuant to law" to bond holders should be sufficient with no need to serve a written notice. Therefore, as previously stated, the doubt was clarified when it was apparent that notification may be made via public announcement as a result of interpretation. Since there was no longer any ambiguity, Article 11, Paragraph 2 of the Consumer Protection Law no longer applied.
It was further held in the Decision that A's assertion that under the circumstance that the conversion rules at issue were standard contract and lacked provisions concerning whether the transfer suspension period should be communicated to bond holders in writing or via public announcement, B should have delivered a written notice of the beginning and ending dates of the "period of suspended stock transfer pursuant to law" and should not have used any public announcement in lieu of the written notice since interpretation favorable to the consumer should be rendered pursuant to Article 11, Paragraph 2 of the Consumer Protection Law was not acceptable. Therefore, A's appeal was rejected with the decision against A upheld.
Sean Liu
The Taiwan High Court rendered the 106-Chung-Shang-1028 Civil Decision of March 29, 2017 (hereinafter, the "Decision"), holding that to interpret a standard contract, the purposes of the contract should be considered first, and the principle of interpretation favorable to consumers under the Consumer Protection Law applies only when doubts over contractual terms remain unresolved.
According to the facts underlying this Decision, A asserted that after B had issued a domestic unsecured convertible corporate bond (hereinafter, the "Corporate Bond at Issue"), A applied to convert the Corporate Bond at Issue into common shares. However, B rejected the conversion request on the ground that the transfer of shares was suspended during the lock-in period at issue. Therefore, A filed a complaint to compel B to convert A's Corporate Bond at issue into common shares, transfer the same to A's settlement account and pay stock dividends. B contended that since Article 9, Paragraph 1 of the conversion rules at issue exclude the lock-in period from the conversion period, A's conversion request certainly did not effectively lead to the conversion.
According to the Decision, Article 11, Paragraph 2 of the Consumer Protection Law provides that in case of any doubt concerning the terms of a standard contract, interpretation favorable to consumers shall be applied. This is known as the interpretation principle for ambiguous clauses in academic theories. However, the purposes of a contract, general social concepts, trading convention and ordinary and objective circumstances should be considered first in the sequence of contractual interpretation with the principle of good faith included in the interpretation. The interpretation for ambiguous clauses applies only when the meaning of any dubious contractual clause still cannot be determined. Therefore, it is not true that whenever there is any doubt about a contractual clause, interpretation favorable to the party who is a consumer should be directly applied purely in the interest of the consumer.
It was further pointed out in the Decision that since the conversion rules at issue did not contain specific requirements as to whether the beginning and ending dates of the "period of suspended stock transfer pursuant to law" should be notified in writing or via public announcement, there were still doubts as to which notification method was more appropriate and thus there was a lack of clarity. However, the changes of the holders of the Corporate Bond at Issue took place according to the turnover of the trading market. It was obviously difficult to notify the holders one by one. In addition, B did not have a list of the holders, either. Moreover, stock market investors are very familiar with the Market Observation Post System and are accustomed to collecting material information of listed or OTC-traded companies through such system, and corporate bond holders are supposed to pay attention to the period in which their rights can be exercised instead of unilaterally imposing notification cost on the Appellee. In addition, the Taipei Exchange only requires announcements on the Internet. Apparently, notification of the beginning and ending dates of "period of suspended stock transfer pursuant to law" to bond holders should be sufficient with no need to serve a written notice. Therefore, as previously stated, the doubt was clarified when it was apparent that notification may be made via public announcement as a result of interpretation. Since there was no longer any ambiguity, Article 11, Paragraph 2 of the Consumer Protection Law no longer applied.
It was further held in the Decision that A's assertion that under the circumstance that the conversion rules at issue were standard contract and lacked provisions concerning whether the transfer suspension period should be communicated to bond holders in writing or via public announcement, B should have delivered a written notice of the beginning and ending dates of the "period of suspended stock transfer pursuant to law" and should not have used any public announcement in lieu of the written notice since interpretation favorable to the consumer should be rendered pursuant to Article 11, Paragraph 2 of the Consumer Protection Law was not acceptable. Therefore, A's appeal was rejected with the decision against A upheld.
