by Chia-Chen Erin Shih and Rick Bernardi
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When business transcends national boundaries, it’s vital for companies to understand the legal system where they are doing business. Nichani Law Firm Associate Erin Shih has practiced law in both Taiwan and the United States, and provides a few examples of some of the differences between the American and Taiwanese legal systems.
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In a world of globalized business and economies, where ideas, capital, products, and even labor are increasingly becoming transnational in nature, it might seem at first glance that for business, national boundaries are becoming irrelevant relics of the past.
Of course, as any company that must deal with intellectual property laws, capital controls, import/export regulations, and labor immigration across various jurisdictions can attest, there’s a world of difference between countries making it easier to conduct business in a global economy, and countries eliminating their legislative and jurisdictional authority altogether.
And as any company conducting business can attest, operating within a framework of laws is vital to that company’s interests. What happens, for example, when a business deal becomes a business dispute?
International Business Deals (Sometimes) Bring International Business Disputes
Silicon Valley is synonymous with the Tech Industry. What began as a 1939 tech start up in a 20 square meter (216 square feet) one-car garage, has since grown to a now- global industry, with the geographical footprint of the original “Silicon Valley” now spreading across 3,000 square kilometers (1,350 square miles), and then some, at the southern end of the San Francisco Bay Area.
The HP Garage—Birthplace of Silicon Valley
Photo: Arild Finne Nybø, arny.no
But as the Tech Industry has spread across the world, so too have a number of local variations on the place name “Silicon Valley.” Across the Pacific Ocean, “The Silicon Valley of Taiwan” is the Hsinchu Science Park, home to Taiwan Semiconductor Manufacturing Co., United Microelectronics Corp., and other global Tech Industry powerhouses.
Because global industry (in this case, the Tech Industry) conducts business on a global scale, it’s extremely common for companies in global industries to be entering into business deals with other companies in foreign jurisdictions.
And that will always raise the question: Whose laws govern the deal, and more importantly, what do we need to know about the legal landscape in that jurisdiction?
When business is global, no matter where you live and work, the geographic boundary may seem to become invisible. A deal is a deal. A dispute is a dispute. And to some extent, that is true.
But what you understand about business disputes in one jurisdiction may not hold true in another jurisdiction. And ultimately, whether drafting a contract, or litigating a dispute, the object isn’t simply to know the law, but to understand how to achieve the business objectives of the company through the strategic use of the law.
Understanding Differences Between the Legal System Where Your Company Is Based And Where It Is Doing Business Is Vitally Important For Global Companies
The vast majority of business deals are completed more or less as agreed upon. But occasionally, a dispute arises that defies an easy resolution. When the dispute involves an international business deal, and differing legal systems, what we assume we know about those differing legal systems, and what we actually understand about those differing legal systems can make a complex dispute even more complex.
When companies are operating under different legal systems, waiting until a dispute arises before considering the complexities of differing legal systems can lead to unfavorable outcomes. These differences must be taken in to account before developing a legal strategy for reaching an agreement. For example, are there specific requirements to be taken into consideration when drafting contracts between companies that are operating in two different jurisdictions? Should there be a clause about which party pays the attorney’s fees if a dispute arises? Can a clause, a sentence, or even a word be interpreted in a way that harms your company?
I began my legal career in Taiwan, where I served as a prosecutor for several years. In Taiwan, the civil legal system is very different from a common law legal system like the one in the United States. Today, I practice law in United States. Having practiced law under both legal systems, I have personally experienced the enormous differences between the two systems. Some of the differences I’ve observed are:
1. Civil Law vs. Common Law
In Taiwan’s Civil Law system, the courts apply the codes to the facts of a case. The courts in Taiwan also abide by precedents set by the higher courts, especially the precedents set by the Supreme Court, which are accorded the utmost deference. However, compared to a Common Law system like the United States, the courts in Taiwan refer to fewer precedents when applying the law to a case.
In contrast, in the U.S. both codes and case law are sources of law, which means that it is critically important in litigation for your lawyers to not only argue how the relevant codes apply to the facts of the case, but also to support their argument with “case law” (court rulings from previous cases) in which the fact pattern is similar to the facts in your case.
If there is relevant case law (and there usually is), your lawyers will either explain to the court how your case is exactly the same as the previous case, or they will explain how your case is different from the previous case. These distinctions are important, because the court will base its decision in your case on whether it thinks the decision in the previous case should be applied to the facts in your case. If case law precedent doesn’t exist, and the two sides disagree on how the code should be interpreted, the courts will interpret the meaning of a law based on “Canons of Construction” (rules for interpreting a law).
Regardless of whether a court is deciding a case based on case law, or by interpreting the meaning of a law according to established rules of interpretation (or even by a combination of those methods), a case at trial or on appeal will typically involve complex legal reasoning by the lawyers and the Judge. In one case in the United States, the court’s decision turned on something as seemingly innocuous as the placement of a comma in the code!
2. The Roles of Judges and Attorneys
Another significant difference between the Taiwanese and American legal systems is the roles of the Judge and attorneys in civil litigation, and the relative power of each at trial. In Taiwan, judges take a central role in litigation, often acting as an investigator or “truth-seeker” at trial. After the attorneys representing the parties have asked their questions, the Judge might also ask questions of the parties and witnesses, in an effort to determine the facts of a case and make their ruling.
Typically, U.S. judges will not take on this role of “truth-seeker” at trial. Instead, the American legal system is “adversarial,” with the lawyers in litigation acting as adversaries. The Plaintiff’s attorney decides how they will prosecute their case, and the Defendant’s attorney decides how they will defend the case. Thus, the attorneys for both sides play the central role in how the case will be framed, and what evidence and legal arguments they will present at trial, while the Judge generally acts as a neutral umpire ruling on questions of law.
Once the case has been presented, the “trier of fact ” will decide what the facts of the case are, based on the evidence presented by the Plaintiff’s and Defendant’s attorneys. In a jury trial, the jury will be the “trier of fact,” while in a bench trial, the Judge is the “trier of fact.” In a jury trial, the jury will then decide the outcome of the case based on a combination of the facts they have found in the case, and the law, which will be instructed to the jury by the Judge. In contrast, in a bench trial the Judge will decide both the facts of the case (based on the evidence presented by the attorneys) and the law.
3. Unitary System vs. Federal System
Taiwan and the United States also differ in how government power is distributed. In Taiwan, the national government is a “unitary state,” meaning that governmental power is centralized in the national government.
In contrast, in the United States the national government is a “federal state,” meaning that governmental power is less centralized, with some governmental powers delegated to the national government, and other governmental powers delegated to the state governments.
In the context of legal systems, this division of powers means that each American state has its own state laws and its own court system that are generally completely separate from the federal laws and federal courts. Depending on the facts and laws involved in a particular case, litigation may be filed in state court, or in federal court.
4. Monetary Damages
Finally, it’s commonly thought that litigation in the United States can result in astronomically high monetary damages, while monetary damages in Taiwan are usually lower than in the United States.
In fact, however, the amount of monetary damages available in the United States is highly dependent upon the facts of a case, and sometimes on the applicable law. For example, a breach of contract that resulted in the Plaintiff losing US $100,000.00 is a $100,000.00 case in both the United States and Taiwan. However, if fraud was involved in the breach of contract, the Plaintiff can seek punitive damages, and that has the potential to result in an award of significantly higher monetary damages in the United States.
Similarly, in some types of litigation, a specific state or federal law may allow the Plaintiff to seek higher monetary damages. Typically, where significant monetary damages are available to the Plaintiff, it’s as a result of conduct prohibited by law, and which the government seeks to discourage by making punitive or statutory damages available to Plaintiffs. In a business dispute, the availability of punitive and statutory damages can give the careful good faith business a significant tactical and strategic advantage over the careless bad faith business.
Conclusion
“Forewarned, forearmed; to be prepared is half the victory.”
- Miguel De Cervantes
There’s a potential for risk in any business deal. Sometimes that risk is unforeseeable (consider the effects of Covid on global supply chains, for example). But often the risks are foreseeable, and therefore, with careful attention to planning, the risks can be largely reduced, or even avoided. When a business is operating globally, careful attention to planning will mean, among other things, that the decision-makers understand that what they know about the legal system in their country may differ significantly from the legal system where they are doing business, and therefore, their planning will take this into account. While the vast majority of business deals are successfully completed more or less as planned, no business deal is completely risk- free, and therefore the saying “forewarned is forearmed” reminds us that understanding the legal landscape before a problem arises gives us the advantage in a dispute.
NICHANI LAW FIRM
YOUR SILICON VALLEY BUSINESS LITIGATION TEAM
Nichani Law Firm is a boutique Silicon Valley business and commercial litigation law firm, providing legal representation with a commitment to exceptional service, high- caliber solutions, and a deep focus on Business and Commercial Litigation, Bankruptcy and Creditor Rights, and Alternative Dispute Resolution. In every dispute, whether large or small, simple or complex, we will provide representation custom-tailored to meet your objectives. As your representative, we will zealously advocate your position, whether in an Alternative Dispute Resolution process, or at trial. Nichani Law Firm has successfully represented a variety of businesses throughout Silicon Valley and the Greater San Francisco Bay Area. We also serve as local counsel in Silicon Valley and the Greater San Francisco Bay Area for out-of-state attorneys, and out-of-area companies—whether based in another region of California, another state, or another country—with business interests in Silicon Valley and the Greater San Francisco Bay Area.
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