Since 2020, all industries, including the global supply chain, have been greatly impacted by the COVID-19 pandemic. Taiwan's offshore wind construction projects are no exception. The first and second phases of the wind farms were originally scheduled to be completed in 2021 and 2022.
Since 2020, all industries, including theglobal supply chain, have been greatly impacted by the COVID-19 pandemic.Taiwan's offshore wind construction projects are no exception. The first andsecond phases of the wind farms were originally scheduled to be completed in2021 and 2022. Many of the projects were delayed due to the pandemic andapplications for extensions were submitted to the Ministry of Economic Affairsrespectively.
In addition, with respect to the policy of localsupply for offshore wind projects, the Control Yuan submitted an investigationreport in July 2022, stating that for the local manufacturers who have neverget involve with related industry, the degree of difficulty and the time ittook to overcome the steep learning curve for over 20 subjects of local supply originallyplanned, including underwater foundations, were more than expected. It isdifficult for some local component manufacturers to provide production capacityin line with the grid connection schedule. Therefore, developers may also needto apply to the Ministry of Economic Affairs to adjust the local supply targetand quantity.
Whether it is the epidemic that affectedthe original schedule or the local supply cannot meet the original commitment,referring to the model administrative contract between the Ministry of EconomicAffairs (Party A) and the developer (Party B), Party B may be liable for breachof contract, with a penalty of liquidated damages in minor cases, or in seriouscases, the electricity produced by Party B after a period of operation in thefuture can only be priced at a lower rate.
Dispute Handling Provisions ofAdministrative Contracts
With respect to disputes over theperformance of contracts, the dispute handling clause of the Offshore WindPower Administrative Contract provides for the following three ways of handlingdispute: 1) Both parties endeavor to coordinate and resolve the dispute basedon public interest, fairness, reasonableness, honesty and harmony; 2) If anagreement cannot be reached, an administrative litigation may be filed; or 3) Handleaccording to other means agreed upon by the parties.
The first method of handling usually takes bothparties to negotiate a resolution during the performance of the contract. Forexample, if the develop progress of a wind farm is affected by an epidemic,Party B may apply for an extension in accordance with the administrativecontract, and Party A will first examine whether the reasons for the extension areforce majeure or legitimate non-attributable as stipulated in theadministrative contract before deciding whether to agree to the extension. Or,if the production capacity and progress of loacl manufacturers is not as goodas expected, after Party B submits an application for change of local supplyproject, Party A will hold an industry-related consultation and review meeting,and the parties will negotiate to decide whether to allow Party B to adjust thesupply target or quantity.
However, the question is, if no agreementcan be reached, beside filing an administrative action, does the "othermeans agreed upon by the parties" include arbitration?
Can an administrative contract be arbitrated?
Judicial practice should take a negativeview on the arbitration of administrative contracts. The reason is that the arbitrationsystem is (only) meant to settle private law disputes between the people. Forthis, see Justice of Constitutional Court Interpretation Shi-Zi No. 591: “Arbitrationis a system whereby the people, in accordance with the provisions of the lawand the principle of freedom of contract, agree to settle their disputes bymeans other than litigation.... It has the characteristics of independentsettlement of private law disputes.” The Ministry of Justice also held that"those that can be settled in accordance with the law" as provided inArticle 1 of the Arbitration Act are limited to private law disputes,therefore, public law contracts disputes are public law disputes and cannot besubmitted for arbitration (Ministry of Justice Letter Fa-Lu-Zi No. 1000002501dated February 9, 2011).
On one hand, there are judicial practices heldthat "if a contract between an administrative agency and an owner has stipulatedto resolve disputes arising from the contract by arbitration, the content ofthis arbitration agreement does not lack the permissibility of arbitration andis not relevant to the question whether the contract is a public law contractor a private law contract." (Banqiao District Court Civil Ruling 980-Kang-ZiNo. 286) That is to say, because the contract between an administrative agencyand an owner has stipulated an arbitration clause, such as, "In the eventof litigation arising from this contract, both parties agree to submit the caseto the Chinese Arbitration Association, Taipei,” therefore, in this case, thecourt will not determine whether the contract at issue is an"administrative contract" or a "private law contract".
However, since the subject of this contractis a lease of a shop in a scenic area by an administrative agency to a businessfor them to provide food and beverage consumption services (a mixed contract of"lease and commissioned operation"), the overall content of thecontract does not involve the exercise of public authority or the commissionedexercise of public power. In addition, based on Justice of Constitutional CourtInterpretation Shi-Zi No. No. 448, it should also pertain to a contractual actunder private law. Therefore, from the conclusion, we see that this judgmentdid not go beyond or differ from judicial practices in the past: A public lawdispute arising from an administrative contract cannot be submitted forarbitration.
Therefore, coming back to the case ofoffshore wind power, there is no arbitration clause in the administrativecontract (see also Subparagraphs 1 & 3 of Article 1 of the ArbitrationAct). Although the contract provides for "other means agreed upon by theparties," with respect to whether such an “agreement” includes“arbitration,” it is advisable and more legally sound for the parties to referto the judicial practices above before agreeing on the means for handling disputes.
This article was published in the Expert’sCommentary Column of the Commercial Times： https://view.ctee.com.tw/tax/46498.html
