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Can Lawsuits under Breach of Alternative Dispute Resolution (ADR) Clauses Be Suspended Through Preliminary Injunction?
When civil disputes arise, in addition to seeking binding judgment through civil proceedings, parties can resolve the disputes through Alternative Dispute Resolution (ADR) mechanisms such as arbitration, settlement, and mediation. To avoid the complexities of possible future litigation and expedite dispute resolution, parties to an agreement commonly include an "ADR clause" in their agreement such as "the parties shall seek to resolve the dispute with ADR resolution mechanisms instead of filing a lawsuit." In the case where one party breaches the ADR clause and files a lawsuit, the other party is able to demur to the suit. Regarding the effect of the demurrer, according to Article 4 of the Arbitration Law, if one party bypasses arbitration which is required by the agreement to be conducted prior to lawsuits and files a lawsuit, the other party can petition for suspension of the proceedings with the Court. As for the case involving breach of other ADR clauses, while there have been opinions that above Article of the Arbitration Law, there seems to be no decisive consensus in practice.
When a breach of ADR clause occurs, can the contracting party petition for a preliminary injunction to cease litigation assertions of the violating party on the grounds of preventing major damage or avoiding imminent danger, as provided in Paragraph 1, Article 538 of the Taiwan Code of Civil Procedure? The Supreme Court holds opposing views in 2020-Tai-Kang No. 302 judgment as rendered on March 26, 2020.
In this case, the settlement agreement, signed by Company A and Company B in 2002, states that if any patent infringement disputes arise in the future, both parties shall engage in negotiations to resolve the matter, and if the negotiations are unsuccessful, a neutral third party shall be chosen and agreed upon by both parties to conduct arbitration (hereinafter referred to as "this ADR clause"). However, when a patent infringement dispute did occur, Company A filed a civil lawsuit directly against Company B. Company B petitioned the Intellectual Property Court for a preliminary injunction to request Company A to cease all legal assertions in this case, in accordance with this ADR clause in the settlement agreement.
In the first and second instances, the Intellectual Property Court approved Company B's petition. The court stated that both parties would adhere to the ADR requirements and before conducting the required procedures, Company A would cease all legal assertions against Company B (Rulings 2018-Ming-Zhuan-Su No. 80 and 2019-Ming-Zhan-Kang No. 6 of the Intellectual Property Court).
Company A refused to accept the rulings and appealed to the Supreme Court. The Supreme Court revoked the original rulings and remanded the case to the Intellectual Property Court. The Supreme Court deemed the ADR clause a "litigation contract", and the obligations thus borne by the parties are different in nature from the obligations under a substantive agreement – the former are not subject to civil litigation. Accordingly, no substantive legal relationship was recognized in this case for issuing preliminary injunction, and the petition did not meet the criteria for preliminary injunction.