Taiwan - The Set-Off System Is Also Applicable To A Public Law Relationship.
Legal News & Analysis - Asia Pacific - Taiwan - Dispute Resolution
13 January 2021
The Supreme Administrative Court rendered the 109-Pan-228 Decision of April 24, 2020 (hereinafter, the “Decision”), holding that the set-off system is also applicable to a public law relationship, provided that the circumstances where private law claims may be recognized as an effective set-off in an administrative lawsuit are limited to those where the set-off effect becomes final or not disputed by the parties.
According to the facts underlying this Decision, the Civil Aeronautics Administration (hereinafter, the “CAA”) of the Ministry of Transportation and Communications entered into a procurement agreement (hereinafter, the “Agreement at Issue”) with the Appellant (Company A) to procure “aircraft crash rescue system equipment” (hereinafter, the “Equipment at Issue”). When the CAA conducted acceptance inspection, since the equipment delivered by Company A was not compatible with the agreed-upon brand and the certificate of origin was not provided, the CAA determined that the acceptance inspection failed, refused to pay for it, and notified Company A to rescind the Agreement at Issue and take back the Equipment at Issue. The debt repayment matter concerning the Agreement at Issue between Company A and the CAA was concluded when the appeal was rejected by the Supreme Court by a civil ruling in 2001. In August 2003, when an airplane landed at the CAA’s Kinmen Airport, it deviated from the runway and the airport was closed due to the damage of the plane. To quickly remove the damaged airplane, the CAA used the Equipment at Issue in the rescue operation without notifying Company A. Therefore, Company A requested the CAA to render a disposition to compensate for the expropriation and brought an administrative action concerning the previous case. After the administrative action concerning the previous case was concluded, the CAA rendered in 2015 a disposition which “determined the compensation for the expropriation of the Equipment at Issue to be over NT$400,000 but Company A still owes CAA a relevant usage fee after the compensation is set off against a storage usage fee of some NT$1,700,000 for Company A’s storage of the Equipment at Issue in CAA’s facilities.” Dissatisfied, Company A brought this administrative action.
According to the Decision, set-offs carry out the function of simplifying debt repayment and satisfying claims, which are required in both public law and private law domains. Therefore, the set-off under Article 334, Paragraph 1 of the Civil Code also applies to public law relationships. In principle, the set-off system may apply to the mutual offset between public law claims or the mutual offset between public law and private law claims. However, since a dual litigation system is adopted for administrative and civil litigation in Taiwan, administrative and civil actions are tried by administrative courts and general courts, which have different characteristics. Disputes arising from a public law relationship are tried by administrative courts, while disputes arising from a private law relationship are heard by general courts. If the defendant in an administrative action asserts a litigation set-off based on a private law claim or raises a defense of setting off a private law claim out of court, the assertion pertains to whether the private law claim to be set off as asserted is established and is equivalent to filing another civil lawsuit with an independent causal relationship, which does not fall within the scope of administrative jurisdiction. If the parties dispute over the set-off of a private law claim, this cannot be ascertained and investigated in an administrative action and the objective of trial economy to resolve the disputes between an obligor and an obligee in one lawsuit once and for all cannot be achieved. Therefore, the private law claims which may be determined to be effectively set off in administrative action should be limited to final civil decisions, settlement records, mediation records and payment orders or mediation agreements prepared by village, township or city governments and approved by the court which have conclusive effect or which are not disputed between the parties. As for private law claims which should still be determined by a general court, they cannot be considered directly by an administrative court.
It was further indicated in the Decision that since the Appellant (Company A) denied from the very beginning any unauthorized occupation and thus asserted that no unjust enrichment equivalent to a rent had been received, and the private law dispute against the CAA’s civil law claim of unjust enrichment against Company A does not fall within the trial scope of the administrative action, such matter certainly cannot be investigated and determined in an administrative action. Therefore, the CAA’s defense that since it has indicated its set-off intent, the compensation in the amount of over NT$400,000 it has assessed is extinguished as a result of the set-off should not be considered by the administrative court according to the above explanation. However, the original trial court rejected Company A’s claim on the ground that Company A had enjoyed civil unjust enrichment equivalent to a rent, and that the usage fee under the unjust enrichment claim which may be asserted by the CAA is sufficient to offset the compensation of over NT$400,000 claimed by Company A, since the CAA asserted that the Equipment at Issue could not rightfully occupy the CAA’s facility. Since it is held in this Decision that the original trial court was erroneous in its application of law when rejecting Company A’s claim, part of the original decision was reversed, and it was further determined that the CAA should pay a compensation of over NT$400,000 for the expropriation of the Equipment at Issue as claimed by Company A.
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Nora Shih, Lee Tsai & Partners