A shareholders’ voting agreement, in general, refers to an agreement among shareholders pledging to exercise their voting rights in a certain manner on specific matters.[1]  We commonly see a shareholders’ voting agreement in mergers and acquisitions, “private equity and venture capital investments,”[2] “joint ventures,”[3] or “other corporate transactions.”[4]  A shareholders’ voting agreement is one of the instruments which may be considered by the parties fighting a battle for corporate control of a corporation.[5]  In Taiwan, one of the long and heated battles for corporate control drawing the public attention in recent years is the civil litigation between Taishin Financial Holding Co., Ltd. (“Taishin”) and the Ministry of Finance in Taiwan (the “MOF”), involving an agreement between Taishin and the MOF, both of whom are shareholders of the Chang Hwa Bank in Taiwan, and the battle between Taishin and the MOF for corporate control of the Chang Hwa Bank.[6]  Over the years, not all courts in Taiwan share the same view on the validity of a shareholders’ voting agreement.[7]  In 2019, the Supreme Court in Taiwan (the “TSC”) sheds some light on the very issue in its 106 Tai Shang No. 2329 Civil Judgment (“106 Tai Shang 2329”),[8] which deserves our attention.
 
I.  Before 106 Tai Shang 2329 (71 Tai Shang 4500 and 96 Tai Shang 134)
 
Before the TSC rendered the 106 Tai Shang 2329 decision, the two TSC decisions commonly cited in the decisions of the lower courts in Taiwan are TSC’s 71 Tai Shang No. 4500 Civil Judgment[9] (“71 Tai Shang No. 4500”) and TSC’s Tai Shang No. 134 Civil Judgment[10] (“96 Tai Shang 134”).  In 71 Tai Shang 4500, a TSC decision rendered in the 1980s, the TSC held that a shareholders’ voting agreement is invalid based on the ground that such an agreement is in contradiction to the principle of fair election under the Company Act in Taiwan[11] (the “Company Act”) and also is in contravention of public policies and good morals.[12]  In the TSC’s opinion, a shareholders’ voting agreement will possibly undermine the cumulative voting system for the election of directors specified in the Company Act, which will likely result in abusing minority shareholders and jeopardizing minority shareholders’ interests.[13]  Moreover, the TSC opined that validating a shareholders’ voting agreement would probably lead to encouraging illegal activities before the election of directors and motivating aggressive shareholders to enter into such an agreement by all means in order to improperly manipulate the corporation for their interests.[14]  Two decades later, in 96 Tai Shang 134, the TSC again held that a shareholders’ voting agreement is invalid for contradicting the provisions (with respect to the resolutions of shareholders’ meetings or directors’ meetings) of the Company Act and also contravening public policies and good morals.[15]  Since then, some lower courts in Taiwan adopted 71 Tai Shang 4500 or 96 Tai Shang 134 and found a shareholders’ voting agreement invalid.[16]  However, following the amendments to the Company Act and the Business Mergers and Acquisitions Act (the “Business M&A Act”)[17] in recent years, some lower courts hold a view different from 71 Tai Shang 4500 and 96 Tai Shang 134, and find that not all shareholders’ voting agreements are invalid under all circumstances.[18] 
 
II.  106 Tai Shang 2329
 
In 106 Tai Shang 2329, the TSC once again reviewed the issue of the validity of a shareholders’ voting agreement under the laws in Taiwan.[19]  Unlike 71 Tai Shang 4500 and 96 Tai Shang, where the TSC found a shareholders’ voting agreement invalid,[20] in 106 Tai Shang 2329 the TSC held that:
(1)  a shareholders’ voting agreement is valid when meeting the requirements set forth in:
(i) Article 175-1 of the Company Act (permitting shareholders of a non-public company to reach a written agreement among themselves on the exercise of their voting rights);[21]
(ii)  Article 356-9 of the Company Act (permitting shareholders of a close company to reach a written agreement among themselves on the exercise of their voting rights);[22] or
(iii) Article 10 of the Business M&A Act (permitting shareholders of a company to reach a written agreement among themselves on the exercise of their voting rights in a corporate merger, consolidation, acquisition or division);[23]
(2)  a shareholders’ voting agreement which does not fall into the foregoing scope shall not be found invalid straight away as long as:
(i)  the purpose of such an agreement does not contradict the legislative intent of those aforementioned provisions;
(ii)  the contracting parties do not enter into such an agreement with an intent to improperly manipulate a company; and
(iii) such an agreement is not in violation of any corporate governance principles, public policies or good morals; and
(3)  the obligations contained in a shareholders’ voting agreement are not limited to one-time obligations only and may continue for a period of time; provided that the duration of such obligations should be reasonable.[24]
 
We can tell from 106 Tai Shang 2329 that the TSC has modified its opinion in 71 Tai Shang 4500 and 96 Tai Shang 134 in order to be in line with the recent amendments to the Company Act and the Business M&A Act.  In light of 106 Tai Shang 2329, a shareholders’ voting agreement among shareholders of a non-public company, a close company, or a company involving in a corporate merger, consolidation, acquisition or division is valid if meeting the requirements set forth in the Company Act and the Business M&A Act.[25]  On the other hand, when the TSC reviews a shareholders’ voting agreement not falling into the aforementioned realm, the TSC will likely look at the following factors of a shareholders’ voting agreement: (1) the purpose of such an agreement, (2) the intent of the contracting parties, (3) whether such an agreement violates any corporate governance principles, public policies or good morals, and (4) whether the duration of the continuing obligations contained therein, if any, is reasonable.[26]  Nonetheless, in 106 Tai Shang 2329, the TSC does not provide further details of the analysis approach for analyzing those four factors above.
 
III.  Conclusion
 
106 Tai Shang 2329 marks a remarkable shift of the TSC’s opinion on the validity of a shareholders’ voting agreement under the laws in Taiwan.  After 106 Tai Shang 2329, a shareholders’ voting agreement is no longer fully banned in the TSC’s view.[27]  Other lower courts in Taiwan will likely adopt and follow 106 Tai Shang 2329 in the future.  Furthermore, in 106 Tai Shang 2329, the TSC provides some helpful clarity on the matters of (1) under what circumstances will a court find a shareholders’ voting agreement valid; and (2) four factors to be analyzed when a court reviews a shareholders’ voting agreement.[28]  Notwithstanding the foregoing, 106 Tai Shang 2329 does not provide further details of the analysis approach for analyzing those four factors.  The TSC and other courts in Taiwan probably will tailor that analysis approach in other future decisions since (1) the TSC has remanded the underlying case in 106 Tai Shang 2329 back to the Taiwan High Court for reconsideration;[29] and (2) in the future, there will probably have other shareholders’ voting agreement related disputes brought to the courts in Taiwan.
 
 

This Article, including the information contained herein, has been prepared only for educational and general information purposes to contribute to the understanding of Taiwan Supreme Court’s recent opinion on the validity of shareholders’ voting agreements under the laws in Taiwan.  This Article does not and is not intended to constitute, offer, or convey individual legal advice, legal opinion, or any other professional advice on any subject matters covered herein.  Please obtain specific legal advice before acting on any matters discussed herein.  While the author makes every attempt to ensure that the information covered herein is accurate, the author disclaims any liability for any omissions or errors that may be contained in this Article.