Want to win an equity investment lawsuit? Master these 5 key points to avoid pitfalls at crucial moments! A corporate law professional tells you how to handle a litigation crisis (Part 1).

In Taiwan's equity investment market, once negotiations break down and litigation ensues, most parties find themselves in a passive situation of "discarding evidence haphazardly," "failing to find the right legal basis," and "ignoring procedural details," ultimately leading to the regrettable outcome of "losing the case despite having a valid claim." In fact, the key to winning equity investment dispute litigation (such as breach of equity transfer, claims for defective capital contributions, and infringement of shareholder rights) is never "whose reasons are more compelling," but rather "who can accurately grasp the core points of the litigation." This article will combine Taiwan's Company Law, Civil Procedure Law, and judicial practice cases to break down five key points that must be mastered in litigation, helping you gain the upper hand in court.

I. Basis for Winning: First, clarify "whether your claim is even valid?"

When filing a lawsuit, many litigants make demands based on their subjective feelings, such as "requesting the return of investment funds," "confirming shareholder status," and "claiming the contract to be invalid." However, they neglect the fact that "the demands must be supported by clear legal basis and facts." This is the primary prerequisite for Taiwanese courts to hear equity disputes and is also the core reason why most cases "lose in the first instance."

(i) The demands cannot be "vague and general" but must be "specific, clear and actionable".

For example, in the case of "investment payment claim", a vague claim would be "The defendant cheated me out of my money and I demand its return"; while a qualified claim would be "Based on Article 5 of the Equity Investment Contract signed in X month of 2023, the defendant's failure to complete the equity transfer registration as agreed constitutes a fundamental breach of contract. I request the court to order the defendant to return the investment of NT$5 million and pay a penalty of NT$500,000 (calculated at an annual interest rate of 10% as stipulated in Article 8 of the contract)".

Taiwanese courts typically dismiss "unspecific claims" because judges cannot determine "what exactly they want the defendant to do." For example, a shareholder of a technology company sued to "confirm my ownership of the company," but failed to specify "the percentage of shares held and the corresponding amount of capital contribution." The Taipei District Court ultimately dismissed the case for "unclear claims."

(ii) Claims must “comply with legal provisions” to avoid being “illegal or unauthorized claims”.

According to Taiwan's Company Act, some shareholder rights or claims are subject to strict legal restrictions, for example:

1. To claim the "revocation of a shareholders' meeting resolution," a lawsuit must be filed "within 30 days of the resolution being made" (Article 189 of the Company Law). The court will not accept the case if the deadline is exceeded.
2. To request access to the company's books, a written request must first be submitted to the company and if the request is refused, a lawsuit cannot be filed directly (Article 214 of the Company Law).
3. To claim that a share transfer agreement is invalid, one must prove that the agreement violates mandatory legal provisions (such as transferring shares during a lock-up period) or involves collusion and misrepresentation. Simply feeling that one has lost out is not a valid reason for invalidity.

If a claim itself violates legal provisions, it is difficult to obtain court support even with abundant evidence. For example, an investor sued to "rescind an equity investment contract" because "the company failed to meet expected performance," but failed to prove that the contract was subject to fraud, coercion, or other grounds for rescission. Ultimately, the High Court dismissed the case on the grounds that "investment risk does not constitute a statutory ground for rescinding a contract."

II. Core and Key Point: The chain of evidence must be "complete, consistent, and flawless".

Taiwanese courts, when adjudicating equity disputes, have always adhered to the principle of "evidence-based judgment"—claims lacking supporting evidence, no matter how logically sound, are unlikely to be accepted. However, a common mistake made by litigants is "piling up evidence" rather than "building a chain of evidence," leading to "missing key evidence" or "evidence that doesn't match the claim." In equity dispute litigation, it is crucial to prepare the following three types of core evidence and ensure they form a closed loop:

(a) "Evidence of the underlying relationship": Proving that you have an equity investment relationship with the defendant.

This is the "threshold evidence" for the entire lawsuit; without proving the underlying relationship, all subsequent claims will be baseless. Common types of basic evidence include:

• Written contracts, such as "Equity Investment Agreement," "Shareholder Agreement," and "Equity Transfer Agreement," must be signed and sealed by both parties (signature of natural persons, seal of legal persons + signature of legal representatives). If it is an electronic contract, electronic evidence of the signing (such as email correspondence or electronic signature records) must be provided.
• Proof of investment: bank transfer records (the purpose of "investment funds" must be specified), acceptance reports for in-kind investments, patent transfer certificates for technology investments, etc.
• Company registration documents: shareholder register, copy of business register (if shareholding change has been completed), articles of association (specifying the shareholding ratio of shareholders), etc.

For example, an investor claimed an investment relationship by providing only "WeChat chat records with the founder," but the chat records did not clearly state the investment amount, shareholding ratio, or other core information, and no transfer vouchers were provided. Ultimately, the court ruled that "the evidence of the basic relationship was insufficient" and dismissed the lawsuit.

(ii) "Evidence of Breach of Contract/Tort": Proof that the defendant has breached the contract or infringed upon the rights of the parties.

This is the "core evidence" supporting the claim, and it needs to be prepared according to the specific claim:

• If claiming "breach of contract in equity transfer": you need to provide the "transfer conditions" stipulated in the contract (such as payment deadline and change of registration deadline), as well as evidence that the defendant failed to perform (such as bank records of overdue payments and registration inquiry results of failure to apply for change).
• If you claim "defective capital contribution", you need to provide evidence that the defendant failed to contribute capital as agreed (such as the company's accounting books after the capital contribution period expires, or a defect report issued by a capital verification agency), as well as the losses caused by the defective capital contribution (such as vouchers for increased company loan interest).
• If you claim "shareholder rights have been infringed", you need to provide evidence that the defendant refused to exercise shareholder rights (such as a written reply refusing to audit the accounts, or email records of notifying you to attend the shareholders' meeting), as well as the losses caused by the infringement of rights (such as investment losses due to not participating in decision-making).

The Taipei District Court once heard a case of "infringement of shareholder's right to inspect accounts." The plaintiff provided "an application for inspection sent to the company," "an email from the company rejecting the application," and "an expert report on the discrepancy between the company's publicly disclosed financial statements and its actual operating conditions," forming a complete chain of evidence. Ultimately, the court ruled in favor of the plaintiff's request to inspect accounts.

(iii) "Evidence of Loss": To claim compensation, it must be proven that "the loss actually exists and is related to the breach of contract".

In equity disputes, if the claim includes "compensation for losses" (such as liquidated damages or actual losses), two types of evidence must be provided:

1. The basis for calculating the amount of loss includes: the liquidated damages ratio stipulated in the contract (which must meet the principle of "not excessively higher than the loss", otherwise the defendant may claim a reduction), bank loan interest statements (to prove the loss of funds being tied up), and market data on stock price declines (to prove the loss of equity depreciation).
2. Causal relationship between loss and breach of contract: For example, "Because the defendant failed to complete the equity transfer, the plaintiff was unable to participate in the dividend distribution, resulting in a loss of NT$1 million in dividends." Proof of the dividend distribution resolution, the plaintiff's shareholding ratio, and the failure to receive dividends must be provided.

Note: Taiwanese courts are stricter in recognizing "indirect losses" (such as expected profit loss), and it is difficult to obtain support unless there is an explicit agreement in the contract.

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