The Effects of the Global Financial Crisis on the Binding Force of Contracts: A Focus on Disputes Over Structured Notes in Taiwan

Abstract

Taiwan, whose financial market is closely linked to the international market, was seriously affected by the Global Financial Crisis. Among the affected retail investors, those who invested in financial products such as structured notes might have been unaware of the real risk these products posed. Investors left holding worthless products in the wake of the 2008 crash were quick to seek legal redress for their losses, but these disputes were difficult to address by properly using the civil remedies then available in Taiwan. Few of the possible causes of actions listed in the Taiwanese Civil Code (“CC”) or in other special laws were well adapted to address disputes over structured notes. The most applicable remedy available in the then legislation might be Article 227-2 of the CC, which governs the rule of changed circumstances, but it was referred to only rarely in these disputes. In order to put an end to this type of structured-note controversy, the Financial Consumer Protection Act (“FCPA”) was passed in 2011. Nevertheless, there is room for the FCPA to be improved and refined.

Keywords: the global financial crisis, structured note, Taiwanese Civil Code, the rule of changed circumstances, the Financial Consumer Protection Act, Taiwan

JEL Classification: G21, G28, K23, N45, O16