Administrative agreement types and arbitrability

Administrative agreement types and arbitrability

Defining “administrative agreements” is a problem that has puzzled the legal community for many years. The type and scope of an administrative agreement will determine whether arbitration can be used to resolve disputes that arise from it.

Articles 2 and 3 of the Arbitration Law set out what types of dispute can and cannot be put to arbitration. These not only highlight the civil and social nature of arbitration but also distinguish the arbitration mechanism, whereby disputes are resolved through social power, from the judicial mechanism that settles disputes through state power.

Arbitration can only solve social disputes, but not administrative ones. Otherwise, it will tread on the authority of state power. This stipulation of arbitrability in the Arbitration Law relates to the scope of judicial power and its exercise. Its nature is mandatory, i.e. an arbitration award that violates this stipulation shall be revoked.

The second part of article 3 explicitly states that, “disputes that have been stipulated by law to be settled by administrative organs” cannot be put to arbitration. Item 11 of article 12 of the Administrative Litigation Law incorporates administrative agreements into the acceptance scope of administrative litigation, which excludes the possibility that arbitration may apply to administrative agreements.

However, there remain differences of opinion among legal academics and practitioners over the definition and types of administrative agreements. In November 2019, the Supreme People’s Court issued the Provisions of the Supreme People’s Court on Several Issues Concerning the Trial of Administrative Agreement Cases (SPC interpretation on administrative agreements), clarifying the definition and types of agreements. It also stipulates that disputes arising from administrative agreements concluded after 1 May 2015 shall be subject to the Administrative Litigation Law. Article 26 of the SPC interpretation on administrative agreements also provides that any arbitration clause in the administrative agreement is invalid.

However, the dispute has not been settled. In judicial practice, there is no unified judgment standard for determining administrative agreements. There are even diametrically opposed ones. For example, item 3 of article 2 of the SPC interpretation stipulates an agreement on the transfer of the right to use state-owned natural resources such as mining rights as an administrative agreement, and by extension, a contract on the transfer of the right to use state-owned construction land shall be an administrative agreement.

However, the Provisions of the Supreme People’s Court on Several Issues Concerning the Trial of Cases Involving Disputes over Contracts on the Right to Use State-Owned Land defines it as a civil contract, and arbitration is naturally applicable. Before the promulgation of the SPC interpretation, some rulings regarded administrative agreements as civil contracts, and so disputes could be settled through arbitration. Others viewed them as administrative agreements, and so outside the scope of arbitration. After the promulgation of the SPC interpretation, contracts for the transfer of state-owned land are to be excluded from the scope of arbitration, in accordance with the application of the law under the principle that the new law prevails over the old one.

Nevertheless, the legal problems with administrative agreements have not been entirely resolved. This is because the SPC interpretation is not appropriate for defining some types of administrative agreement. The authors believe that in certain areas, administrative agreements can still be defined as civil contracts and be settled through arbitration.

In China, the types of administrative agreements are firstly influenced by social ideology. One of the starting points of the administrative agreement is that public service can be developed through the market mechanism, and the introduction of market value can effectively overcome the chronic problems of low efficiency and inadequate expertise of administrative authorities.

The Third Plenary Session of the 18th Central Committee of the Communist Party of China fully recognised the decisive role of the market in allocating resources. In this context, the private law mechanism can and should be applied in the areas where administrative resources are allocated through the market, such as the transfer of state-owned natural resources and co-operation between state and private capital.

Secondly, the primary criterion to distinguish an administrative from a civil agreement is the role of the administrative authority at the time the agreement is concluded, i.e. whether it is acting as an administrator or as a civil party. The rapid expansion of the central government’s economic functions has made the state the biggest buyer and seller in the market. Therefore, the administrative authorities’ role as a market player is increasingly important.

The most important criterion to determine the role of the administrative authority at the time the agreement is concluded is through the subject matter of the agreement: if the subject matter is the object of a market transaction, for example, the land use right as a factor of production, the administrative authority should be defined as a civil party.

It is still difficult to determine the types of administrative agreements, not only because too many disputes are crowding the courts, but also because the duties and functions of administrative authorities are constantly changing.

However, four main categories may be considered: agreements lawfully concluded between the administrative authority and any qualified entity authorising the latter to exercise part of the administrative power; agreements within administrative authorities, such as contracts setting performance-related penalties and incentives based on the completion of certain work; agreements between the administrative authority and a person who is subject to an administrative action when the authority exercises its administrative power, such as agreements on compensation for expropriation, which may have the appearance of mutual consent but not necessarily be products of mutual consent between the two parties; and agreements concluded between different administrative authorities, where the purpose of the parties is to achieve administrative goals, such as on horizontal compensation for inter-provincial watershed services.

Given the importance that types of administrative agreement have on the ability to arbitrate, as well as the limitations of current judicial definitions, any revision of the Arbitration Law would benefit from an addition to article 2 that provides:

“Contractual disputes and other disputes over rights and interests in property which arise between administrative authorities as civil parties and other civil parties can be put to arbitration.”

Such a revision would bring the law in line with the current economic and social development of the country.

Xie Hongfei is an arbitrator at the Beijing Arbitration Commission/Beijing International Arbitration Centre (BAC/BIAC), and director of the Department of Civil Law, Institute of Law, China Academy of Social Sciences. Gao Zhuang, a case manager at BAC/BIAC, also contributed to the article subscripton ad red 2022