Beijing Arbitration Commission

Defining administrative agreements for related disputes

Publish time: 2023-7-15

The Supreme People’s Court (SPC) defines an administrative agreement as an agreement containing rights and obligations under the administrative law entered into between an administrative organ and a citizen, legal person, or other organisations, to achieve administrative or public service objectives, through negotiation. The SPC also clarifies that administrative agreements include government concession agreements, agreements on compensation for expropriation and requisition of land, agreements on the assignment of the right to use many state-owned natural resources, and other types of administrative agreements.

However, there is still no consensus among academics on the definition of an administrative agreement, as well as the similarities and differences between an administrative agreement and a civil contract. Legal practitioners also hold divergent opinions on the types of administrative agreements.

It is commonly believed that a necessary condition for an administrative agreement to come into existence is that one of the parties to the agreement is an administrative entity. The administrative body, as one of the parties to the agreement, may sign an agreement with the other party that pertains to:

1. the exercise of administrative power;

2. public management or the provision of public services by the administrative body; or

3. a “narrowly defined administrative agreement” that is essentially a pure civil contract.

The most controversial type of agreement is the second category, which has sparked debates surrounding its legal nature, including which law should apply to it, as well as the legal theories related to it.

An administrative agreement is essentially a document that embodies the coexistence of administrative and civil legal relations, and represents the legal abstraction of the privatisation of public law. In China, the current Administrative Procedure Law has established a system of incidental civil action in administrative proceedings, which is certainly applicable to disputes over the administrative agreement.

So, how should administrative exercise of public authority in the form of private law be subject to public law constraints? The German “two-stage theory”, called Zweistufentheorie, which was initially developed in response to controversy over the legal remedies for government subsidies, essentially answers this question. This theory proposes to divide specific administrative actions into different stages and to regulate them with different types of laws.

As for how to determine whether a specific action belongs to public law or private law, a German jurist has proposed the “modified subject theory” based on the two-stage theory, which has become a common analytical framework in Germany today.

The modified subject theory proposes that when a country or other entity enjoys rights or assumes obligations in the capacity of a public authority, the applicable legal norms are those specifically related to the state’s official duties, and therefore should be classified as public law. Meanwhile, if a legal norm can be applied to anyone, it is a law for everyone, and should be considered private law.

In China, the legal regulatory model for the use of natural resources follows the modified subject theory of the two-stage theory. This means that the allocation of rights in agreements related to the use of natural resources is regulated by public law in the first stage – which determines who can obtain the right to use natural resources ‒ and private law in the second stage, which governs the exercise of those rights by the rights holder.

Although there are many problems in the two-stage theory itself, it has gradually shifted the traditional administrative law circle towards “administrative correctness”, aiming at ensuring the optimality and legitimacy of the administrative decisions, as well as the acceptability of the administrative counterpart.

The idea is to not rigidly stick to Otto Mayer’s legal doctrine of “public law is a mandatory law, private law is free law”, to make full use of the advantages of public law and private law, and to constantly optimise the effect of law enforcement. In practice, the “privatisation of public law” has become an important implementation model for the exercise of administrative power.

Therefore, the author believes that applying civil remedies for disputes related to the performance of administrative agreements is more in line with the essential legal relationship, which will have a more effective legal implementation.

The public interests that the state, as one party of the contract, expects to achieve are not necessarily higher than the interests of the other party to the contract in case of contract revocation. Accordingly, compared to the overall private law theory or public law theory to explain the administrative agreement, applying the two-stage theory can better handle the relationship between private law and public law.

Although an “administrative agreement” is named as an administrative contract, its conclusion and performance stages are essentially a pure private law agreement between administrative bodies acting as legal persons of state organs, and other civil subjects.

After the legal relationship is established, the government, within such a relationship, no longer exercises public power but participates in civil activities as a civil subject completely equal to the other party.

On the one hand, given that the definition of administrative agreement is not very clear in the current judicial interpretations, which is detrimental to both transaction safety and order, the mainstream view in academia at present is more inclined to interpreting administrative agreements restrictively in order to protect the private law principle of contractual freedom and autonomy. On the other hand, administrative agreements have dual attributes of both an administrative and a contractual nature.

Therefore, the author argues that different legal relations should be subject separately to their respective legal norms. The establishment of China’s incidental civil action system in the administrative proceedings and its application in administrative agreements also provide a solid legislative basis for this.

About the Author

Li Xiandong is an arbitrator of BAC/BAIC, a professor of China University of Geoscience (Beijing), the director of Land and Resources Law Centre of China University of Political Science & Law, and a PhD supervisor of Macau University of Science and Technology

Wang Yani is a Master of Law candidate at the School of Economics and Management of China University of Geoscience in Beijing

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All disputes arising from or in connection with this contract shall be submitted to Beijing Arbitration Commission / Beijing International Arbitration Center for arbitration in accordance with its rules of arbitration. The arbitral award is final and binding upon both parties.
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