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LABEL： Engineering, Energy and Infrastructure , Dispute Resolution and Litigation ,
After a decade of vigorous development, the PPP model has played a remarkable role in enhancing the supply capacity of public goods and services, improving supply efficiency, alleviating government financial pressure, and stimulating market vitality. However, at the same time, problems with the old PPP model and disputes between social capital and the government in the operation of individual projects have gradually emerged. In this context, the National Development and Reform Commission, together with the Ministry of Finance, issued the "Guiding Opinions on Standardizing the Implementation of the New Mechanism for Government Social Capital Cooperation" ("PPP New Mechanism Guiding Opinions") on November 3, 2023, opening a new chapter in the standardization and governance of PPP projects and triggering a new round of attention from all sectors of society to the PPP model.
Taking this opportunity, as the fourth article in the "PPP Dispute Resolution Series", this article, after discussing the concept of PPP, PPP dispute investment arbitration, and the issue of PPP dispute subjects, focuses on another common problem in PPP disputes - PPP contracts and their dispute nature - tracking the development of legal and judicial practices, in order to provide reference for contract arrangements and dispute resolution under the new PPP mechanism.
1、 Background of the problem
In practice, to implement PPP projects, social capital, government, and other relevant parties often need to sign a series of contracts, forming a "PPP contract group" with PPP project contracts as the core, including shareholder contracts, financing contracts, engineering contracting contracts, operation service contracts, raw material supply contracts, product/service procurement contracts, and insurance contracts. [1]
Among them, for the ancillary contracts signed by social capital parties and other private entities for the specific implementation of PPP projects, if they do not directly involve the grant or exercise of government franchise rights, and government agencies have not participated in the formation of such contracts, there is generally no dispute about their nature as civil and commercial contracts. [2]
PPP project contracts signed between the government and social capital parties (including franchise agreements or other cooperation agreements that define the boundaries of rights and obligations between the two parties in the financing, construction, operation, maintenance and transfer process of PPP projects) usually exhibit the characteristics of multiple stakeholders involved and intertwined public-private attributes. They may involve agreements with government administrative powers such as granting and revoking government franchise rights, government procurement, planning permits, as well as content reflecting the characteristics of general civil and commercial contracts such as equal negotiation, performance, modification, and termination of agreements.
Given the different nature of administrative disputes involving the exercise of government administrative powers and civil and commercial disputes between equal parties, there are differences in dispute resolution methods, legal application, burden of proof, and procedural characteristics. Therefore, the nature of PPP project contracts (referred to as "PPP contracts") and whether PPP contract disputes belong to administrative disputes or civil and commercial disputes have always been the focus of controversy in both theoretical and practical fields. This article will discuss these focal issues.
2、 The evolution of regulations and viewpoints related to the nature of PPP contracts
The evolution of provisions related to the nature of PPP contracts can be roughly divided into the following two stages, based on the publication of the "Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Administrative Agreement Cases" (Fa Shi [2019] No. 17) ("Administrative Agreement Provisions").
1. Phase 1: Prior to the release of the Administrative Agreement Regulations
According to Article 12 [3] of the Administrative Litigation Law of the People's Republic of China (2014/2017), Article 11 [4] of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Administrative Litigation Law of the People's Republic of China (2015), and Article 68 [5] of the Judicial Interpretation of the Administrative Litigation Law (2018), "agreements with administrative rights and obligations entered into by administrative organs through consultation with citizens, legal persons, or other organizations within the scope of their statutory duties to achieve public interests or administrative management objectives" are administrative agreements, and government franchise agreements are classified as administrative agreements; Disputes arising from administrative agreements belong to administrative disputes and should be submitted for administrative litigation. According to the above regulations and the logic of judicial viewpoints, for PPP projects implemented through government franchising, the franchising agreement involved is an administrative agreement, and relevant disputes should be submitted to administrative litigation.
However, at the same time, the "Guiding Opinions of the National Development and Reform Commission on Carrying out Government and Social Capital Cooperation" (NDRC Investment [2014] No. 2724) and its annex "General Contract Guidelines for Government and Social Capital Cooperation Projects" clearly state that PPP projects can be implemented through franchising and PPP contract disputes can be submitted for arbitration resolution [6]. The "Management Measures for Government Procurement of Government and Social Capital Cooperation Projects" (Caiku [2014] No. 215) and the "Operational Guidelines for Government and Social Capital Cooperation Model (Trial)" (Caijin [2014] No. 113) issued by the Ministry of Finance also explicitly allow PPP contract disputes to be submitted for arbitration resolution [7]. Article 51 of the Measures for the Administration of Franchise Operations of Infrastructure and Public Utilities (2015) stipulates: "If a franchisee believes that a specific administrative action taken by an administrative authority infringes upon its legitimate rights and interests, it has the right to make statements and defend itself, and may file an administrative reconsideration or administrative lawsuit in accordance with the law
According to the logic of the above provisions, for PPP projects implemented through government franchising, the franchisee may file an administrative lawsuit regarding the specific administrative actions of the government during the implementation of the franchising process, rather than PPP contract disputes arising from specific government administrative actions, which seem to belong to civil and commercial disputes that can be submitted for arbitration. That is to say, PPP project franchise agreements have the characteristics of both public and private ownership, and should be judged as administrative disputes or civil and commercial disputes based on whether the dispute involves the exercise of administrative power. For example, the research group of the Civil First Division of the Jiangsu Provincial High People's Court has conducted a study on the legal difficulties of government and social capital cooperation (PPP) The article points out that "for PPP disputes involving the grant and revocation of government franchise agreements, government procurement complaints, government information disclosure, project planning permits, penalties for project companies, compensation decisions for project companies, determination of fee standards, etc., as they involve relevant administrative approvals and licensing content, they belong to administrative disputes... For the performance, modification, termination and other behaviors of PPP agreements, they reflect the consensus of the parties through equal and equivalent consultation, and their content is not subject to unilateral administrative actions. The contract content includes specific rights, obligations and breach of contract responsibilities, which belong to the scope of civil legal relationships. The parties can initiate arbitration or civil litigation in this regard
2. Phase 2: After the release of the Administrative Agreement Regulations
In 2019, the Supreme People's Court issued the "Regulations on Administrative Agreements". According to Article 1 and Article 2 of the Administrative Agreement Regulations [9], government franchise agreements and PPP contracts that are negotiated and concluded by administrative agencies with citizens, legal persons, or other organizations to achieve administrative management or public service goals and have administrative legal rights and obligations are considered administrative agreements. In addition, the Administrative Trial Division of the Supreme People's Court further pointed out in the "Interpretation and Application of the Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Administrative Agreement Cases" ("Interpretation and Application of Administrative Agreement Provisions") and "Answering Journalists' Questions on the Administrative Agreement Provisions" that administrative agreements should include subject elements, purpose elements, meaning elements, and content elements. Only agreements that meet the above four elements belong to administrative agreements "[10]." When adjudicating such agreements (government social capital cooperation agreements), the people's court should first examine whether the agreements involved comply with the elements of administrative agreements in this judicial interpretation. The people's court adjudicating these public-private partnership agreements that involve government franchise agreements and other agreements that conform to the essence of administrative agreements... "[11] The above regulations and viewpoints seem to have clearly classified the franchise agreement involved in PPP projects as an administrative agreement.
Although Article 2 of the "Guiding Opinions on the New PPP Mechanism" stipulates that "the cooperation between the government and social capital should all adopt the franchise model for implementation..." Article 14 stipulates that "... disputes arising from franchise agreements should be encouraged to be resolved through friendly consultation, and if necessary, arbitration, administrative reconsideration, or administrative or civil litigation can be applied for in accordance with the nature of the dispute, in accordance with the law and regulations, and properly handled and resolved." Therefore, it seems that there is still room for submitting disputes over PPP project franchise agreements to arbitration or civil litigation.
However, the first paragraph of Article 54 of the "Administrative Measures for the Administration of Infrastructure and Public Utility Franchise Operations" (2024) promulgated thereafter stipulates that "if the franchisee believes that the administrative authority has not lawfully entered into, performed, fulfilled, or illegally changed or terminated the franchise agreement, it has the right to make statements and defend itself, and may apply for administrative reconsideration or file an administrative lawsuit in accordance with the law." This provision once again clarifies that the franchise agreement is an administrative agreement that should be subject to administrative reconsideration or administrative litigation, which is consistent with the position of the "Administrative Agreement Regulations" and seems to have ruled out the possibility of PPP project franchise agreement disputes being recognized as civil and commercial disputes.
3、 Different judicial determinations on the nature of PPP contracts
Based on the evolution of the above regulations, there have been different tendencies in judicial practice regarding the nature of PPP project franchise agreements and their disputes. In addition, due to the inconsistency of relevant regulations and the public-private nature inherent in PPP projects, courts may make different judgments on the nature of PPP contracts when facing different types of specific dispute cases. Based on the review of relevant cases, we will explore the nature of PPP contracts in specific cases in three different contexts.
1. Social capital party as plaintiff in lawsuit: PPP contract dispute considered as administrative dispute
There have been significant changes in judicial practice before and after the implementation of the Administrative Agreement Regulations in 2020 in cases where the social capital party acted as the plaintiff and filed a lawsuit against the government for PPP contract disputes.
Before the implementation of the Administrative Agreement Regulations, although the Supreme People's Court had explicitly included disputes over government franchise agreements in the scope of administrative litigation in the Judicial Interpretation of the Administrative Litigation Law issued in 2015 and the revised Administrative Litigation Law in 2017, in judicial practice, courts still tended to recognize PPP project franchise agreements as civil and commercial contracts or disputes over PPP project franchise agreements as civil and commercial disputes based on the specific terms of the contract and the nature of the project, rather than simply classifying PPP contracts as administrative agreements or disputes over government franchise agreements or administrative approvals. Among the 14 PPP contract dispute cases before the implementation of the Administrative Agreement Regulations that we retrieved, 10 cases made such a determination.
For example, in the case of (2015) Min Yi Zhong Zi No. 244, the Supreme People's Court held that "this case is a typical BOT model government franchise agreement. The contract involved in the case... has a profit-making nature and does not provide public services that are open to the public free of charge... From the perspective of the purpose, responsibilities, subject, behavior, content, etc. of the contract in this case, the contract has obvious civil and commercial legal relationship nature and should be classified as a civil and commercial contract." Similarly, in the case of (2019) Supreme People's Court Min Zhong No. 789, the Supreme People's Court also held that "this case is a dispute arising from the performance and liquidation of the BOT agreement mentioned above... The counterparty to the contract still has a clear civil and commercial legal relationship in the process of contract formation, performance, and liquidation. Enjoy full autonomy of will and not be unilaterally compelled by administrative actions. The content of the contract involved in the case reflects the agreement between the contracting parties as equal civil subjects on the rights and obligations between the two parties, and has obvious characteristics of civil and commercial legal relationships. And the contract does not only stipulate the administrative approval or licensing matters themselves, and the relevant administrative approval and licensing contents involved are one of the contract performance behaviors, which does not affect the determination of the nature of the contract
In addition, in some cases, although the court determined that the PPP contract involved was an administrative agreement or did not make a clear determination of the nature of the PPP contract, it still classified the case as a civil and commercial dispute based on the content of the dispute between the two parties. For example, in the case of Gan Min Shen Zi No. 357 (2015), the Jiangxi Provincial High People's Court held that "the parties in this case entered into an administrative contract... The administrative contract is a bilateral legal act with most of the characteristics of a civil contract, and the dispute resolution channels have not been standardized. There is no clear provision on whether it is handled as an administrative case or a civil dispute resolution... The second instance judgment treated this case as a civil case and applied the law without error." In the case of Ji Min Zhong No. 174 (2016), although the first instance court believed that the contract involved in the case reflected the Dehui City Housing and Construction Bureau's "implementation of franchising and exercise of administrative powers for the utilization of sewage treatment projects", The Jilin Provincial High People's Court still believes that the plaintiff "did not raise any objections to the franchise rights, only requested payment of project advance funds, interest, and liquidated damages, which falls within the scope of civil litigation accepted by the people's court".
However, since the implementation of the Administrative Agreement Regulations, the court's attitude towards PPP contracts has undergone a clear shift. In cases where social capital is the plaintiff in the lawsuit, regardless of whether the PPP contract is named as a "Franchise Agreement" or a "PPP Project Contract", judicial practice has almost unanimously recognized it as an administrative agreement. According to the current judicial judgment, the court seems to no longer focus on the profit-making nature of PPP projects or the autonomy enjoyed by social capital parties in the process of agreement formation, but rather on the public service attributes of PPP models. As long as the performance of PPP projects involves the exercise of administrative powers such as government franchising and licensing approval, they will be uniformly included in the scope of administrative agreements. Once the PPP contract is recognized as an administrative agreement as a whole, the court usually does not further investigate the nature of the dispute or controversy, and will directly determine that disputes arising from the PPP contract do not fall within the scope of civil litigation and can only be resolved through administrative litigation. Among the 15 PPP contract dispute cases we retrieved after the implementation of the Administrative Agreement Regulations, 11 cases were determined in this way. [12]
For example, in case No. 264 of Ji 71 Xing (2023) (included in the "People's Court Case Library"), a certain amusement company signed a "PPP Contract" with the local housing and construction bureau for a park construction project, agreeing on a project construction period of 2 years and an operation period of 30 years. The Changchun Railway Transport Intermediate People's Court in Jilin Province believes that "from the form and content of the PPP Contract", it is an agreement with administrative law rights and obligations negotiated and entered into by administrative organs with citizens, legal persons or other organizations to achieve administrative management or public service goals. It is a "government social capital cooperation agreement" stipulated in Article 2 (5) of the "Administrative Agreement Regulations" and belongs to the scope of administrative agreements ". In the (2019) Yue Xing Zhong No. 602 case, the Guangdong Provincial High People's Court held that the "construction project is mainly a public facility, with a basic public welfare nature, and some projects belong to the scope of franchise operation, which requires government approval or relevant approval procedures to be carried out" under the "PPP Project Contract". "It belongs to an agreement for administrative agencies to use social capital to invest in related infrastructure and other cooperation, with the purpose of providing public services, in accordance with the four elements of the administrative agreement, and is an administrative agreement".
It is worth noting that for PPP projects implemented entirely in the form of government purchased services, as they do not involve the granting of government franchise rights, the characteristics of government exercising administrative powers are relatively unclear. In judicial practice, there are still sporadic cases where the PPP contracts involved are recognized as civil and commercial contracts. [13] However, the "Guiding Opinions on the New PPP Mechanism" clearly states that newly implemented PPP projects should focus on user paid projects and adopt a franchise model for implementation. Based on this, PPP projects implemented in the form of government purchased services may become history, and the above exceptions have relatively limited guiding significance for dispute resolution in future PPP projects.
2. Government as plaintiff in lawsuit: PPP contract dispute considered as civil and commercial dispute
According to Article 2, Paragraph 1 of the Administrative Litigation Law and Article 4 of the Administrative Agreement Regulations, administrative agreement litigation should follow the principle of "constant defendant". In case of disputes arising from the conclusion, performance, modification, termination, etc. of an administrative agreement, only citizens, legal persons, or other organizations can act as plaintiffs, and administrative agencies cannot act as plaintiffs to sue the other party to the administrative agreement. [14] Based on this, if PPP contracts are classified as administrative agreements, theoretically, administrative agencies will not be able to hold social capital parties liable for breach of contract through litigation, which undoubtedly hinders the protection of the government's rights and interests in PPP projects.
In judicial practice, in order to solve the "rights protection dilemma" faced by the government, in cases where the government claims that the social capital party violates the PPP contract agreement, the court usually classifies the PPP contract as a civil and commercial contract and allows the government to file a civil lawsuit against the social capital party as the plaintiff, or directly apply civil litigation procedures to hear relevant disputes without analyzing the nature of the contract. In all six PPP contract dispute cases where the government party was the plaintiff that we retrieved, the court made such a determination.
For example, in the case of (2023) E 1125 Min Chu No. 470, the Housing and Urban Rural Development Bureau of a certain county filed a civil lawsuit against the social capital party over a dispute over the PPP project contract. Although the contract involved in the case stipulated the relevant content of the government's franchise rights, the People's Court of Xishui County, Hubei Province still determined that "other contents related to the payment of sewage treatment fees, sewage pipe network service fees, etc. [that require] administrative approval [are] part of the contract performance behavior and cannot determine the nature of the contract involved in the case. From the perspective of the purpose, responsibilities, subject, behavior, and content of the contract in this case, the contract has obvious civil and commercial legal relationship nature and should be classified as a civil and commercial contract." In the (2022) Shaanxi 07 Civil Final 1409 case, the Intermediate People's Court of Hanzhong City, Shaanxi Province did not analyze and discuss the nature of the PPP contract involved in the case, but directly tried the case according to civil litigation procedures. And make a judgment. In addition, in PPP contract dispute cases where the government is the plaintiff, such as (2020) Chuan 15 Min Zhong 794, (2022) Wan 04 Min Zhong 140, and (2023) Qian 0323 Min Chu 1102, the court has treated PPP contract disputes as civil disputes.
The court's characterization of the PPP contract and its disputes in the above-mentioned case is different from that of the social capital party as the plaintiff in the lawsuit. Some scholars have pointed out that "the government may assert its rights through civil litigation or arbitration procedures, but the results may fall into the paradox of the rule of law that varies from person to person, that is, disputes arising from the same legal relationship cannot be resolved within the same institutional framework, and different dispute resolution methods can only be applied based on the differences in the identity of the plaintiff" [15].
Under the existing framework of rules, in order to achieve self consistency in legal and judicial practice, while equally protecting the rights and interests of both social capital and government parties under PPP contracts, a reasonable path seems to be to appropriately limit the extension of administrative agreements, no longer classify PPP contracts as administrative agreements, but refer to relevant judicial practices before the implementation of the Administrative Agreement Regulations, combine the specific content of the agreements and the nature of disputes between the parties, classify and classify PPP contracts, and allow some PPP contract disputes to be resolved through civil litigation.
3. Arbitration clause stipulated in PPP contract: PPP contract disputes are considered as civil and commercial disputes
Article 2 of the Arbitration Law of the People's Republic of China stipulates: "Contract disputes and other property rights disputes arising between citizens, legal persons, and other organizations as equal subjects may be arbitrated." Article 3 stipulates: "The following disputes cannot be arbitrated:... (2) Administrative disputes that should be handled by administrative organs according to law." At the same time, as mentioned above, the Administrative Litigation Law and the Judicial Interpretation of the Administrative Litigation Law include administrative agreement disputes in the scope of administrative disputes. Therefore, administrative agreement disputes belong to administrative disputes that cannot be submitted for arbitration. In this regard, Article 26 of the Administrative Agreement Regulations clearly stipulates that unless otherwise provided by laws, administrative regulations, or international treaties concluded or participated in by China, "if an arbitration clause is stipulated in an administrative agreement, the people's court shall confirm the invalidity of that clause". If, according to the judicial practice after the implementation of the aforementioned Administrative Agreement Regulations, the court classifies the PPP contract as an administrative agreement, then the arbitration clause in the PPP contract shall be invalid.
However, in the practice of PPP projects, commercial arbitration has always been an important way to resolve PPP contract disputes. According to the China International Economic and Trade Arbitration Commission, since the 1990s, the Commission has handled more than 300 BOT and BOOT franchise cases. [16] After the implementation of the "Administrative Agreement Regulations", courts have generally interpreted the concept of "administrative agreement" in cases where the effectiveness of arbitration agreements is confirmed. Regardless of whether the PPP contract involved in the case involves the exercise of government administrative powers such as government franchising, courts usually determine that PPP contracts belong to civil and commercial contracts, and PPP contract disputes are civil and commercial disputes based on the characteristics of equality, voluntariness, equivalent compensation, profit-making attributes, and not subject to unilateral enforcement by administrative agencies, thus affirming the effectiveness of the arbitration clause in PPP contracts. Among the 11 PPP contract dispute cases involving arbitration clauses that we retrieved, 9 cases made such a determination.
For example, in the case of (2021) Hu 01 Min Te 286, although the PPP contract involved in the case was a BOT franchise agreement, the Shanghai First Intermediate People's Court still held that "the contract involved in the case is the true expression of the intentions of both parties, and its content is about investment, design, construction, operation, and transfer of specific engineering projects. It stipulates the rights and obligations of both parties, the liability for breach of contract compensation, and the conditions for contract termination, modification, and transfer. The contractual provisions have the general characteristics of civil and commercial legal relationships. Although one party to the contract is an administrative agency, the exercise of specific rights and the performance of specific obligations in the contract do not have administrative management subordination, and are not subject to the control of unilateral government intentions or the coercion of unilateral government administrative actions." In (2021) In the case of Jing 04 Min Te 1001, The Beijing Fourth Intermediate People's Court also believes that the "Franchise Agreement" involved in the case is not simply a public welfare project... (the social capital party) is not subject to unilateral administrative actions by the Dehui Municipal Government. Although it reflects public goals, it cannot be concluded that this is entirely for administrative management. Essentially, it still belongs to a special form of investment relationship of equal value and compensation, and falls within the scope of civil legal relationships. Finally, it is determined that the agreement has a clear nature of civil and commercial legal relationships, and both parties should be bound by the arbitration clause in the agreement. In addition, in cases such as (2020) Jing 04 Min Te 677, (2020) Zhe 06 Min Te 4, (2021) Hu 01 Min Te 391, and (2022) Jing 04 Min Te 429, the court has also determined that the PPP contracts involved in the cases belong to civil and commercial agreements and the arbitration clauses therein are valid.
The court's support for the effectiveness of arbitration agreements in PPP contracts is a full respect for the agreement of the parties, and also helps to leverage the professional and neutral advantages of arbitration in dispute resolution in the PPP field, which objectively benefits the economic interests of PPP project participants. However, this determination in the lawsuit to confirm the validity of the arbitration agreement fundamentally conflicts with the court determination in the PPP contract dispute lawsuit initiated by the social capital party as mentioned earlier.
Whether this practice in the lawsuit to confirm the validity of the arbitration agreement is only a transitional arrangement after the implementation of the Administrative Agreement Regulations, and whether the government will still agree to the arbitration clause after the issuance of the Guiding Opinions on the New PPP Mechanism, all need to be further clarified in future PPP practices.
epilogue
Recognizing PPP contracts as administrative agreements and PPP contract disputes as administrative disputes will create obstacles for the government to assert its rights under PPP contracts or hold social capital parties accountable for breach of contract. In theory, this will also lead to PPP contract disputes that cannot be resolved through arbitration. However, in judicial practice, depending on the different disputing parties and the existence of arbitration clauses, courts have adopted different or even contradictory attitudes towards the nature of PPP contracts and their dispute resolution mechanisms. Such contradictions undoubtedly undermine the unity and stability of legal application and are not conducive to maintaining judicial authority. With the release of the "Guiding Opinions on the New PPP Mechanism" and the corresponding adjustments to the PPP model, it remains to be seen whether and how PPP regulation and judicial practice will solve the difficulties and paradoxes in theory and practice. We will continue to track the latest developments in PPP theory and practice in China, and continue to introduce and analyze relevant issues in PPP dispute resolution in subsequent articles of this series.