Perspective | From the Perspective of Administrative Agreement Disputes: Are Disputes Arising Under Government Concession Agreements Signed Before the Entry into Force of the “Administrative Litigation Law of the People’s Republic of China (Amended in 2014)” Arbitrable?
Published:
2025-12-29
In July 2008, the local government signed a “Gas Concession Agreement” with Company A regarding the investment, construction, and operation of local gas facilities. The agreement stipulated that Company A would enjoy a gas concession right within the jurisdiction of the county, and if any dispute arose between the parties concerning the performance of the agreement, either party could submit the dispute to a certain arbitration institution for arbitration. In July 2022, the same government signed another “Gas Concession Agreement” with Company B. Company A argued that the government’s action constituted repeated authorization, infringed upon its legitimate rights and interests, and amounted to a breach of contract; therefore, Company A filed an arbitration application with the arbitration institution.
Introduction
In July 2008, the local government signed a “Gas Concession Agreement” with Company A regarding the investment, construction, and operation of local gas facilities. The agreement stipulated that Company A would enjoy a gas concession right within the jurisdiction of the county. If any dispute arose between the parties concerning the performance of the agreement, either party could submit the dispute to a certain arbitration institution for arbitration. In July 2022, the same government signed another “Gas Concession Agreement” with Company B. Company A argued that the government’s action constituted repeated authorization, infringed upon its legitimate rights and interests, and amounted to a breach of contract; therefore, Company A filed an arbitration application with the arbitration institution.
This article aims to explore the validity of arbitration clauses contained in “Government Concession Agreements” entered into prior to the promulgation of the “Administrative Litigation Law of the People’s Republic of China (Revised in 2014)” (hereinafter referred to as the “Administrative Litigation Law (Revised in 2014)”) under the current legal framework. (The “Government Concession Agreements” referred to in this article shall conform to the nature of administrative agreements; certain agreements styled as “Government Concession Agreements” but actually having the nature of civil contracts are excluded from the scope of this discussion.)
I. The Current Judicial Status of the Validity of Arbitration Clauses in Government Concession Agreements
The “Administrative Litigation Law (Amended 2014)” and 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’” for the first time included government franchise agreements within the scope of cases accepted by administrative courts. Subsequently, the “Administrative Litigation Law of the People’s Republic of China” promulgated in 2017 (hereinafter referred to as the “Administrative Litigation Law (Amended 2017)”) continued this provision. The “Provisions of the Supreme People’s Court on Several Issues Concerning the Trial of Administrative Agreement Cases,” issued in 2019 (hereinafter referred to as the “Judicial Interpretation on Administrative Agreements”), further clarified that government franchise agreements are indeed administrative agreements. According to Article 26 of the “Judicial Interpretation on Administrative Agreements,” “If an administrative agreement contains an arbitration clause, the people’s court shall declare such clause invalid.” Therefore, government franchise agreements signed after May 1, 2015, are considered administrative agreements; in the event of a dispute, the matter should be resolved through administrative litigation, and any arbitration clauses contained therein shall be deemed invalid.
However, as of now, it remains unclear how the arbitration clauses in government concession agreements signed before May 1, 2015, should be interpreted and whether disputes arising from such agreements can indeed be resolved through agreed-upon arbitration procedures in practice. The reason is that, at present, there are still no clear legal guidelines available in judicial practice.
1. Different provisions in official documents
When disputes arise over “Government Concession Agreements” signed before the promulgation of the “Administrative Litigation Law (Revised 2014),” according to Article 28 of the “Judicial Interpretation on Administrative Agreements,” the “Administrative Litigation Law of the People’s Republic of China” enacted in 1989 (hereinafter referred to as the “Administrative Litigation Law (1989)”) should apply. However, if the provision in the “Notice” stating that “substantive law follows the old rule, while procedural law follows the new rule” is applied, the current legal norms should prevail. As a result, diametrically opposed outcomes in the application of law would emerge.
2. Different rulings by the Supreme People's Court
As can be seen from the above rulings, in Case One, the approach adopted was that of “substantive law follows the old, procedural law follows the new,” as set forth in the Notice. The case applied the current “Administrative Litigation Law (amended in 2017)” and its judicial interpretations. Therefore, pursuant to Article 26 of the “Judicial Interpretation on Administrative Agreements,” the arbitration clause is deemed invalid. In Case Two, however, it was held that government franchise agreements generally do not fall within the scope of administrative litigation and should instead be resolved through civil litigation. Accordingly, the arbitration clause should be considered valid.
3. Different rulings by courts at various levels
In judicial practice, regarding whether administrative agreements concluded before May 1, 2015 are subject to the new law and the validity of arbitration clauses, the people's courts have not yet established a unified standard of judgment; indeed, there are even cases where the same case has been decided differently.
II. Determination of the Validity of the Arbitration Clause in the Government Concession Agreement
Regarding the validity of arbitration clauses in Government Concession Agreements concluded before May 1, 2015, our preferred view is that, regardless of whether the new or the old law applies, such arbitration clauses should not be enforceable. If the new law applies, the arbitration clause would naturally be invalid. If the old law applies, an analysis must be conducted from the following two perspectives:
1. Were there any prohibitive provisions in the laws, regulations, and other relevant legal instruments applicable prior to May 1, 2015, regarding the arbitration clause stipulated in the Government Concession Agreement?
Government franchise agreements entered into before May 1, 2015 shall be governed by the Administrative Litigation Law (1989) and the Supreme People's Court’s Interpretation on Several Issues Concerning the Implementation of the Administrative Litigation Law of the People’s Republic of China (issued on March 8, 2000). The aforementioned laws and regulations do not prohibit the parties from resolving disputes arising from government franchise agreements through arbitration.
2. Does the dispute arising from the Government Franchise Agreement fall outside the scope of arbitration jurisdiction?
Government franchise agreements entered into before May 1, 2015 shall be governed by the Arbitration Law of the People’s Republic of China (as amended on August 27, 2009; hereinafter referred to as the “Arbitration Law”). According to Article 2 and Paragraph 2 of Article 3 of the Arbitration Law, disputes arising from government franchise agreements entered into before May 1, 2015 clearly do not fall under the category of “administrative disputes that, according to law, should be handled by administrative authorities.” Whether such disputes constitute contract disputes between equal parties depends on a specific assessment based on the particular terms of the agreement, the nature of the dispute between the parties, and the arbitration claims submitted. If the content of the signed agreement meets the characteristics of a contract and adheres to contractual principles such as equality, voluntariness, and mutual consideration, then the government franchise agreement can certainly be submitted to arbitration. However, if the signed agreement does not meet the characteristics of a contract—such as when the government occupies an absolutely dominant position and the agreement fails to reflect the true intentions of the other party—the agreement lacks “equality” and thus cannot be submitted to arbitration.
Therefore, when determining the validity of the arbitration clause stipulated in the Government Concession Agreement entered into before May 1, 2015, the key issue lies in whether the Government Concession Agreement possesses the “non-equal” nature characteristic of an administrative agreement.
The most significant difference between an administrative agreement and a civil agreement lies in the fact that when an administrative agency enters into an agreement with another party in its capacity as an exercise of public authority, such an agreement is, in essence, not a market transaction but rather a form of exercising administrative power. At the level of the parties involved, equality is the cornerstone of any contract. However, administrative entities are accustomed to carrying out unilateral administrative acts and, in order to safeguard the realization of the public interest, enjoy extensive privileges. As a result, they occupy a dominant position relative to ordinary private legal entities and are unable to reach mutually agreed-upon expressions of intent on an equal and free basis with private parties. Consequently, once an administrative entity becomes a party to an agreement, the fundamental equality among the parties no longer exists, and the very foundation upon which the contract is established is thereby undermined—let alone the possibility of concluding and performing the contract itself.
Therefore, when determining whether a Government Franchise Agreement is arbitrable, the first step is to examine whether the agreement’s terms reserve for the administrative authority special powers that transcend private law rules—that is, Administrative privilege The administrative entity must bring into the contractual relationship the “privileges” that are necessary. In other words, if the agreement stipulates that the parties are inherently unequal—where this inequality stems from provisions included in similar contracts governed by civil law, or where the contract confers certain privileges on one party or imposes specific obligations on one party—rather than arising from a contract entered into voluntarily by both parties under the principles of civil or commercial law, then such an agreement, which reserves for the administrative entity special powers beyond those available under private law, should be classified as an administrative agreement.
A Government Franchise Agreement is essentially a form of administrative power exercised by the government—a non-market-based act whose purpose is to achieve administrative objectives. Consequently, the government party, driven by the practical need to realize its administrative goals, enjoys certain administrative privileges, including the unilateral right to set prices, the right to select the counterparty to the contract, the right to terminate the contract, and the right to impose penalties for breach of contract. Thus, it is evident that the Government Franchise Agreement falls within the category of administrative agreements and does not meet the requirement under the Arbitration Law that the parties must be equal entities; therefore, it is naturally unsuitable for arbitration.
III. Conclusion
In summary, we tend to hold the view that, since the Government Franchise Agreement is an administrative agreement, the administrative preferential rights it entails grant administrative authorities a “privilege” that transcends that of the administrative counterparties. This does not meet the requirement of equal status stipulated by the Arbitration Law. Therefore, when disputes arise from Government Franchise Agreements concluded before May 1, 2015, such disputes should be resolved through administrative litigation rather than arbitration.
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