Focus on commercial entities opting to ‘sue the government’

Up until 2019, 30 years had passed since the implementation of the Administrative Procedure Law in 1990, and 20 years since the Administrative Reconsideration Law became effective in 1999. Although these pieces of legislation erected the two major systems that allow “private individuals to sue the government”, namely administrative reconsideration and administrative actions, in practice, they are not popular among commercial entities, with few disputes entering such legal procedures. The author recommends that commercial entities take administrative regulatory policies seriously, and timely respond to and resolve administrative dispute issues.

Administrative disputes resolution

The traditional perspective holds that administrative acts do not affect the validity of enterprises’ civil acts. For example, if a contract does not violate mandatory laws, or administrative regulations on validity, it is valid. However, practice is changing, and the link between administrative regulatory acts and enterprises’ civil/commercial acts is becoming ever tighter. The Minutes of the Ninth National Work Conference on Civil and Commercial Adjudication by Courts states that courts’ “penetrative” adjudication approach is in-depth study of the impact of various administrative regulatory rules, such as those for market entry qualifications, administrative approvals, etc., on the validity and performance of civil and commercial contracts, and determination of the rights-obligation relationship between parties in accordance with the law.

Many enterprises are unfamiliar with administrative regulatory policies and law enforcement procedures, and, not wishing to offend a law enforcement authority, will sometimes passively accept a penalty decision. However, with the application of big data and the gradual establishment by governments of a social credit regulatory mechanism, penalty decisions and applications for enforcement by law enforcement authorities for failure to perform such decisions will be recorded in enterprises’ credit records, which could even have an impact when an enterprise is liquidated and closes up shop.

Deeming that the amount of a fine is small, so it can be accepted, or, feeling that raising an objection after receiving a penalty decision would be difficult, so not bothering to do so, are not necessarily the best choices. When an enterprise objects to an administrative act, its in-house counsel should promptly arrange for professionals to come up with a response plan, and it should leverage the reconsideration procedure to resolve the dispute or institute an administrative action.

Procedure strategy

Administrative reconsideration and administrative litigation are two mutually independent dispute resolution procedures. The scope of review in a reconsideration procedure includes lawfulness and reasonableness. The focus of review in an administrative action is the issue of lawfulness. Their respective specific features need to be considered when applying them.

Which administrative acts can be the subject of a suit?

If an enterprise thinks that a specific administrative act, e.g., an administrative penalty (a fine, an order to suspend production, suspension or revocation of a permit, a licence, etc.), administrative enforcement, administrative permission, administrative confirmation (e.g., registration of title to immovable property), requisition decision, compensation decision or other act that infringes the lawful rights and interests of an enterprise, is unlawful, it can institute either an administrative reconsideration or action.

If an administrative authority fails to act, a party may also bring suit. For example, if, after an enterprise executes a state-owned land use rights grant contract, the government authority decides to take the land and use it for another purpose, and refuses to accept the application for the subsequent project approval, the enterprise may raise an objection. The new 2015 Administrative Procedure Law states that administrative agreements have also been included as the subject of a case.

For disputes over mining resource use rights grant contracts, and requisitioning compensation and resettlement agreements, rules that prohibit authorities from doing something not mandated by law, on the shifting of the burden of proof, on full compensation for losses caused by breaches of contract, etc., are more conducive to protecting the property rights of enterprises.

Any deadline for instituting an administrative reconsideration/action?

Generally, the deadline for reconsideration is within 60 days, and for administrative action is within six months after receipt of the administrative decision. If a party is dissatisfied with a reconsideration decision after application, it may institute a legal action within 15 days after receipt of the decision.

Even if no decision is received, a party still has the right to institute an administrative reconsideration or action, provided that it applies for reconsideration within 60 days or institutes a legal action within six months after learning of the administrative act. No legal action may be instituted once 20 years have lapsed since the date on which an administrative act was carried out in a case instituted in connection with immovable property (e.g., registration of title to immovable property), or five years have lapsed since the date on which an administrative act was carried out in other cases.

How do you choose between reconsideration procedure and litigation procedure?

The author recommends applying for reconsideration first, for two reasons. Firstly, ease of obtaining evidence. The law enforcement authority is obliged to submit evidence, law enforcement records, legal basis and written opinions to the reconsideration authority. The enterprise can engage a lawyer to review the documents and come up with a response plan.

Secondly, ease of seeking a settlement. The reconsideration authority is familiar with the technical issues involved in administrative regulation, and the enterprise can submit complete application documentation and communicate with the law enforcement authority through the dialogue procedure.

If there is an issue with the administrative act, the reconsideration authority could face the headache of being named a co-defendant in any subsequent legal action. Accordingly, it could seek to resolve the conflict through revocation of the decision by the law enforcement authority, or withdrawal of the reconsideration application by the enterprise.

Even if the enterprise subsequently moves on to a legal action, it can use the information obtained during the reconsideration to formulate a reasonable and practicable plan. Where a law enforcement basis involves a “red header document” (China’s internal official administrative document), the court may be asked to review it for lawfulness.

Furthermore, prior to the expiration of the deadline for instituting an administrative reconsideration or administrative action, or the conclusion of the corresponding case, the concerned party has the right to opt not to actively perform the penalty decision without giving rise to any adverse consequence.

“The rule of law is the best business environment”. Administrative regulation is an important component of the rule of law, and administrative reconsideration and administrative actions, as regulatory relief systems, cannot be divorced from their use by the other party.

By virtue of the participation by lawyers and technical experts, prudent and effective use of administrative reconsideration and administrative litigation procedures will become an effective means for enterprises to safeguard their own rights and interests, and maintain sound government-business relationships.

Ma Beiyi is a counsel at Dentons