- posted: Jun. 14, 2017
- Arbitration and Litigation,  Foreign Direct Investments
Like many countries, China has numerous state agencies that make decisions that affect Chinese companies, consumers, and citizens on a daily basis. These agencies decide on various matters such as the compensation to be given to a Chinese citizen whose property is seized for the purpose of building high-rise apartment buildings as cities expand to accommodate the booming population growth, whether a private company contract should be terminated and what compensation should be awarded for the termination of the contract, and a range of other important decisions that can be particularly significant for the affected individuals or company. Some of these decisions can result in loss of property or other rights, hence Chinese citizens and companies doing business in China have a right to challenge certain decisions made by state agencies or state personnel in court under a law first passed in 1989.
These administrative challenges to a state agency or personnel action are governed by a special 1989 law, the Administrative Law of the People’s Republic of China (the Administrative Law). This law regulates what state actions can be challenged and the process for doing so in the local Chinese people’s courts system. It was revised in November 2014 in order to provide private parties with greater abilities to challenge official state action that may negatively affect them as well as to make judgments entered against a state agency enforceable by private parties.
Nevertheless, although the Administrative Law does provide for a limited judicial review of Chinese state agency action, the chance of success in administrative litigation challenging state agency action is not very high. This is due to both the standard of review involved and the simple reality that the people’s courts are often unwilling to overturn an action by a state agency regardless of how detrimental its ruling may have been to the property rights or interests of a private party. Instead, many courts are often inclined to give substantial deference to a state agency’s decision or action that may infringe upon the rights or property of a private party. Nevertheless, given the high stakes that can be involved with adverse determinations by state actors or agencies, the Administrative Law does provide a tool for Chinese citizens or companies in China to seek remedy when they are negatively affected by the state decisions to the extent that they either suffer great economic loss or grave infringement of rights.”
The Mechanics and Reach of China’s Administrative Law
Under the Administrative Law, Chinese citizens are permitted to challenge administrative actions that have been taken by a state agency or personnel. The review of the challenged state action is carried out in the applicable local people’s court. Therefore, a resident of Beijing or company based in Beijing looking to challenge a state agency action must file the challenge in his, her or its local people’s court. The same would be true for a Shanghai company or resident looking to challenge an administrative decision would file it in the local Shanghai people’s court. A suit under the Administrative Law is, in essence, a lawsuit by a private party against the government.
In November 2014, the Administrative Law was revised for the first time since it was first promulgated. The revision was intended to expand the people’s right to sue the government according to the official news report from the PRC’s official Xinhua state news agency. According to Xinhua, the revisions to China’s Administrative Law were enacted for the express purpose of ensuring the correct and prompt handling of administrative cases by the people’s courts to assist in resolving administrative disputes and protecting the lawful rights and interests of citizens, legal persons, and other organizations. To ensure these goals are met, the 2014 revision provides that legal proceedings may be launched against Chinese governments at all levels in 12 areas, including violation of agreements on land and housing compensation, unlawful alteration or rescission of agreements on commercial operations franchised by the government, illegal restriction of an individual’s physical freedom, and abuse of administrative power.
In terms of its actual scope, article 11 of the Administrative Law provides that administrative actions that can be challenged under the Law must be “concrete actions” by a state agency or administrative punishments (such as detentions and fines), administrative coercive measures, interference with the operations of enterprises, refusal to take action or perform an obligation, unlawful demands for performance of duties, and violations of rights of the person or a property right.
Article 12 of the Administrative Law explicitly limits the scope of the decisions that can be reviewed. Courts are not permitted to review state actions involving national defense or foreign affairs. Therefore, a Chinese company looking to challenge a state agency’s seizure of its land to build a naval base would be unable to use the Administrative Law to challenge the seizing of its property for national defense purposes. In addition, the people’s courts cannot review administrative legislation.
The 2014 review of the Administrative Law also enhanced the ability of a private party like a company or individual to enforce a favorable court judgment or ruling under the Administrative Law. The revised version of Article 3 of the Administrative Law requires that the person in charge of the defendant agency appear in court or designate staff to do so. If the agency refuses to perform acts required by a judgment issued by a people’s court, then the person in charge of that state or local government agency will be detained; if the circumstances are serious and constitute a crime, criminal liability will be imposed on the individual pursuant to Article 69 of the Law.
The Likelihood of Success in a Challenge to a State Action under the Administrative Law
As with any law which permits Chinese citizens to seek redress from governmental decisions, the proof of the actual efficacy of the Administrative Law can be found in the pudding, as the English expression says. It is all well and good for the Administrative Law to give citizens or companies certain rights but whether the Administrative Law actually produces successful outcomes for aggrieved parties is ultimately the true measure of success when it comes to the law. Under Article 6 of the Administrative Law, the people’s courts “hearing administrative cases review the legality of specific administrative acts.” However, the Administrative Law itself is silent in this Article as to the standard of review, whether it is a de novo review or instead whether the test is instead whether the administrative action was an abuse of power. Under Article 34 of the Law, the state agency has the burden of proof for the administrative action taken. Although this sounds wonderful in practice, the reality is that many people’s courts are reluctant to challenge a decision by a state agency and may rule against a private party challenging an administrative action under the Law. A 2014 paper by a Hong Kong academic found that the success of challenges to state action is less than 10 percent. (See page 7). Nonetheless, some administrative decisions are important enough that it behooves a private party to pursue an action under the Law. For instance, if a company has an exclusive contract with a state agency that the agency seeks to unilaterally terminate, this may be important enough to the company that it should challenge the administrative decision regardless of the fact that its chances of success in such a proceeding are low. Therefore, any party deciding whether or not to use the Administrative Law to challenge a state agency action should determine the impact that such a challenge may have on its business. If the impact may be significant or material, then a challenge under the Administrative Law may be a good idea despite the chances of success being relatively low.
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