06 Sep 2011

THE CHALLENGE OF DEFINING AN ADMINISTRATIVE CONTRACT

Authored by: Rana El Husseini

THE CHALLENGE OF DEFINING AN ADMINISTRATIVE CONTRACT

In Middle Eastern jurisdictions, contracts concluded by the governments are subject to a particular regulatory framework, both in terms of governing law and dispute resolution. Rana El Hussieni demystifies the position of administrative contracts and the prevailing judicial system.

In Brief:

  • What parameters are used to identify an administrative contract in the UAE?
  • What regulatory challenges surround administrative contracts?
  • How has French jurisprudence influenced these considerations?

The role of the post modern state, the ‘Welfare State", is no longer limited to protecting individual rights, freedoms and legitimate interests. Due to the diversity of the modern state’s activities, its role has expanded to include the provision of public services to citizens either through the public sector or through public-private partnerships.

There is increasing recognition among legal jurisdictions in the Middle East that contracts concluded by the government are subject to a particular regulatory framework, both in terms of governing law and dispute resolution. States that set up a dual court system, such as Egypt, France and Lebanon, established in addition to their civil and criminal courts system, an independent administrative court system which specializes in adjudicating on “administrative disputes”, including claims against governmental bodies which are parties to administrative contracts. The existence of this separate judicial system has made it necessary, to introduce criteria to distinguish private law contracts (which are subject to the civil courts) from administrative contracts (which are subject to the administrative court).

The UAE legal system is a civil law jurisdiction inspired by Sharia as well as French and Egyptian jurisprudence. The UAE maintains a unified judicial system which places all courts under one umbrella. As such, a claim in relation to an administrative contract will be adjudicated by a judicial bench which is part of the civil courts. Although the UAE adopts this unified legal system, a special regulatory framework for administrative contracts has been created to address disputes relating to administrative contracts , such as disputes over the mutual the rights and obligations of the parties thereto.

It is thus important to ascertain what criteria is required for a contract to qualify as an administrative contract. A contract concluded by a government agency does not necessarily satisfy the requirements for it to be recognised as an administrative contract. Accordingly, a contract to which a governmental agency is party, may enter into one of two categories.
 

  1. A private law contract: here, the governmental agency does not enter into the contract with the intention of doing so as a public entity. In such instances, the contract will be subject to private law, notably the Civil Code and the Commercial Code.
  2. An administrative contract: in this instance, the governmental agency acts as a public authority with the goal of positioning itself with particular privileges that are not typically inherent in a private law contract. Following from this, it is characteristic for administrative contracts to include certain exorbitant provisions which permit the governmental agency to exercise public law prerogatives vis-a-vis the contractor.

This dichotomy has given rise to the problem both in jurisprudence and in law as to which criteria a court must use to ascertain whether a contract is administrative or private.
There has been much controversy in both the UAE Courts and the French Courts on identifying administrative contracts and whether the terms and conditions of such contracts should exist cumulatively or alternatively..
 
When the presence of a public service became the criterion to decide in favour of the administrative jurisdiction in France, the scope for recognising a contract as an administrative contract was widened to include contracts involving the performance of a public service. According to French jurisprudence, however, a contract concluded between a legal person of public law and an individual will not necessarily be defined as an administrative contract .The requirement relating to the parties is necessary but not sufficient at all times to confer the administrative element in the contract. Further clarification was provided by the Court of Conflicts[i] which ruled in its (UAP) decision of March 21, 1983 that "a contract between two legal persons of public law is presumed to be an administrative contract unless that contract created a civil contractual relationship between the parties.”
 
Following this ruling, the French State Council ‘Conseil d'Etat’ specified further criteria, where the administrative nature of the contract could result also from its terms and conditions, thus giving rise to the notion of the "exorbitant clause". In addition to those contracts expressly defined as administrative by virtue of law , an administrative contract is one which either includes clauses that show that the governmental body wishes to exercise public law prerogatives with respect to the contractor (the so called "exorbitant clauses"); or it is subject to a special legal regime that grants the governmental body certain regulatory or control powers (the "exorbitant regime"); or entrusts to the private contractor the execution of a public service; or it is associated with the execution of a public service. In interpreting this, it is clear that the contract must involve the execution of a public service or that the contractor cooperates in the execution of a public service.
 
HOW DOES THE FRENCH SYSTEM LINK TO THE UAE?
 
In deciding whether a contract is by definition an administrative contract, the UAE Courts require the fulfilment of a set of criteria, which relate to the parties to the contract, as well as to the subject of the contract; in contrast to the French jurisprudence which requires certain elements of the contract to satisfy alternative conditions. The UAE courts seem committed to consistency in defining the administrative contract as a contract concluded by a legal person of public law[ii] which includes the State, ministries, Emirates, diwans, public entities and public institutions which operate public service. The government undertakes the organisation, management and operation of the public service. Administrative contracts must include exceptional and unusual conditions which are distinct from private law remedies[iii].
 
The UAE Federal Supreme Court ruled that:

"The contract concluded between a legal person of public law and an individual is not necessarily an administrative contract. The distinctive feature of administrative contracts does not emanate from the status of the contractors, however, it derives from the subject of the contract itself that relates to the conduct of a public service. In addition, the government must show its intention to contract according to public law rules by including exceptional and unusual conditions which are unconventional in the private law practice. Incorporating exceptional and unusual conditions into the contract is the most prominent characteristic of administrative contracts, compared with civil contracts. The government usually includes conditions in its contracts under which it reserves the right to modify the obligations contracted at its sole discretion and it also reserves the right to terminate the contract before its normal term. The government is also entitled to impose penalties on the contractor for breach of its obligations, without the need to resort to courts."

It concluded further that:

"In the event that such exceptional conditions are not included in the contract's terms then the public law doctrine will not consider it as an administrative contract. Therefore the government is not authorized to unilaterally modify the contract or terminate it before its term under the pretext of public policy requirements given that the government holds such prerogatives from the nature of the contract…’’

(Appeal No. 3,3rd L.Y, session of 04.07.1976).

In the context of receiving a dispute between two governmental departments and a contractor on the supply of equipment and electronic programs, the UAE Federal Supreme Court concluded that:
 
"The supply agreement entered into between an Abu Dhabi Government Department and the defendant is an administrative contract that the Department concluded for the purpose of purchasing computers to the Department and running a public service in compliance with the local tender no 579 of 1994. The contract is governed by Law no 4 of 1977 on Procurement and Tenders and its Executive Regulations which included in Article 50 provisions that do not keep pace with the provisions of the Civil Procedure Law”
 
The UAE Federal Supreme Court further resolved that:
 
"whenever the dispute arises out of the performance of a contract, the court will normally refer to the contract itself, the legal provisions, and objective rules including laws, regulations, and decisions relating to the said contract and associated therewith"
(Appeal no 399 –L. Y. No 19 session of 9.4.2000)
 
Here, the UAE Federal Supreme Court confirms that the court interpreted the administrative aspect of the contract by referring to its content, the laws and rules that govern such contract.
 
Although the UAE legislator does not put in place a set of distinctive rules applicable to administrative contracts, the UAE courts are clearly applying legal principles that recognize the existence of administrative or public law contracts. These legal principles were initially developed in France and have been widely adopted, developed and enforced as ‘judicial rules’ in many jurisdictions in the Middle East.