The civil Nature of public-private Partnership Agreements

 Agreement on Public-Private (Municipal-Private) Partnership (hereinafter also referred to as the PPP Agreement), provided for by Federal Law No. 224–FZ of 13.07.2015 "On Public-Private Partnership, Municipal-Private Partnership in the Russian Federation and Amendments to Certain Legislative Acts of the Russian Federation" (hereinafter also – 224-FZ, the Law on PPP), along with the concession agreement (hereinafter also referred to as the CC), regulated by Federal Law No. 115-FZ of 21.07.2005 "On Concession Agreements" (hereinafter also referred to as 115–FZ, the Law on Concessions), is the basic legal form for the implementation of public-private partnership projects (hereinafter also referred to as PPP) in Russia.

Recently, it has become increasingly obvious that PPP as a mechanism for attracting private (including foreign) investments has the potential to become one of the main tools for implementing the state's investment policy in relation to public infrastructure.

In this regard, the dispute about the legal nature of contractual structures used in the implementation of public-private partnership projects, which has become a traditional subject of debate in the scientific community, does not lose its relevance. And this is not for nothing, since law enforcement ultimately depends on the establishment of the nature of legal relations. The absence of a clear position of the legislator on this issue leads to a lack of uniformity of judicial practice and the emergence of fundamental risks in the relevant infrastructure projects.

The discussion is based on the thesis that the CC and the PPP have public-legal characteristics, so it is not possible to unambiguously call these contracts civil-legal. Some researchers appeal to this argument, including A.V. Asoskov, A.V. Belitskaya, A.G. Bogatyrev, O.A. Gorodov, O.A. Makarova, Z.A. Saidov, S.A. Sosna, O.S. Trotsenko, etc. ^[1-8] In their opinion, public-private partnership is primarily aimed at the realization of public interest, therefore, the relevant contractual structures are of a complex nature, and not purely private law.

         At the same time, at the doctrinal level, there are also more categorical scientific views on these issues. Thus, a significant part of scientists consider contractual constructions in the field of PPP to be a kind of administrative contract at all ^[9-15]. This position is held by A.V. Vinnitsky, A.E. Kamyshanova, A.N. Lukina, K.V. Markov, K.I. Naletov, V.E. Sazonov, S.A. Starostin, A.V. Shirokov, S.V. Shorokhov and some others. The main arguments of this group of authors are the unequal status of the parties to the agreements (public and private partner, concedent and concessionaire), the presence of the object of the agreements in public ownership, the existence of strictly regulated competitive procedures preceding the conclusion of agreements, as well as the obligation to use the forms approved by the Government of the Russian Federation (previously - "standard, now – "approximate", the requirement is relevant for CS).

         Finally, some scientists adhere to the belief about the civil nature of agreements in the field of PPP. Among those who share this point of view, in addition to the authors of this study, it should be noted N.A. Dyatlov, I.G. Major, V.F. Popondopulo, D.A. Samovolov, etc. ^[16-19] It is noteworthy that by virtue of paragraph 3 of Article 3 224-FZ, the PPP agreement is a civil contract. That is, the issue of the legal nature of the PPP is legally closed. The situation is somewhat different with the concession agreement. The law on Concessions, at first glance, does not give a direct answer to this question. Certain clarity, however, is provided by certain provisions of this law.

In accordance with part 2 of Article 3 of the Law on Concessions, the CC is a mixed contract, to which the rules of civil legislation on contracts, the elements of which it contains, are applied in the relevant parts. Thus, in the content of the concession agreement, the courts most often find elements of contracts for construction, lease and paid services. This is fully consistent with the position of the Supreme Arbitration Court of the Russian Federation, reflected in the resolution of the Plenum of the Court of 11.07.2011 No. 54, according to paragraph 4 of which, when considering disputes arising from contracts related to investment activities in the field of financing construction or reconstruction of real estate, courts should establish the legal nature of the relevant contracts and resolve the dispute according to the rules of the relevant chapters of the Civil Code. the Code of the Russian Federation.

The Law on Concessions uses the civil law instrument of essential conditions in relation to the provisions that should be provided for in the concession agreement in accordance with part 1 of Article 10 of this law, and also establishes the general dispositivity of concession agreements in part 2 of this article, according to which the CC, in addition to the essential conditions, may contain other conditions that do not contradict the legislation.

In addition, on the grounds provided for by the Civil Code of the Russian Federation, 115-FZ fixes:

the right of the party to the agreement to demand changes in its terms in court (part 4 of Article 13 of the law),

the concessionaire's right to compensation for losses caused to him as a result of illegal actions (inaction) of state bodies, LSG bodies and officials (part 2 of Article 18 of the law),

regulation of relations arising in connection with the disposal of exclusive rights to the results of intellectual activity (part 13 of Article 53.1 of the Law), which is carried out in accordance with the rules of civil legislation.

From the systematic interpretation of the cited provisions of the Law on Concessions, it follows that the concession agreement, as well as the PPP, is understood by the legislator not otherwise than as a civil contract. This thesis is confirmed by such legally established PPP principles as equality of the parties to the agreement and freedom to conclude agreements. Despite the fact that these principles are enshrined in article 4 of the PPP Law, we believe that these principles apply to both PPP agreements and concession agreements, due to their general and fundamental nature. By virtue of the direct indication of part 2 of Article 2,224-FZ, the Law on Concessions regulates relations arising in connection with the preparation, conclusion, execution and termination of concession agreements, which does not exclude the possibility of applying to them more general provisions of the PPP Law. 

Despite the above, early court precedents did not always reflect the private law point of view on the legal nature of PPP agreements. However, the situation has changed over time. A growing trend in law enforcement has become the consideration by courts of concession agreements from the standpoint of civil law regulation. The courts are guided by the contractual basis of PPP relations based on the principle of legal equality of the parties.

We believe that in this regard it is appropriate to cite a few examples from judicial practice.

In 2014, one of the first when considering a dispute arising from a concession agreement, the Arbitration Court of the Republic of Tatarstan considered the norms of civil legislation (Articles 309 and 310 of the Civil Code of the Russian Federation) and provisions 115-FZ (decision of 24.01.2014 in case No. A65-26169/2013) to be applicable to PPP relations^[1]. In 2015, this conclusion was already confirmed in another case by the Arbitration Court of the Volga District (Resolution No. F06-1450/2015 dated 13.10.2015 in case No. A12-7236/2015), which referred to the provisions of the Civil Code of the Russian Federation (part 1 of Article 2, Articles 124, 125 of the Civil Code of the Russian Federation) when issuing a judicial act. This was the reason for the cancellation of judicial acts of the first and appellate instances on the basis of parts 1 and 2 of Article 288 of the APC of the Russian Federation (improper application of substantive law).   

Later, at the end of 2017, the 9th Arbitration Court of Appeal came to no less important conclusions in the framework of the sensational case on the claim of JSC "Main Road" to the State Corporation "Russian Highways" (No. A40-93716/2017). In particular, the court determined that the fact of participation of a public legal entity in civil legal relations does not indicate the public nature of the dispute and the presence of public interest in such a dispute. Moreover, the judicial board pointed out the difference between the provisions on competitive procedures for concluding concession agreements established by 115-FZ and the legislation on public procurement. According to the appellate instance, the comparison of the norms on the Constitutional Court and the state contract for the purposes of analogy of the law is unacceptable. By a resolution dated 03.05.2018, the Arbitration Court of the Moscow District confirmed this legal position.

An important decision on this issue was made in 2019 by the Arbitration court of the Volga-Vyatka district. When considering case No. A39-2690/2018 on the recognition of the concedent's inaction as illegal, the court reasonably pointed out that the concessionaire chose an improper method of protection, motivating its conclusion by the fact that the parties had a relationship based on the contract, and not arising from the performance of the concedent's public functions, which implies the methods of protection provided for by civil legislation.

The court's decision in case No. A76-5266/2018 indicates that courts have become more likely to turn to the basic principles of civil law. In particular, in the above case, in the dispute over the return of the deposit, the court applied the principle of good faith to the conduct of the parties, which ultimately influenced the outcome of the cases.

In subsequent years, the number of cases, one way or another related to the execution of the CC and the PPP, has increased markedly. At the same time, the trend of civil law regulation of such disputes persists. For example, the Arbitration Court of the Astrakhan region in its decision (entered into force) in case no. A06-8588/2020 on the collection of arrears on payment of the concedent refers to the provisions of the articles 421, 424, 431, 702, 709, 711, 753, 779, 781 and 783 of the Civil Code of the Russian Federation. Refusing to terminate the CC in case No. A41-36787/2021, the Arbitration Court of the Moscow Region motivated its conclusions by the norms of the article 8, 309, 310, 328, 405, 450 and 451 of the Civil Code of the Russian Federation (the decision entered into force).

In addition, an adequate assessment of the nature of PPP agreements is also found in the practice of administrative bodies. So, for example, the resolutions of the Krasnoyarsk Federal Antimonopoly Service of Russia dated 27.12.2017 in case No. 143-16-17 and dated 26.10.2018 in case No. 27-16-18 established that concession obligations are civil relations.

Thus, it is worth noting the overall positive dynamics in the formation of the practice of dispute resolution arising from PPP relations, based on the application of civil law and special laws.  Indeed, in the case of concession agreements and PPP agreements, we are dealing with a typical civil law relationship between equal entities that are not in any subordination and property dependence on each other, who conclude an agreement on the transfer and use of property, performance of works and provision of services, guided by the principles of autonomy of will and freedom of contract (Part 1 of Article 2 of the Civil Code of the Russian Federation) ^[20].

We will present arguments in support of this conclusion, appealing to the arguments of supporters of the mixed and administrative-legal status of PPP relations. So, they justify their position with the following provisions:

         1. The presence of public-legal signs in the COP and the PPP.

         It is rightly considered that there are no public-private legal relations, they can be either private or public ^[21]. Any legal category may contain elements of different origin, but a certain part of them is always prevailing on others ^[22].

These agreements are governed by the norms of civil law on the basis of equality of partners, voluntary participation in the project, competition and information openness, mutual responsibility and fair distribution of risks between them, retribution and non-interference. The will of the parties is aimed at establishing, changing and terminating civil rights and obligations, which certainly generates civil legal consequences. In our opinion, only these circumstances are more than sufficient proof of the private law nature of PPP agreements.

2. The special subject composition of PPP agreements and the unequal status of public and private partners.

By virtue of Part 1 of Article 124 of the Civil Code of the Russian Federation, public entities in relations regulated by civil legislation act on an equal footing with citizens and legal entities. Therefore, as O.S. Trotsenko reasonably notes, being a party to the agreement, public education does not manifest itself as a power subject, but implements its civil legal capacity ^[23].

Of course, one cannot disagree with the opinion of A.V. Belitskaya, who points out that there is a possibility that a public partner will use an administrative resource if there is a need to protect the public interest ^[24]. At the same time, G.F. Shershenevich himself emphasized that the peculiarities of the legal personality of the state, associated with the presence of authority and, at the same time, the need to participate in economic legal relations, should not affect the private legal nature of the latter and transform them into mixed relations with elements of power and subordination ^[25].

In addition, the parties to the PPP agreement pursue their private interests to a greater extent (for the investor – profit–making, for the public partner - the exercise of the rights of the owner of the object of the agreement), the priority of which in the implementation of the CS and PPP is an important sign indicating their civil nature ^[26]. Therefore, the argument under consideration also cannot be considered fully justified.

3. Finding the object of agreements in public ownership.

Objects of state property are somehow the subject of most well-known civil law transactions, which does not affect, however, their legal nature. And if in concessions the object of the agreement must remain the property of the concedent during the term of the agreement, then in the case of a PPP agreement, the law explicitly provides for the need for the right of private ownership to arise in relation to it. Of course, until the private partner fulfills its obligations under the PPP, the ownership of the latter is significantly limited, for example, the object of the agreement is generally prohibited from alienating and transferring as collateral. In addition, 224-FZ provides for the obligation of the investor to make a greater financial contribution to the PPP project than the public party, as one of the conditions for retaining ownership of the object of the agreement. However, these are only the specifics of emerging legal relations in order to limit abuses associated with circumvention of legislation on privatization.

In addition, the very statement that the object of the agreement can determine the nature of the legal relations of the parties seems to be quite controversial. Thus, there are no grounds for accepting the argument in question as an argument in favor of the complex or public nature of the COP and the PPP.

4. Availability of competitive procedures preceding the conclusion of agreements in the field of PPP.

Firstly, the obligation to hold a tender follows from the principle of ensuring competition in PPP ^[27]. Secondly, competitive procedures, the result of which is a transaction, are equated to a kind of public auction, therefore, by virtue of a direct indication of the law, the provisions of Articles 447 – 449.1 of the Civil Code of the Russian Federation apply to them. That is, the competition is nothing more than a way to conclude a civil contract along with an offer, negotiations, etc. In this regard, giving administrative and legal status to competitive procedures due to their certain imperativeness is inconsistent.

5. The obligation to use approximate forms of agreements (CS).

Perhaps this is one of the few requirements of the 115-FZ, which, although correlated to a certain extent with the institution of approximate terms of the contract (Article 427 of the Civil Code of the Russian Federation), in essence, is a limitation of the will of the parties to the Constitutional Court. Nevertheless, it is necessary to pay attention to the following essential points.  Thus, according to part 4 of Article 10 of the Law on Concessions, the Government of the Russian Federation approves approximate concession agreements for individual facilities. Currently, out of 22 objects, approximate forms have been developed for only 13. At the same time, as follows from part 2 of Article 12 of the said law, concession agreements are concluded in accordance with sample agreements, but may include conditions not regulated by them.

Thus, the legislator retains a dispositive approach to regulating the issue of the content of the Constitutional Court, providing approximate forms only for a part of the potential objects of the agreement, and also reserving the right of the parties to make changes to them. Consequently, the obligation to use approximate forms, as well as other binding provisions of the Law on Concessions and the Law on PPP, is nothing more than an imperative norm of civil legislation, and cannot serve as sufficient proof of the administrative and legal nature of agreements in the field of PPP.

The presented analysis allows us to come to a conclusion about the civil nature of agreements in the field of public-private partnership, as evidenced by the essential features of these contractual models. In particular, the foundation of the emerging legal relations are the basic principles of civil law, such as equality of the parties, freedom of contract, retribution and competitiveness. These legal relations generate civil consequences for each party. At the same time, the partners, concluding an agreement, act as subjects of civil law.