Administrative Law – public contracts – administrative contract granting the concession of a right to operate under a public service regime
General principles governing the organisation of political power;
Principle of the separation of powers;
Principle that the law can be revised;
Contract granting a concession to operate in the public domain;
Principle of trust and legitimate expectations;
RULING No. 202/14
03 of March of 2014
Norms contained in a Law repealed norms in an earlier Executive Law with retroactive effect. These norms concerned possible causes of the invalidity of public contracts, and the Court found them unconstitutional because they violated both the principle of the protection of legitimate trust and expectations and the principle of legal certainty. The ordinary legislator is entitled to revise the law, but it is not constitutionally tolerable for it to do so in these terms, with effects that are limited to a concrete case – amending the regime governing unilateral terminations of administrative contracts for public-interest reasons – with a resulting breach of the unity and identity of the legal system. The law gives public-sector contracting parties powers that include the ability, when justified by duly substantiated public-interest reasons, to both unilaterally modify clauses regarding the content of the contractual undertakings made in a public contract and the way in which they are fulfilled, and unilaterally terminate the contract altogether. However, when its actions are motivated by the public interest, the public-sector contracting party can only terminate with future effect. This party (the Public Administration) does not possess powers of authority to invalidate contracts; only the courts have the competence to annul a contract or declare its nullity. Inasmuch as public-sector contracting parties are precluded from retroactively terminating contracts for public-interest reasons, the same is true of the legislator itself, which cannot seek to achieve the same objective by retroactively repealing the specific legal act on which a contract was based.
This case involved a mandatory appeal by the Public Prosecutors’ Office against a decision in which an arbitration tribunal refused to apply norms contained in a 2010 Law that repealed earlier (2008) legislation on the contract governing the concession of the right to operate the Alcântara port terminal in Lisbon under a public service regime. The 2008 Executive Law had authorised the changes in the bases for the initial operating concession needed to implement solutions designed to develop and renovate the terminal in the light of new circumstances in the port services market. The initial contract had itself been authorised by a 1984 legislative act, which had empowered the Lisbon Port Authority (APL) to select a Portuguese private company by means of a competitive invitation to tender for the concession to operate this container terminal under a public service regime, and to enter into the applicable contract.
The arbitration tribunal found that norms in the 2010 Law violated the constitutional principles of legal certainty and the protection of trust and legitimate expectations, and therefore refused to apply them.
The constitutional-law framework on which the tribunal based itself is that the requirements imposed by the principles of legal certainty and the protection of trust and legitimate expectations mean that the legislator is not entirely free to change the law as it sees fit, regardless of how predictable the alterations may or may not be, the extent of the effects they have over time, and the intensity with which the changes affect the legal situation or the reasonable expectations of the entities at which they are directed. The freedom the legislator enjoys as a result of the principle that the law can be revised, which itself forms part of the democratic principle, must coexist with other legal principles in such a way that there is no breakdown in the unity and identity of the legal system.
The Constitutional Court recalled its own jurisprudence on the protection of the principle of trust and legitimate expectations, and noted that the requisites for the existence of that constitutional-law protection were met in the case before it.
The Court was of the view that the state had generated expectations on the part of the private entity (LISCONT) which entered into a contract with it, that there would be continuity on both the legislative and the contractual levels, and that those expectations were legitimate, justified and substantiated by good reasons.
The Court said the fact that, in a Report issued prior to the passage of the 2010 Law that repealed the 2008 Executive Law, the Court of Auditors was particularly critical of the renegotiated concession contract signed by APL (a 2008 addendum to the original), saying it was neither a good deal nor a good example for the public sector in terms of good financial management and an adequate protection of public financial interests, did not detract from those expectations as to the continuity of the state’s behaviour.
Those expectations determined the private party’s plans for the future. After the addendum to the initial contract, LISCONT undertook the studies and planning needed to implement its investment plan, and once this had been approved by the competent entities, carried out the corresponding works projects and bought the planned equipment.
The Court said that in order for it not to be possible to allege that the principle that trust and legitimate expectations must be protected had been unconstitutionally violated by the retroactive repeal of the governmental legislative act underlying the “Addendum to the Contract”, almost two years after its signature and the beginning of its implementation, and following a significant involvement by the private party to the contract in the period prior to the passage of the 2010 Law, which amended the bases for the operating concession contract against the legal principles that govern administrative contracts, it would be necessary for there to be public-interest reasons which, when weighed against the other interests at stake, justified the non-continuity of the behaviour that generated the expectation situation. On this aspect the Court was of the opinion that the parliamentary discussions that preceded the 2010 Law and the exposé of motives for it showed that the Law was not based on public-interest reasons; instead, there was a reassessment of the public interest that differed from the prevailing understanding in 2008, and a disagreement with the government’s initial or original choice and decision.
After weighing this issue up from the perspective of the principle of proportionality, the Court concluded that it was not possible to attach as much proportionate value to this reassessment of the public interest as it would have been to a public-interest decision taken for supervening reasons; and that the reassessment did not justify the non-continuity of the behaviour that generated the situation in which LISCONT possessed legitimate expectations, inasmuch as the 2010 Law had too damaging and arbitrary an effect on the expectations created by the state’s own past behaviour.
The 2010 Law repealed legislation with effect prior to its own entry into force, thereby bringing about a retroactive termination of a contract at the initiative of the public party. Administrative contracts must ensure a balance between the principle of the pursuit of the public interest, which justifies the precepts that determine the prevalence of the public contracting party on the one hand, and the guarantee of the interests of the other contracting party on the other, in such a way that the latter’s trust and legitimate expectations are protected and its interests are defended. The stability and balance of the undertakings the parties to a contract are required to fulfil must be guaranteed, apart from anything else as a quid pro quo for the prevalence of the public interest.
1. Two Justices dissented from this Ruling, one of whom was its original rapporteur (she was substituted in that role because she disagreed with the majority decision). Their view was that the Assembly of the Republic’s competence to legislate on a given public policy which is to be pursued by the Public Administration is derived from a particular aspect of the principle of that Administration’s legality – that preference must be afforded to Laws, and thus a Law must prevail over an administrative act – which, like the principle of the separation of powers, is a material component of the principle of the state based on the rule of law. As such, in this case the Assembly of the Republic did not invade the sphere of action which the Constitution entrusts to the government, and did not violate the principle of the separation of powers. On the breach of the principle of the protection of trust and legitimate expectations, the dissenting Justices said that even if the reasons underlying the 2010 repeal Law had nothing to do with the need to adapt the law in the light of new developments or of any other exceptional public-interest issue, but its passage was instead essentially due to a political (or party-political) divergence from the governmental option that had led to approval of the 2008 Executive Law, those reasons were irrelevant from a constitutional-law point of view; and that it was not up to the judicial power to question them, except in situations in which subjective legal positions that fall within the scope of the normative protection afforded to a fundamental right, or legal positions that are in some other way encompassed by the constitutional protection of trust and legitimate expectations, are affected.
They said that this self-limitation of its control powers by the Constitutional Court was in harmony with the majority conclusion that there had been no breach of the principle of the separation of powers. From the moment at which the legislative act in question is a Law as defined in the Constitution, and that the state’s legislative function is characterised by the legislator’s ability to revise its own legislation – an ability which is in turn founded on the structural ‘majority rule’ component of the constitutional concept of democracy – it is incongruent to question the representation of the public interest as revealed by the political/legislative process. By enshrining the rule that decisions must be taken by a majority, the Constitution of the Portuguese Republic (CRP) itself provides the “guarantee” that when the parliamentary legislator takes a decision, it does so in accordance with a certain representation of the public interest, within the framework created by that same Constitution. The CRP does not do this for pragmatic reasons (i.e. because in a plural society there is no other instrument for securing consensus about just what is a “public interest”), or for scientific ones (because the agreement of the majority is a reliable sign of what the public interest is), but rather for reasons of value. Agreement on the part of the greatest number as to what the content of a certain decision should be makes it possible in value terms to identify that content with the pursuit of the public interest. In the opinion of the two dissenting Justices, there is nothing in the Constitution that would permit the conclusion that a “party-political disagreement” about a certain important aspect of the pursuit of public port policies, when expressed in the form of a majority parliamentary decision, consubstantiates without a shadow of doubt a “lesser” or “weakened” form of representation of the public interest by the legislator.
2. The Court of Justice of the European Union has extensively addressed the question of the award and the renewal and extension of the term of public service concessions. See Judgement of 17.07.2008 re ASM Brescia v. Comune de Rodengo Siano (Case C-347/06); Judgement of 13.09.2007 re Commission of the European Communities v. Italian Republic (Case C-260/04); Judgement of 7.12.2000 re Telaustria and others (Case C-324/98); and Judgement of 5.10.2000 re Commission of the European Communities v. French Republic (Case C-337/98).
Rulings nos. 128/09 (12-03-2009); and 287/90 (30-10-1990).