31 January 2012 Written by  Wondwossen Wakene

Duration of Concession

Duration of Concession

Concessions are contracts of perpetuity. They are perpetual in nature. Still these arrangements are not unlimited by time, thought they cannot limit time.

Under normal course of things, durations are regulated by the contract. Just like any other issue, failure to regulate by the contract will invite in place one legal presumption. The concession will be deemed to have been made for a period of seven years (Art 3227/3/). This is not the end. Failure to renew the concession within two years implies the implicit renewal of the concession for another seven years. The renewal goes on like this for a maximum period not exceeding sixty years.

Termination of Concession Contracts

By now we suppose you very well know the effects of termination of contracts in general. The effect of termination of concession contracts is different from the rest of contracts. This basically arises from the very nature and object of the undertaking. As such concession contracts result in the establishment of an organization to effectively provide public service.

Hence, when the contract is terminated a winding up procedure will be the effect. This winding up in turn will entail the “settlement of accounts between the grantee and the authorities. (Art 3229/1/) The rules of winding up are supposed to be stipulated (3229/2/), short of which the provision of the law to that end will be in place. We have two types of laws applicable in this case. One is the law in the civil code. On the other hand the provisions of the commercial code will also be effective. Termination of concession has different reasons and different consequences as well. Let us first consider some causes of termination under the law.

  1. 1. Redemption

What is Redemption?

Redemption can be taken to mean improving of something: the act of saving something or somebody from a declined, dilapidated, or corrupted state and restoring it, him, or her to a better condition.  Normally a contract for concessions is terminated when the stipulated condition materializes or the fixed time arrives. But redemption is one way of terminating concession contract before the normal time of termination. As the definition given above implies, redemption has its own causes. It is only when the conditions that are mentioned as causes materialize that we resort to redemption. In addition to this, redemption must be resorted to only to meet the rationales of redemption.

Simply speaking, redemption is a decision whereby an administrative authority puts an end to the concession before the expiration of its time. (3236/1/) The grantee should not necessarily commit fault redemption to take place. Rather the condition in which the concession is put necessitates a decision of redemption.

The rationales of redemption might be anything except a motive to “… replace the grantee by another grantee”. Otherwise, redemption may take place at any time with the objective of abolishing all in all or partly (reorganizing) the public service. This is a very good indicator of the prerogative of administrative authorities. However the law does not totally put the law in the hands of administrative authorities. It rather fixes a standard that should be observed before deciding to redeem the service. The effect of redemption is winding up. (3237/1/). On the other hand, redemption will result in the payment of compensation the grantee. The payment made as a result of redemption is called redeeming fee.

  1. 2. Withdrawal Order

What is envisaged under Art 3228 is a grantee that commits a fault. The rule is the grantee can lose his right only by the order of a court. But if there is an express agreement entrusting this privilege to administrative authorities, then the grantor may order loss of right of the grantee. This order is called withdrawal order. It results in a premature termination of the concession contract. Withdrawal order presupposes the commission of an especially grave fault. This makes the order special from redemption.

We do not know what special fault is. Neither do we know which one is so grave. Courts are those who have the right to determine the nature of the fault and that will decide the loss of right. This being the rule, the law devises a general rule which allows stipulating a clause empowering administrative authorities to order loss of right without going to courts. But can we say that the administrative authorities may order loss of right in a valid way given the volatile nature of the concept of gravity of fault? The final say as to whether an act constitutes a fault or not and as to whether a fault is grave or not should be determined by a court of law.

3. Sequestration:

Sequestration is the act or process of legally confiscating somebody's property temporarily until a debt that person owes is paid, a dispute is settled, or a court order obeyed.

Just like the above situation, sequestration presupposes, even though not always, an element of fault on the part of the grantee. The degree of fault is not predetermined in the case of sequestration. Art 3238/1/) is quite indicative of this degree. In the case of loss of right the fault required is a special one in gravity. But Art.3241/1/ shows the fault as being default, incompetence or incapacity. What are the effects of sequestration?

Temporary suspension of rights: The concept of sequestration necessarily envisages a possibility of suspension of rights. The suspension of right is only for a limited time. It is temporary owing to the conditions attached on it. Under our law, sequestration is a measure ordered either to abort a possible interruption in the provision of services as a result of the incapacity of the grantee or sequestration is a punitive measure taken against a defaulting grantee. Though the law is not clear as to the how long the sequestration order will last, it is even ambiguous as to whether the order is temporary in the first place when it is made in lieu of punishment. Can the grantee claim repossession as of right? Who shall determine the arrival of the appropriate time for the cessation of the order of sequestration?

Management of the expenses and works of the grantee: The other effect of sequestration is observable in connection with the management of the work. This issue is related with the first effect i.e. loss of right of the grantee. One of the rights that the grantee will lose as a result of order of sequestration is the right to manage the work. The loss of right by itself has its own effects. Although the ultimate effect is expulsion from the management of the work, because this intrinsically necessitates the fact of managing the work by another person, the grantee may have a legal duty to cover the cost of management. The law still has reservations on the matter. The management expenses are to be covered by the grantee only when the sequestration is ordered in lieu of punishment. Otherwise the expenses are going to be covered by the grantor.

Though the above orders can be associated with the prerogative of administrative authorities, Art.3243 on the other hand tries to strike a balance between the prerogative of administrative authorities and the interest of the grantee. It is a good indicative of the fact that measures taken under Articles 3236-3242 should be in accordance with law. Illegality of the measures as ordered by the grantee entails different consequences:

  1. Cancellation of order: the orders of the grantor are not absolute in the sense that they are amenable to change by a court of law. Although the law says “The court may cancel the sanctions of coercion or dissolution, such as measures of sequestration, state control, loss of right or termination, taken by the administrative authorities against the grantee of a public service”, it is not clear as to when the court orders the cancellation. It is however clear that the order should follow an arbitrary and manipulative decision of an administrative authority. Above all, it should follow an illegal order of the same.

2. Order of compensation: the sanctions imposed on the grantee will definitely cause loss to the same. Taking this into account, it is important to force the administrative authorities to make good what they have made bad by their decision. The authorities are obliged to compensate the grantee only if they have injured the interest of the grantee by their fault. Art.3243 (2) reads as follows:

“It may order the authorities to pay compensation for the damage caused to the grantee in consequence of sanctions applied by such authorities contrary to the law”.[emphasis]

Last modified on Wednesday, 02 May 2012 13:05