Compiled from: Supreme People's Court, Jufa
 
Case review
In 2007, Fujian Kazumi Fashion Co., Ltd. (hereinafter referred to as Kazumi Company) obtained the state-owned land use right for the involved land. On February 16, 2011, the People's Government of Putian City, Fujian Province formulated specific relocation compensation rules for the relocation of industrial enterprises in Putian's urban area. On March 8, 2015, the People's Government of Licheng District, Putian City, Fujian Province (hereinafter referred to as Licheng District Government) commissioned Fujian Guangming Asset Appraisal Real Estate Appraisal Co., Ltd. to assess the relocation compensation value of Kazumi Company's enterprise assets. On January 22, 2017, the Panshan Longzhuang Project Headquarters, entrusted by the Licheng District Government, entered into the "Enterprise Relocation Compensation and Resettlement Agreement" (hereinafter referred to as the Compensation Agreement) with Kazumi Company. This agreement stipulated the contract parties, land use rights, above-ground buildings, structures, and physical assets, compensation methods, compensation items and amounts, transition methods, payment methods for relocation compensation and delivery deadlines, and liability for breach of contract. On May 15, 2017, Kazumi Company filed an administrative lawsuit on the grounds that the Compensation Agreement was manifestly unfair, seeking its revocation.

 

 
[1] Court Opinion
The Ningde Intermediate People's Court of Fujian Province held in the first instance that Article 6 of the Compensation Agreement stipulated that a relocation subsidy of 12,104,576 yuan would be reserved as a performance bond. Kazumi Company was required to undergo merger and reorganization, with the investment amount exceeding the relocation compensation of 36,182,713 yuan, and upon review by the Licheng District Government, could obtain the performance bond. If Kazumi Company's investment amount was less than the relocation compensation, the performance bond would be forfeited. This clause imposed unequal conditions on the expropriated party for obtaining relocation costs, clearly violating mandatory legal provisions, making the compensation manifestly unreasonable and the administrative agreement manifestly unfair. The court thus ruled to revoke the Compensation Agreement between Kazumi Company and the Licheng District Government. The Licheng District Government appealed.
 
The Fujian High People's Court held in the second instance that, based on the content of the Compensation Agreement, for Kazumi Company to receive the full relocation subsidy stipulated in the agreement, it had to meet the following conditions: first, complete enterprise merger and reorganization; second, the merger and reorganization investment amount must exceed the relocation compensation amount. In practice, achieving enterprise merger and reorganization requires a suitable target for acquisition and mutual agreement between the merging parties. Therefore, the primary condition for Kazumi Company to fulfill the above clause depended on the participation and expression of intent of third parties, not on Kazumi Company's independent will. Such a condition setting clearly made it difficult for Kazumi Company to realize its rights. The conditions regarding "the investment amount must exceed the relocation compensation amount" and "if the investment amount is less than the relocation compensation amount, the performance bond will be forfeited" did not consider Kazumi Company's actual investment situation or the various possibilities for investment funds to be in place, nor did they make reasonable arrangements for the investment funds. Simply stipulating that the performance bond would be forfeited if the investment amount fell below the agreed amount was excessively harsh for Kazumi Company. Looking at the amount of the performance bond set in the Compensation Agreement, the relocation subsidy agreed upon was 27,173,083 yuan, while the performance bond was 12,104,576 yuan, accounting for approximately 45% of the relocation subsidy. Such a substantial performance bond was also extremely unfair to Kazumi Company. Therefore, the Compensation Agreement imposed unequal conditions on Kazumi Company for obtaining a lawful and reasonable relocation subsidy, violating the basic principles of fairness and equality that contracts should follow. The first-instance judgment, based on this, found the Compensation Agreement to be unfair and lawfully revoked it, which was legally justified. The Licheng District Government could, on the basis of full consultation with Kazumi Company and adhering to the principle of fairness, reach a new compensation and resettlement agreement. The second instance thus dismissed the appeal and upheld the first-instance judgment.

 

 
[1] The author's perspective
One of the typical cases of administrative agreements first centrally released by the Supreme People's Court on May 11 this year is this case. As a new method of modern administrative management, administrative agreements represent a shift from a power-submission relationship to an equal cooperative relationship between administrative organs and administrative counterparts. They are an important path to satisfy the public's right to participate in social governance and share public resources, as well as an inevitable result of the transformation of social governance models, reflecting the development concepts of service administration and benefit administration in modern society. Administrative agreements are of great significance in promoting the market to play a decisive role in resource allocation, fostering open, fair, and just competition in production factors, fully unleashing the potential of social capital, and achieving administrative management and public service goals. Particularly under the context of high-quality development of the socialist market economy with Chinese characteristics in the new era, the widespread use of administrative agreements has increasingly important impacts on economic and social development.
 
Finding the optimal balance between contractual freedom and public law regulation is a challenge in adjudicating administrative agreement cases. During the formation of administrative agreements, administrative organs should uphold principles such as fairness and justice and the "prohibition of improper linkage," reasonably utilize their resource advantages, and engage in equal negotiations with counterparts to achieve both public governance and effective protection and realization of the counterparts' legitimate rights and interests. In this case, obtaining demolition compensation is a statutory right of the expropriated party, which has no reasonable connection to whether the expropriated party fulfills obligations such as completing investment amounts. Although the formation of the administrative agreement in question formally meets the requirements of equal negotiation, it lacks a substantive basis of consensus because the administrative organ used its dominant position to impose clearly unequal conditions or obligations on the counterpart, violating the "prohibition of improper linkage" principle. Therefore, when the counterpart claims that the administrative agreement is manifestly unfair, the people's court may not only refer to relevant provisions of civil legal norms to review whether there is consensus but also apply the legality standards of administrative acts to determine whether there is "improper linkage." If it is determined upon review that there is manifest unfairness or improper linkage, the people's court should legally support the counterpart's claim to revoke the administrative agreement.