China - Model Administrative Litigation Cases Released By The Supreme People’s Court On The Protection Of Property Rights.

Legal News & Analysis - Asia Pacific - China - Dispute Resolution

23 October 2020

 

In order to effectively protect the property rights of all economic entities and citizens, while improving their the innovative and entrepreneurial spirit, on July 27, 2020, the Supreme People’s Court for the first time put out a concentrated list of model administrative litigation cases involving the protection of property rights.  The specifics are highlighted below:
 

1. Bo Tai Long Property Development v. The Haikou Municipal People’s Government over compensated resumption of state-owned land.
 

The basic facts and decision: In March 2007, Bo Tai Long acquired the right to use 642,351.28 square meters of state-owned land.  In 2012, in consideration of the ownership dispute and lingering resumption issue, the former Haikou Municipal Land Bureau temporarily put the construction application on hold until the issues were resolved.  The Haikou Municipal People’s Government also recognized that the undeveloped land in question was attributable to the government.  In 2015, the Hainan Provincial People’s Government issued the Qiongfu [2015] No. 24 Circular on Further Improving the Disposal of Idle Land (“Circular No. 24”), which stipulates that if the land is idle for reasons attributable to the government, the price of the right to use the idle land by way of agreement may be determined based on the land transfer price paid by the land use rights holder, the reasonable initial investment amount, as well as the total amount of interest accrued from the payment date of the land transfer price and the date of the reasonable initial investment of funds to the resumption of the land.  If the price is higher than the assessed market price, the land shall undergo resumption by way of agreement based on the assessed market price.  In 2017, the Municipal Land Bureau informed Bo Tai Long that the subject land constituted idle land and intends to resume the land with compensation, but the parties failed to reach an agreement after negotiation.  On January 3, 2018, the municipal government issued a land resumption decision to Bo Tai Long, citing the need to promote the national economy, social development and other public interests, with the appropriate compensation to be provided, the standard for which “will be implemented in accordance with Circular No. 24.”  Dissatisfied, Bo Tai Long brought an administrative action to set aside the decision.  The Haikou Intermediate People’s Court held in the first instance trial that the resumption of the land was for public interest, but providing compensation in accordance with the relevant idle land standard under Circular No. 24 was an erroneous application of law.  Therefore, the court vacated the part of the municipal government’s decision regarding providing appropriate compensation under Circular No.24 standards, while rejecting all other relief sought by Bo Tai Long.  Both parties appealed.  The Higher People’s Court of Hainan Province, held in the second instance that if a land is idle for reasons attributable to the government while it is also needed at the same time for public interest purposes, the government can resume the land with compensation through the idle land disposal procedure, or the state may resume the land with compensation through an early resumption procedure on public interests grounds.
 

If it is necessary to resume state-owned land to further the public interests, appropriate compensation should be paid to the rights holder.  The “appropriate compensation” should be fair and reasonable compensation, i.e., compensation paid in reference to the market price, taking into account the nature, use, location, assessment method, reasons for idleness, and other factors of the resumed land.  Since the compensation provided under the resumption decision in question was only based on the land transfer price, the reasonable initial investment and the total corresponding interest, it was not inappropriate, and the original court decision was thus affirmed while the appeal rejected.
 

Model significance: This case covered the compensation standard to be applied in the resumption of state land.  Letter No. 1903 of the Ministry of Natural Resources and Document No. 12 of the Hainan Provincial People’s Government both stipulate that the amount of compensation to be paid by the people’s government at or above the county level for the resumption of stock commercial residential land shall not be less than the land use rights holder’s cost to acquire the land, and the determination shall further take into consideration the holder’s reasonable direct losses in reference to the market price.  In this case, in aiming to resolve the administrative dispute, the administrative authorities should follow the spirit of the spirit of the Land Management Law of the People’s Republic of China and Letter No. 1903 of the Ministry of Natural Resources and Document No. 12 of the Hainan Provincial People’s Government in providing appropriate compensation and reasonably safeguard the rights and interests of the land use rights holder in order to create a good business environment.
 

2. Administrative agreement and compensation case involving Gutian Cuipinghu Aile Real Estate and Fujian Aile Investment v. the Gutian County People’s Government
 

The basic facts and decision: On July 3, 2014, the Gutian County Government and Fujian Aile Real Estate Company entered into the Gutian County Cuiping Lake Area Project Investment Framework Agreement, under which a total of about RMB 5 billion will be invested to position the 1000 acres of land into an integrated modern high-end green city complex with hotels, residences and tourism.  Subsequently, the Gutian County Government stopped the development and commercial operations of the project to accommodate construction of the provincial ecological civilization pilot zone.  Meanwhile, the Gutian County Government set up a rectification and match work committee to start negotiations on the resumption of the state-owned construction land.  After the negotiations of the resumption and compensation matters failed, Gutian Aile and Fujian Aile brought an administrative action to terminate the aforementioned framework agreement and its supplemental agreement and sought damages of about RMB 260 million.  The Fuzhou Intermediate People’s Court in the first instance held that since the administrative agreement could no longer be performed due to policy and planning changes, the framework agreement and its supplemental agreement should be rescinded per the plaintiffs’ relief sought, while the Gutian County Government shall pay the plaintiff companies RMB 302,146,933 in damages plus interest.  All other relief sought by plaintiffs were denied.  During the second instance trial before the Higher People’s Court in Fujian Province, the parties voluntarily reached a mediation agreement on the termination of the administrative agreement, the compensation for damages, the resumption of the project land, the handover of the construction project, and the work related to handling payments to relevant buyers and the construction companies, thanks to the efforts of multiple parties to organize the mediation.  Pursuant to the mediation agreement, the court of second instance issued an administrative mediation settlement decision.
 

Model significance: Administrative agreements executed between administrative agencies and private enterprises are protected by law, and the administrative agencies are required by law to provide compensation to private enterprises for damages to their property rights caused by the rescission of administrative agreements.  In order to conscientiously implement the construction of an ecological pilot zone, protect the property rights of private enterprises, effectively and substantively resolve administrative disputes, the court of second instance actively coordinated the meeting and negotiation between the parties, thereby promoting a government operating under the rule of law and principle of good faith, which is conducive to creating a sound business environment, and achieving better legal and social results.
 


 

For further information, please contact:  

 

Di Wu, Lee Tsai & Partners

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