Author's Profile: Managing Partner of Guangdong Legal Shengbang Law Firm, LLM in Civil and Commercial Law from Sun Yat-sen University, Excellent Lawyer of the Province, Grade II (Deputy Senior) Lawyer, Director of Guangdong Provincial Lawyers' Association, Executive Director of Guangzhou Lawyers' Association, Director of Publicity Committee of Guangzhou Lawyers' Association, Member of the Standing Committee of the Youth Federation of Guangzhou Municipality, and Executive Director of the Association of Young Entrepreneurs of Guangzhou Municipality, etc.

 

Brief description of the case

On August 20, 2008, a city construction bureau and company A signed "a city pipeline gas franchise agreement" (hereinafter referred to as the "franchise agreement"), agreed: the two sides agreed to set up company B development and construction of natural gas gasification project; a city construction bureau for company A issued a certificate of franchise; franchise validity period of 30 years, since August 20, 2008 until August 20, 2038 The term of the concession is 30 years from August 20, 2008 to August 20, 2038; the geographical scope of the concession is within the jurisdiction of a certain city.

On August 24, 2010, the Management Committee of an Industrial Park (hereinafter referred to as the Management Committee of the Industrial Park) and Company B entered into the Contract for Investment in Natural Gas Station Project and Supplementary Agreement to the Contract for Investment in Natural Gas Station Project (hereinafter referred to as the Supplementary Agreement); and on August 16, 2011, both parties entered into the Supplementary Agreement to the Contract for Investment in Natural Gas Station Project (hereinafter referred to as the Supplementary Agreement 2). The aforesaid agreements set out clear provisions on matters such as the scale of investment in the project, the mode of development and operation, the procedure for land grant, the granting of concession, the term of the concession and the responsibilities and obligations of both parties. Among them, Article 2 of the Supplementary Agreement stipulates that "According to the content of the Piped Gas Franchise Agreement of Certain City signed between Party B and the Construction Bureau of Certain City on August 20, 2008, the validity period of Party B's franchise in the Industrial Park shall be until August 20, 2038." Article 4 of Supplementary Agreement 2 also stipulated that "Company B is granted a piped gas franchise within the planning red line of the Industrial Park, valid until August 20, 2038."

On December 23, 2010, the Housing and Urban-Rural Development Bureau of a certain city (hereinafter referred to as the Housing and Urban-Rural Development Bureau) issued a "Notice on the Cancellation of the <City Piped Gas Franchise Agreement>" to Company A, proposing to terminate the Franchise Agreement entered into by the two parties on August 20, 2008 with effect from December 25, 2010. It was an employee of Company B who signed for the said notice.

On April 24, 2012, Company B filed an application for a park gas operation license with the Planning and Urban Comprehensive Management Bureau of a certain city (hereinafter referred to as the Planning and Urban Management Bureau). on June 21, 2012, the Urban Comprehensive Management Bureau of a certain city made an Approval Response on the Application of Company B of a certain city for a Gas Operation License to the Planning and Urban Management Bureau. On the same day, a city urban comprehensive management bureau to company B issued "gas business license".

On September 4, 2012, the People's Government of a certain city invited bids for the piped gas franchise through the media, and Company C participated in the bidding and won the bid.On February 20, 2013, the Planning and Urban Management Bureau and Company C entered into the "Piped Gas Franchise Agreement of a certain city", which stipulated that: the Planning and Urban Management Bureau issued the franchise authorization to Company C; the franchise period was 30 years, from February 20, 2013 February 20, 2013 to February 20, 2043; the geographical scope of the franchise is within the current administrative jurisdiction of a certain city (except for a certain industrial park). in May 2013, Company C established Company D to be responsible for the operation and management of the project. after the establishment of Company D, Company D continuously constructed gasification stations and laid gas pipelines within the planning red line of the industrial park, and carried out substantial gas supply activities. company B therefore had a dispute with Company D over the piped gas operation scope, and repeatedly requested in writing a municipal people's government and the management committee of the industrial park to coordinate and deal with the matter, but the coordination was ultimately unsuccessful.Company B filed an administrative litigation in July 2016.

 

Results of the Court's Determination and Judgment

After the first and second instance proceedings of Qingyuan Intermediate People's Court and Guangdong Provincial Higher People's Court, the court finally found and ruled that: the Franchise Agreement was dissolved in violation of the law, but still belonged to the valid agreement; the Contract for Investment in Natural Gas Station Project and the two supplemental agreements were the agreements entered into by the Management Committee of the Industrial Park with Company B based on the objective of administrative management and within the scope of its statutory duties in respect of the implementation of the franchise, which were valid agreements; the overlapping of the geographical scope of the franchise between Company B and Company D was due to the administrative act of an administrative organ. violated the prohibitions of laws and regulations and were valid agreements; as for the overlap in the geographical scope of the franchise between Company B and Company D, it was caused by the administrative acts of the administrative authorities, which ordered a municipal people's government and the management committee of the industrial park to take corresponding remedial measures. The above judgment supported most of Company B's claims.

 

Case analysis

This case is the author as company B entrusted agent for the case, mainly involving municipal utilities franchise agreement dispute. Combined with the actual situation of the case, can be summarized as follows, and legal analysis of the focus of the dispute:

 

1. Whether the franchise agreement signed without bidding procedures is valid.

In this case, whether company A and a city construction bureau signed the franchise agreement, or company B and the industrial park management committee signed the contract of investment natural gas station project, supplemental agreement and supplemental agreement 2 have not been through the bidding process. In the trial, a city people's government and industrial park management committee also based on this defense, claiming that the signing of the above agreement violates the mandatory provisions of the law should be invalid agreement.

In the author's view, according to the "infrastructure and public utilities franchise management measures" article 15 and "municipal public utilities franchise management measures" article 8 of the provisions of the municipal public utilities franchise project, the government authorities should be through the bidding, competitive negotiation, and other competitive ways to select the franchisee. However, the franchise agreement signed without the bidding procedure is not necessarily invalid, for the following reasons: First, "municipal public utilities franchise management measures" and "infrastructure and public utilities franchise management measures" are departmental regulations, not laws or administrative regulations, can not be used as a basis for invalidating the contract. According to the supreme people's court on the application of the contract law of the people's republic of china on a number of issues of the interpretation (a) of article 4: "after the implementation of the contract law, the people's court to confirm the invalidity of the contract, shall be based on the national people's congress and its standing committee of the state council and the law and administrative regulations, shall not be based on the local laws and regulations, administrative regulations. ". " Secondly, the contents of the Administrative Measures for Franchising of Municipal Public Utilities and the Administrative Measures for Franchising of Infrastructure and Public Utilities are regulations issued by the ministries and commissions within their own competence to carry out departmental management, which are mainly binding on the relevant implementing organizations, not the administrative counterparts, and shall be managerial mandatory clauses. According to Article 52 of the Contract Law and Article 14 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Contract Law of the People's Republic of China (II), only contracts in violation of mandatory provisions on validity will be invalid, and contracts in violation of mandatory provisions on management will not necessarily be invalid. Thirdly, franchise agreements are often characterized by strong management, and the administrative counterparty is a passive recipient of the franchise access mode, and it has no choice in the franchise access mode. Therefore, according to the principle of good faith, such agreements cannot be directly negated simply because they have not been subjected to bidding or auctioning; otherwise, it is obviously unfair to the administrative counterparty. Fourthly, Article 3 of the Law of the People's Republic of China on Tendering and Bidding stipulates that tenders must be invited for large-scale infrastructure, public utilities and other engineering and construction projects in the People's Republic of China that have a bearing on the public interest and public safety, including the investigation, design, construction and supervision of the project, as well as the procurement of important equipment and materials related to the construction of the project. From the content point of view, the article is aimed at adjusting the survey, design, construction, supervision and procurement of important equipment and materials for engineering construction projects, and is not aimed at regulating the form of access to the concessionaire. Accordingly, the article does not apply to the selection of the concessionaire, but only to the construction phase of the project after the concessionaire has been selected.

 

2, the government violates the procedure to lift the franchise agreement can produce the effect of lifting the lift

In this case, a city people's government and the industrial park management committee, the housing construction bureau has been on December 20, 2010 to company A issued "on the lifting of the <a city pipeline gas franchise agreement> notice", company B has no basis for obtaining the pipeline gas franchise. However, the claim has not been supported by the Higher People's Court of Guangdong Province, the reason lies in the Housing and Urban Renewal Bureau contract termination procedure is illegal, does not produce the effect of contract termination.

The author believes that the contract is usually regarded as a remedy for breach of contract, reflecting the sanctions on the defaulting party. For the general contract cancellation, at least should have the conditions of contract cancellation and the existence of contract cancellation behavior. But the franchise agreement belongs to the administrative agreement, the administrative organs in the performance of the agreement in the process of enjoying the legal advantages, it has the right to unilaterally terminate the agreement based on public interest considerations, so the termination of the franchise agreement in the procedure than the general contract has its own particularity, but, no matter for what reason the administrative organs in the exercise of the termination of the right to follow the legal procedures, or else can't have the effect of termination of the contract. Specifically, the termination of the franchise agreement must at least consider the following factors: the administrative organ should be the subject of the corresponding legal authority; meet the statutory or agreed conditions of termination; after due process; has made reasonable compensation. In this case, the URA's notice of termination was invalid for the following reasons: first, the People's Government of a certain city and the URA did not provide evidence to prove that the conditions for termination of the contract agreed in the Franchise Agreement were met or that the conditions for the administrative organ to exercise its statutory right of preference were met; second, the URA did not hold a hearing to hear the statements and defense of Company A and Company B before issuing the notice of termination, and the termination procedure was unlawful; third, a certain city did not provide evidence to prove the conditions for termination of the Franchise Agreement were met. Third, the People's Government of a certain city and URA did not provide evidence to prove that they had reasonably compensated Company A and B. In conclusion, the URA's contract termination procedure was unlawful and the termination could not be established.

 

3, whether the management committee of the industrial park has the right to grant pipeline gas franchise.

In this case, the industrial park management committee in the trial defense, the nature of the unit belongs to a municipal people's government directly under the institutions, not administrative organs, only responsible for undertaking the park's water supply, power supply and other infrastructure construction, management and investment in the park and other work, does not involve the granting of any franchise.

The author believes that, according to the "town gas management regulations" article 5 and "guangdong province gas management regulations" article 5 of the provisions of the people's government at or above the county level gas administrative department is responsible for the administrative area of the gas management. Infrastructure and Public Utilities Franchise Management Measures, Article 14 also provides: "the people's government at or above the county level shall authorize the relevant departments or units as the implementing agency responsible for the implementation of the franchise project, and specify the specific scope of authorization." It can be seen that, in general, the people's government above the county level gas administrative department is responsible for the administrative area of the gas management, unless the people's government at the county level otherwise authorized. Specific to this case, although the industrial park management committee belongs to the institution, but the industrial park management committee and company B signed the "investment gas station project contract" and two supplemental agreement is valid, the reason is that: first, the industrial park management committee's main tasks and functions have exceeded the scope of the institution, and the state administrative units, is authorized by the government to exercise the management of the region within the scope of the institution, and has the right to decide within its jurisdiction. Have the right to decide within its jurisdiction to grant the pipeline gas franchise to the relevant business entities. Secondly, from the content of the agreement, the "Investment in Natural Gas Station Project Contract" and the two supplemental agreements and the "Franchise Agreement" with the continuity of the "Supplemental Agreement", which "Supplemental Agreement" Article 2 is clear that the validity of Company B's franchise in the industrial park based on the "Franchise Agreement", so Company B's piped-gas franchise in the industrial park originated in the "Franchise Agreement" instead of the "Investment in Natural Gas Station". Project Contract and the two Supplemental Agreements. Thirdly, the Contract for Investment in Natural Gas Station Project and the two Supplementary Agreements were administrative agreements signed between the Management Committee of the Industrial Park and Company B based on the administrative objective of ensuring the supply of gas in the park and within the scope of its statutory duties in respect of the implementation of the franchise, which were true to the intent of both parties and did not violate the prohibitions of laws and regulations, and were therefore valid agreements.

 

4, gas business license and pipeline gas franchise is what kind of relationship.

In this case, a city people's government defense: "gas business license and pipeline gas franchise are two different concepts, company B holds the "gas business license" is to enter the market to obtain the right to operate the grant, belong to any engaged in the gas industry related to the enterprise must be obtained before entering the market license, but company B obviously did not obtain the pipeline gas franchise. operation right."

In my opinion, the gas business license and pipeline gas franchise does belong to two different concepts, gas business license belongs to the general administrative license, is engaged in gas business is an industry threshold, belong to the qualification requirements, generally do not attach additional conditions; Pipeline Gas Franchise is the government departments to grant the gas business enterprise of an exclusive franchise. The difference between the two is specifically manifested as follows: (1) different business scope. Pipeline gas franchise for the pipeline gas franchise, gas business license involves a wide range, including not only pipeline gas, but also bottled liquefied petroleum gas, compressed natural gas, liquefied natural gas and so on. (2) The approval process is different. Pipeline gas franchise implementation has a special nature, not only need to obtain the appropriate qualifications, and often have to bidding procedures and sign a franchise agreement with the government in order to obtain the franchise; gas business license is the applicant needs to meet the conditions set out in national law can apply for access. (3) The performance and content of the license is different. Franchise license generally to sign a franchise agreement to show, or take the form of government documents published; and gas business license to certificate form. From the content point of view, the franchise will be set out in the agreement pipeline gas franchise area, business scope, franchise period, etc., more detailed and specific; while the gas license is generally set out in the certificate of validity, business operations, etc., but will not limit the operating area, and the content is also relatively simple.

 

Conclusion

Pipeline gas and other municipal utilities are often related to the public interest and public safety, and has a large initial investment, the return cycle is long, in order to prevent the waste of resources, the state of such projects therefore take the franchise mode. The root cause of the dispute is that a municipal people's government in respectively granting company B and company D pipeline gas franchise, did not draw a clear line, overlap in the franchise scope. Therefore, enterprises should strengthen risk prevention when obtaining franchises, and pay attention to reviewing whether the relevant government departments have the authority to grant franchises, whether the relevant legal procedures have been followed, and whether there is duplicate authorization of franchises.