I. The Concept and Nature of the Mining Rights Transfer Contract

According to the provisions of the "Mineral Resources Law," the "Interim Regulations on the Granting and Transfer of Mining Rights," the "Administrative Measures for Bidding, Auction, and Listing of Prospecting and Mining Rights (Trial)," and other relevant laws and administrative regulations, the granting of mining rights refers to the act by which the competent department of land and resources, in accordance with its authority for approving mining rights as well as mineral resource planning and mining right allocation schemes, legally grants prospecting rights to applicants through methods such as bidding, auction, listing, first-application priority, or agreement; and similarly, legally grants mining rights to applicants through methods such as bidding, auction, listing, conversion of prospecting rights into mining rights, or agreement.

Mineral rights shall be transferred through methods such as bidding, auction, and public listing. In accordance with relevant requirements, the transferor and the transferee shall sign a mineral rights transfer contract. The mineral rights transfer contract shall include the following basic contents: (1) the names, addresses, and legal representatives of the transferor, the transferee, and the mineral rights trading agency; (2) a brief description of the mineral rights being transferred, including geographic location, scope, area, degree of geological exploration work, plans for resource development and utilization, mine environmental protection measures, and land reclamation requirements; (3) the term of the mineral rights transfer; (4) the transaction price, payment method, or means of realizing rights and interests; (5) the time limit and requirements for applying to register the mineral rights; (6) the dispute resolution mechanism and liability for breach of contract; (7) other matters that need to be agreed upon. From the perspective of administrative practice in the management of mineral rights transfers, some provinces and cities have already prepared model contracts for the transfer of prospecting rights and mining rights in order to strengthen the management of these rights and standardize their transfer activities.

There is ongoing debate in practice as to whether mining rights transfer contracts are civil contracts, administrative contracts, or possess a dual nature combining both civil and administrative characteristics. We believe that during the transfer of mining rights, the transferor and the transferee enter into a paid transfer agreement for mining rights, under which the transferee pays the transfer fee as stipulated in the contract. Although the transferor, as a government agency, exercises certain administrative functions, both parties remain equal subjects throughout the mining rights transfer process and do not engage in a relationship of management and being managed. Therefore, mining rights transfer contracts should be classified as civil contracts. As the market economy becomes more robust and the rule of law continues to improve, mining rights transfer contracts are increasingly recognized as civil contracts in judicial practice.

II. Typical Cases

On January 18, 2008, the Baofeng County Bureau of Land and Resources commissioned a geological survey unit to conduct a preliminary geological survey of the resource reserves within the mining area of the Longxing Temple iron alumina ore deposit and prepared a "Preliminary Geological Survey Report." According to the report, the chemical composition of the ore in this mining area is as follows: the average Al2O3 content is 37.59%, the average Fe2O3 content is 15.64%, and the average SiO2 content is 17.3%. The industrial indicators for the iron alumina ore in this mining area are: Al2O3 ≥ 35% and Fe2O3 ≤ 19%. The safe blasting distance is 200 meters. The iron alumina ore from the Longxing Temple mine in this mining area is classified as Grade III. The estimated resource quantity for this mining area is as follows: the inferred economically recoverable resources (333) amount to 73,700 tons, with an extractability coefficient of 0.6, resulting in recoverable reserves of 44,200 tons. The reserve assurance coefficient is 0.9, and the economic profit is 210,200 yuan. On January 23, 2008, the Baofeng County Bureau of Land and Resources submitted the "Preliminary Geological Survey Report" to the Pingdingshan City Mining Association for review. On January 25, 2008, the Pingdingshan City Mining Association approved the report for review. On February 28, 2008, the Association issued Review Opinion No. [2008]004 (Pingchu Pian [Zero]), which was then filed with the Pingdingshan City Bureau of Land and Resources.

On March 3, 2008, the Bureau of Land and Resources of Baofeng County issued a public notice announcing the auction of mining rights. According to the notice, the Longxingsi iron-ore deposit to be auctioned is located northwest of Longxingsi Village, Qianying Township, Baofeng County. The mining area covers 0.0065 square kilometers, with proven reserves totaling 73,700 tons, and the lease term is three years. Bidders are required to submit a bidding application and other relevant documents when participating in the auction. After the announcement was released, Li Mou submitted a bidding application along with the required documents and registered to participate. Following review by the Bureau of Land and Resources of Baofeng County, Li Mou was determined eligible to bid.

On April 3, 2008, Li Mou won the mining rights for the Longxing Temple iron alumina mine through an open auction at a price of 4.3 million yuan and signed the “Confirmation Letter of Transaction for the Public Auction of Mining Rights” with the Baofeng County Bureau of Land and Resources. On the same day, the Baofeng County Bureau of Land and Resources, as Party A, entered into a transfer agreement with Party B, Li Mou. The main contents of this agreement are as follows: 1. Subject Matter of the Transfer: The subject matter of this transfer is the mining rights for the Longxing Temple iron alumina mine located in Qianying Township, Baofeng County. 2. Term of the Mining Rights Transfer: The term of the mining rights transferred through this public auction is three years. 3. Price for the Mining Rights and Payment Method: (1) The transaction price for the mining rights of the Longxing Temple iron alumina mine in Qianying Township, Baofeng County, is RMB 4.3 million. (2) Party B shall, within five working days after signing this agreement, pay the full amount of RMB 4.3 million to the Baofeng County Bureau of Land and Resources in a single lump sum. 4. Obligations of Party B: (1) After paying the mining rights fee, Party B shall, within six months from the date of signing this agreement, complete the preparation and review of the development plan in accordance with the requirements of the “Administrative Measures for Registration of Mineral Resource Exploitation,” legally carry out the registration procedures for the mining rights, obtain the mining license, and become the holder of the mining rights.…… 6. If any dispute arises between the parties during the validity period of this agreement, the parties shall attempt to resolve it through negotiation. If no agreement can be reached through negotiation, either party may file a lawsuit with the People’s Court in the locality where the dispute occurs. 8. This agreement shall have contractual force and shall take effect from the date of its signing. After signing the agreement, Li Mou paid the mining rights fee of RMB 4.3 million to the Baofeng County Bureau of Land and Resources on May 9, 2008.

On October 29, 2009, Li filed a lawsuit with the People’s Court, stating: First, the “Paid Transfer Agreement for Mining Rights” signed between him and the Baofeng County Bureau of Land and Resources contains a serious misrepresentation of the mineral reserves to be transferred. According to the “Paid Transfer Agreement for Mining Rights” entered into by both parties, the actual reserves of the mine discovered through mining operations within the mining area and depth specified in the mining permit significantly deviated from the reserves stipulated in the transfer agreement. After extracting only a small amount of iron ore clay, the mine was found to have no further iron ore clay available for extraction. Due to the inaccurate representation of resources in the paid transfer agreement concluded by the Baofeng County Bureau of Land and Resources, the plaintiff suffered direct investment losses totaling nearly 700,000 yuan. Second, during the public auction of mining rights for this mine, the Baofeng County Bureau of Land and Resources concealed the fact that the mining area was located at the foot of the dam of the Longxing Temple Reservoir, less than 100 meters from the crest of the reservoir dam. According to Article 13 of the State Council’s “Regulations on the Safety Management of Reservoir Dams,” activities such as blasting, well drilling, quarrying, mining, sand excavation, earth removal, and tomb construction—any activities that pose a threat to the safety of the dam—are prohibited within the management and protection zones of dams. Before the plaintiff’s mine even began production, it was identified as an illegal mine because its location posed a threat to the safety of the Longxing Temple Reservoir dam. Therefore, the plaintiff argues that, without first ascertaining the actual reserves of iron ore clay in the Longxing Temple iron ore clay mine, the defendant publicly auctioned off the mining rights for a mine whose iron ore clay reserves had been determined to be valueless for extraction, and thus bears civil liability for negligence. The plaintiff requests that the paid transfer agreement signed by both parties be terminated, that the Baofeng County Bureau of Land and Resources be ordered to refund the transfer fee paid by the plaintiff, and that the defendant compensate the plaintiff for its economic losses.

Based on its findings of fact, the court makes the following determination regarding the validity of the mining rights transfer agreement between the two parties: According to Article 15 of the “Regulations on Safety Management of Reservoirs and Dams” issued by the State Council, it is prohibited within the reservoir area to reclaim land or engage in activities such as quarrying and earth-taking that may endanger the stability of the surrounding mountains. Article 12 of the Implementation Rules for the “Management Regulations on Reservoirs and Dams” issued by the People’s Government of Henan Province stipulates that the protection zone of a dam includes a 300-meter extension beyond the management areas of both the main and auxiliary dams. Article 31 further provides that any activities—including blasting, well-drilling, quarrying, mining, sand-excavation, earth-taking, tomb construction, and kiln-building—that may jeopardize the safety of the dam are strictly forbidden within the dam’s management zone. In this case, part of the mining area of the Longxing Temple iron-ore deposit transferred by the defendant to the plaintiff is located less than 100 meters from the auxiliary dam of the Longxing Temple Reservoir. If large-scale mining were to take place within the dam’s protection zone, it could compromise the safety of the Longxing Temple Reservoir dam and harm the public interest. Therefore, the paid-transfer agreement signed by the plaintiff and the defendant not only violates the prohibitive provisions of the aforementioned administrative regulations but also undermines the public interest. In accordance with Article 52, Paragraph 1 of the “Contract Law of the People’s Republic of China,” a contract shall be deemed invalid if any of the following circumstances exist: (4) it harms the public interest; (5) it violates mandatory provisions of laws and administrative regulations. Accordingly, the paid-transfer agreement should be considered invalid. Ultimately, the court renders the following judgment:

1. The “Paid Transfer Agreement for Mining Rights of the Tiefan Clay Mine at Longxing Temple, Qianying Township, Baofeng County,” signed by the plaintiff and the defendant on April 3, 2008, is invalid. 2. The Defendant, Baofeng County Bureau of Natural Resources and Planning, shall return to the plaintiff, Li Xinfang, the transfer fee of 3.01 million yuan within ten days after this judgment becomes effective. 3. The other claims of the plaintiff, Li Xinfang, are dismissed.

III. Legal Analysis

Regarding whether this case involves a civil legal relationship or an administrative legal relationship, Article 2 of the General Principles of Civil Law provides: “The Civil Law of the People’s Republic of China governs property relationships and personal relationships among citizens who are equal subjects, between legal persons, and between citizens and legal persons.” Article 3 of the Civil Procedure Law stipulates: “People’s courts shall accept civil lawsuits filed by citizens against each other, by legal persons against each other, by other organizations against each other, and between these entities themselves, arising from property relationships and personal relationships; the provisions of this Law shall apply to such lawsuits.” Article 2 of the Contract Law states: “A contract referred to in this Law is an agreement entered into by natural persons, legal persons, and other organizations who are equal subjects, establishing, modifying, or terminating civil rights and obligations.” In this case, on March 3, 2008, the defendant announced the public auction of the iron alumina mine at Longxing Temple. On April 3, 2008, the plaintiff Li Mou won the bid through the open auction process and subsequently signed with the defendant a Confirmation Letter of Transaction for the Auctioned Mining Rights and a Paid Transfer Agreement. Li Mou paid the mining rights fee of 4.3 million yuan as stipulated in that agreement. Although the defendant possesses administrative management functions, during the process of transferring the mining rights for this mine, it was on an equal footing with the plaintiff Li Mou. The relationship between the two parties was not one of administration and being administered, but rather a property legal relationship between equal subjects, and thus should be governed by civil law. Based on the court’s proceedings and the judgment rendered in the above-mentioned case, the court recognized this case as involving a civil legal relationship.

Article 52 of the Contract Law stipulates that a contract shall be deemed invalid if any of the following circumstances exists: (1) one party enters into the contract by means of fraud or coercion, thereby harming the interests of the state; (2) the parties collude maliciously, thereby harming the interests of the state, a collective, or a third party; (3) a legal form is used to conceal an illegal purpose; (4) the contract harms the public interest of society; (5) the contract violates mandatory provisions of laws or administrative regulations. With regard to mining rights transfer contracts, if any of the above-mentioned circumstances rendering a contract invalid occurs during the signing or performance of the contract, the mining rights transfer contract shall be deemed invalid.