On July 12, the Supreme People's Court released 10 typical cases involving civil disputes over mineral rights, providing models and guidance for people's courts to fairly adjudicate such disputes, promoting consistency in the standards of judgment, and offering strong judicial services and safeguards for regulating the transfer of mineral rights in accordance with the law and strengthening ecological and environmental protection.

　　The 13th Five-Year Plan for National Economic and Social Development of China points out that green development is both a necessary condition for sustainable development and an important manifestation of the people’s pursuit of a better life. We must adhere to the fundamental national policy of conserving resources and protecting the environment, deepen reform of the mineral rights system, establish and improve systems and platforms for trading ecological and environmental rights, use natural resources in an orderly manner, delineate ecological protection redlines, and intensify efforts to protect areas where development is prohibited.

　　Currently, the reform of the property rights system for mineral resources is being vigorously advanced, and systems for the paid use of mineral resources and market-based trading mechanisms are gradually being established and refined. However, the mineral resource industry still faces several serious issues that cannot be ignored, including resource waste, environmental damage, and frequent mining accidents. These problems have already begun to surface in judicial proceedings.

　　The legal framework governing mining rights, primarily based on the Mineral Resources Law formulated in 1986 and revised in 1996, has become inadequate to fully address practical concerns due to the limitations of its time. Mining rights disputes are diverse in nature, involve substantial assets, and feature complex legal relationships. They not only pertain to the state’s regulatory order over mineral resources and the rational development and efficient utilization of such resources, but also concern the recognition and protection of the legitimate property rights of market entities. Therefore, it is essential to remain problem-oriented, promote vigorous theoretical research, and effectively resolve practical issues.

　　According to Wei Wenchao, Deputy Chief Judge of the Environmental and Resource Adjudication Division of the Supreme People's Court, in the legal context, mining rights possess both characteristics of civil property rights and administrative licensing. They are closely intertwined with various factors, including the state’s ownership of mineral resources, the land-use rights for mining areas, ownership of mineral products, and the environmental rights of neighboring parties. When adjudicating civil disputes involving mining rights, it is essential not only to foster an awareness of property rights protection and to implement the principle of appropriately distinguishing between changes in property rights and the validity of contracts, but also to pay close attention to delineating the boundaries between judicial rulings and administrative supervision, as well as ensuring their seamless coordination and integration. This approach helps ensure the lawful circulation of mineral resources, maintains market order and transaction security, safeguards the rational development and utilization of mineral resources, and promotes resource conservation and environmental protection.

　　Wei Wenchao stated that the 10 cases released this time cover issues such as the confirmation of mineral rights ownership, the determination of the eligibility of entities authorized to transfer mineral rights, and the independence of clauses on approval obligations in mineral rights transfer contracts. They also include defining the distinctions between mineral exploration, labor contracting for mining operations, and management contracting for mineral rights; differentiating between equity transfers in mining enterprises and transfers of mineral rights; determining liability in disputes over infringement caused by the overlying of mineral deposits; and the special review conducted by people's courts regarding the validity of contracts for exploring and mining mineral resources within specially protected areas such as nature reserves—issues that are all hot topics and difficult points in civil litigation involving mineral resources.

　　To provide a clearer understanding of the key points in the judgments of relevant cases, Professor Zhao Xudong and Professor Li Xiandong from China University of Political Science and Law, Professor Cui Jianyuan from Tsinghua University, Professors Yao Hui and Wang Yi from Renmin University of China, Professor Chen Demin from Chongqing University, and National People's Congress deputy Cai Xue'en have offered insightful commentary on 10 typical civil disputes involving mining rights. Starting from this issue, our newspaper will gradually publish these 10 exemplary cases along with their corresponding commentary in the “Rule of Law World” column on Page 4 of the Resources Management section.

Attachment: Top Ten Typical Cases of Civil Disputes Involving Mining Rights (Original Case Text + Expert Commentary)

2016-07-12

Shangge Legal Professionals

Introduction: At 10 a.m. today, the Supreme People's Court held a press briefing and released the Top Ten Typical Cases of Civil Disputes Involving Mineral Rights Adjudicated by the People's Courts. Wang Ling, Deputy Director of the Office of the Leading Group for News and Publicity Work of the Supreme People's Court, chaired the briefing. Wei Wenchao, Deputy Chief Judge of the Environmental and Resource Adjudication Division of the Supreme People's Court, and Jia Qinglin, Chief Judge of the same division, attended the briefing and provided detailed information on the cases. Our editor at Faxin promptly shared these typical cases with our readers.

The People's Court's approach to legally adjudicating

 
Authoritative Interpretation of Typical Civil Disputes Involving Mining Rights (Key Excerpts)

Wei Wenchao, Deputy Chief Judge of the Environmental and Resource Adjudication Division of the Supreme People's Court

(July 12, 2016)

  ▎ Currently, the reform of the property rights system for mineral resources is being deepened, and systems for paid use of mineral resources and market trading mechanisms are gradually being established and improved. However, the mineral resource industry still faces a number of serious issues that cannot be ignored, including resource waste, environmental damage, and frequent mining accidents. These problems have already begun to surface in judicial proceedings. The legal framework governing mining rights—centered on the Mineral Resources Law enacted in 1986 and amended in 1996—is now constrained by the limitations of its time and can no longer fully address practical concerns. Mining rights disputes are diverse in nature, involve substantial sums of money, and feature complex legal relationships. They touch upon both the state’s management order over mineral resources, the rational development and efficient utilization of these resources, and the recognition and protection of legitimate property rights held by market entities. Therefore, it is essential to remain problem-oriented, foster theoretical research, and effectively resolve practical issues. Since the establishment of the Environmental and Resource Adjudication Division of the Supreme People’s Court, a number of civil disputes involving mining rights have been adjudicated. Moreover, extensive surveys and studies have been conducted across courts nationwide on the practice of handling mining-related cases, identifying problems, summarizing experiences, establishing rules, and standardizing judgment criteria. ▎ Mining rights possess both characteristics of civil property rights and administrative licensing features, and they are closely linked to various aspects such as the state’s ownership of mineral resources, land-use rights for mining areas, ownership of mineral products, and environmental rights of neighboring parties. In adjudicating civil disputes over mining rights, it is crucial not only to cultivate an awareness of property rights protection and implement the principle of appropriately distinguishing between changes in property rights and the validity of contracts, but also to clearly delineate the boundaries between judicial rulings and administrative supervision, ensuring their seamless coordination. This approach safeguards the lawful circulation of mineral resources, maintains market order and transaction security, promotes the rational development and utilization of mineral resources, and fosters resource conservation and environmental protection. The ten cases released this time cover a range of issues, including confirmation of mining rights ownership, determination of the eligibility of entities authorized to transfer mining rights, the independence of approval-obligation clauses in mining-rights transfer contracts, as well as the distinction between mineral exploration and mining labor contracting versus mining-rights operation contracting, the differentiation between equity transfers in mining enterprises and transfers of mining rights, liability allocation in disputes over encroachment on mineral deposits, and special reviews conducted by people’s courts regarding the validity of contracts for exploring and mining mineral resources within specially protected areas such as nature reserves. All these issues represent current hot topics and significant challenges in civil adjudication involving mineral resources. ▎ To provide a clearer interpretation of the key points of judgment in these cases, we have invited renowned experts, scholars, and lawyers—including Professors Zhao Xudong and Li Xiandong from China University of Political Science and Law, Professor Cui Jianyuan from Tsinghua University, Professors Yao Hui and Wang Yi from Renmin University of China, Professor Chen Demin from Chongqing University, and National People’s Congress deputy Cai Xueen—to offer commentary on these cases. We hope that by releasing these typical cases, we can provide certain examples and guidance for people’s courts in fairly adjudicating civil disputes over mining rights, promote the unification of judgment standards, and deliver robust judicial services and guarantees for regulating the lawful circulation of mining rights and strengthening ecological and environmental protection.

The People's Court's approach to legally adjudicating

Typical Cases of Civil Disputes Involving Mining Rights

I. The Dispute over the Ownership of Prospecting Rights Between Sun Suxian and Two Other Individuals and Xuan Zhengjun

(1) Basic Facts of the Case

In 2004, Sun Suxian and two other individuals invested in and contracted the forest land in Xiangyangsu Village, Qinglongshan Town, Naiman Banner, for a term of 15 years, with the intention of developing an iron ore deposit. Sun Suxian and the other two entrusted Xuan Zhengjun to handle the application for the exploration license, and they delivered to Xuan Zhengjun the relevant documents—including the letter of authorization for exploration, the forest land contract, proof of deposit, and the application registration form for mining rights—as well as the funds totaling 1.14 million yuan required for obtaining the license. On December 28, 2005, with approval from the Department of Natural Resources of the Inner Mongolia Autonomous Region, the Tongliao Municipal Bureau of Natural Resources announced the public listing and auction of the exploration rights for the iron ore deposit in the Xiangyangsu area of Qinglongshan, Naiman Banner. Xuan Zhengjun altered the name on the licensing documents from Sun Suxian’s name to his own, forged an exploration contract by privately duplicating the official seal of the “Fourth Geological Brigade of Liaoning Province,” and used the funds provided by Sun Suxian and the other two individuals to bid under the name of the Northern Construction Company of Naiman Banner (whose legal representative was Xuan Zhengjun himself). As a result, the exploration license was issued in Xuan Zhengjun’s own name. On February 13, 2006, the Department of Natural Resources of the Inner Mongolia Autonomous Region issued the “Mineral Resource Exploration License” to Xuan Zhengjun. Sun Suxian and the other two individuals subsequently filed a lawsuit requesting that the “Mineral Resource Exploration License” in question be confirmed as belonging to them.

(2) Ruling Outcome

In the first-instance judgment, the Intermediate People’s Court of Tongliao City, Inner Mongolia Autonomous Region, held that Xuan Zhengjun had used funds and documentation provided by Sun Suxian and two others to alter the name on documents and fabricate false application materials, thereby obtaining the exploration license through deceptive means. This act infringed upon the mineral exploration application rights of Sun Suxian and the other two individuals. Consequently, the court ruled that the exploration right established under the “Mineral Resource Exploration License” in question belonged to Sun Suxian and the other two individuals. In the second-instance judgment, the Higher People’s Court of Inner Mongolia Autonomous Region held that Sun Suxian and the other two individuals had claimed that Xuan Zhengjun had obtained the exploration license by means of falsifying documents and other fraudulent practices. They should have reported the matter to the competent department of land and resources, which would have investigated the facts and taken appropriate measures. Alternatively, they could have filed an administrative lawsuit with the People’s Court according to law, requesting the revocation of the exploration license obtained by Xuan Zhengjun. The lawsuit brought by Sun Suxian and the other two individuals did not fall within the scope of civil litigation. Therefore, the second-instance court ruled to overturn the first-instance judgment and dismissed the lawsuit filed by Sun Suxian and the other two individuals. After retrial review, the Supreme People’s Court held that the acquisition of exploration rights requires approval from the competent department of land and resources. Such administrative licensing is empowering in nature and falls within the management functions of administrative authorities. Given that exploration rights can only be established, altered, or revoked upon obtaining administrative approval, Sun Suxian and the other two individuals’ request to confirm that the “Mineral Resource Exploration License” belonged to them did not fall within the scope of civil litigation prescribed by law. Thus, the second-instance court’s decision to dismiss the lawsuit was justified.

(3) Typical Significance

Mineral rights possess both the attributes of civil property rights and characteristics of administrative permits. The exercise and redress of mineral rights involve the division of responsibilities between administrative and judicial authorities. Obtaining a prospecting right requires approval from the competent department of natural resources and land administration; the registration and amendment of the "Mineral Resource Exploration Permit" fall within the administrative functions of the competent department of natural resources and land administration. When the principal entrusts another party to handle the exploration permit, and the trustee fails to faithfully perform the entrusted obligations, resorting instead to fraudulent means to register the exploration permit under its own name, the principal’s direct filing of a civil lawsuit seeking confirmation that the exploration permit belongs to him/her represents an inappropriate choice of remedy. The People’s Court’s ruling dismissing the lawsuit reflects respect for the administrative authority’s regulatory functions and accurately defines the statutory boundaries within which judicial power may intervene. In this case, the principal may, in his/her capacity as an interested party, submit a request to the competent department of natural resources and land administration to revoke the permit and seek lawful resolution regarding the ownership of the prospecting right; alternatively, the principal may file an administrative lawsuit pursuant to law, requesting the People’s Court to review the specific administrative actions taken by the competent department of natural resources and land administration; or, based on the contract, the principal may hold the trustee liable for breach of contract or claim civil damages, thereby achieving legal redress after his/her rights have been infringed upon.

▎Commentary Expert: Li Xiandong, Professor at the School of Civil, Commercial, and Economic Law, China University of Political Science and Law, and Doctoral Supervisor.

▎Commentary: Mining rights are civil rights explicitly stipulated in China’s Property Law; however, their establishment is inseparable from the approval of the competent department of natural resources. From the perspective of administrative legal relationships, although the administrative licensing act granting prospecting rights involved in this case has certain defects, based on the principle of public trust in mining right registration and the presumption of validity of specific administrative acts, once the administrative authority has already issued the authorization, before the administrative licensing act is either corrected through the authority’s own review or rectified by judicial review in administrative litigation, the people’s court should not directly deem the exploration license invalid in civil proceedings. In other words, the entity authorized to issue administrative licenses for mineral resource exploration and development is the competent department of natural resources; therefore, the people’s court may not directly interfere with the exercise of administrative functions by the competent department of natural resources through its judicial power in civil trials. From the perspective of civil legal relationships, if the principal entrusts another party to handle matters related to applying for mining rights, and the trustee fails to faithfully perform the entrusted duties and engages in fraudulent behavior, the principal may pursue the trustee’s liability for breach of contract according to the terms of the agency agreement.

This case involves a dual legal relationship—administrative licensing and civil entrustment—and the parties concerned have the option to choose different remedies. However, it is important to note that civil litigation can only resolve civil legal disputes underlying the establishment of mining rights; it cannot address the issue of the legal validity of administrative actions taken during the process of establishing such rights. Once a prospecting license has been obtained, unless it is lawfully revoked or subject to administrative review, the people’s court may not directly alter the administrative licensing act through a civil judgment. Therefore, in this case, the parties’ direct filing of a civil lawsuit seeking confirmation of ownership of the mineral resource prospecting license and requesting a change in the holder of mining rights represents an inappropriate choice of remedy. By dismissing the lawsuit, the people’s court has allowed the parties to select the most suitable means of safeguarding their legitimate rights and interests. This decision both respects the supervisory and regulatory functions of the administrative authorities and accurately defines the statutory boundaries within which judicial power may intervene. It also serves as an excellent example for handling issues related to property rights attribution in the establishment of mining rights in judicial practice.

II. The Dispute over Mining Rights between Fu Qinqi and the People's Government of Shaxing Township, Xianyou County

(1) Basic Facts of the Case

On January 16, 2003, the Shexing Township Government signed a contract with Fu Qinqi, agreeing that Fu Qinqi would develop the ilmenite mine at Talingding in Shexing Township, Xianyou County. After signing the contract, Fu Qinqi invested in facilities such as roads and carried out exploration activities as agreed. On January 24, 2005, the Xianyou County Government approved the public listing and auction of the mining rights for the mine in question. In July 2007, the Xianyou County Government included the mine in question within the scope of prohibited mining activities. Fu Qinqi failed to obtain a mining permit for the mine in question in accordance with the law. Consequently, Fu Qinqi filed a lawsuit requesting the Shexing Township Government to compensate for his losses and pay interest on the funds he had invested during the period of capital occupation.

(2) Ruling Outcome

In the first-instance trial, the Intermediate People’s Court of Putian City, Fujian Province, found that Fu Qinqi had actually invested 1.533561 million yuan and ordered the Shexing Township Government to bear 50% of the compensation liability. In the second-instance review, the Fujian Provincial Higher People’s Court held that the Shexing Township Government, well aware that it had no authority to grant mining rights within its jurisdiction, had entered into a contracting agreement with Fu Qinqi to develop the mine in question without obtaining approval from the competent authorities. Consequently, the contract signed by the two parties should be deemed invalid. The mine in question has already been designated as a prohibited mining area and is therefore incapable of undergoing the necessary legal approval procedures. As a result, the legal consequences arising from this situation should be handled according to the nature of the assets invested by Fu Qinqi: the deposit paid by Fu Qinqi constitutes a security deposit collected by the Shexing Township Government under the contract and should be directly refunded; the road constructed by Fu Qinqi lies within the jurisdiction of the Shexing Township Government and represents a benefit obtained by the government, so the government should provide compensation based on the actual expenses incurred; the remaining investments represent losses suffered by Fu Qinqi in performance of the contract and should be compensated according to the proportion of fault attributable to each party. Accordingly, the court ordered the Shexing Township Government to refund Fu Qinqi a total of 670,712 yuan, covering both the deposit and the road construction expenses, and to assume 80% of the responsibility for compensating Fu Qinqi’s investment loss amounting to 862,849 yuan.

(3) Typical Significance

Mineral resources are owned by the state, and the state implements a strict licensing system for the exploration and exploitation of such resources. The transfer of mining rights shall be carried out in accordance with the law by the departments of natural resources at or above the county level within their statutory authority; township-level governments are not qualified entities to transfer mining rights. If a township-level government enters into a contract without possessing the necessary permits for mineral exploration and mining, thereby unilaterally assigning state-owned mineral resources to others for exploration and exploitation, this not only seriously infringes upon the state’s ownership of mineral resources and results in the loss of mining right taxes and fees, but also极易 leads to indiscriminate and excessive mining, and may even cause environmental pollution and ecological damage. Such contracts should therefore receive a negative legal assessment. On the premise of determining the contract as invalid, people’s courts should distinguish among different forms of liability—such as restitution of property and compensation for losses—and, while safeguarding the state’s ownership of mineral resources, comprehensively take into account factors of fault to protect the legitimate interests of the parties involved and maintain the orderly operation of the mining rights transfer market.

▎Commentary Expert: Li Xiandong, Professor at the School of Civil, Commercial, and Economic Law, China University of Political Science and Law, and Doctoral Supervisor.

▎Commentary: Although mining rights are classified as civil rights, they nonetheless possess characteristics such as the regulatory framework for the development and management of mineral resources and economic controls aimed at protecting the ecological environment. According to the Mineral Resources Law, the entity authorized to grant mining rights shall be the department of natural resources at or above the county level. The township government’s unauthorized granting of mining rights violates the mandatory provisions of laws and administrative regulations and thus cannot produce the legal effects expected by the parties involved. As an administrative body, the township-level government should exercise its administrative powers within the scope of its authority. Specific administrative acts enjoy the presumption of validity—once established, regardless of whether they are lawful or not, they are presumed to be lawful and thereby acquire a legal effect that requires all agencies, organizations, and individuals to respect them. The party subject to the administrative act should be protected due to their reasonable reliance on it.

Regarding the issue of legal consequences arising from the negative legal assessment imposed on the contract at hand, the second-instance court reversed the first-instance court’s ruling that both parties bore equal fault, holding instead that the government side should bear the primary fault liability. This decision correctly identified the causal relationship between the government’s unlawful administrative actions and the contract’s invalidity, thereby fully protecting the interests of the contractual counterparty who suffered damages as a result of relying on the government’s conduct. By effectively safeguarding both national and public interests, this ruling underscores the fundamental principle in modern mining administration—that “administration must be conducted in accordance with the law, and any action exceeding statutory authority is void.” It undoubtedly carries regulatory significance for the widespread irregularities currently prevalent in the granting and transfer of mining rights in practice.

III. The Dispute Case Regarding the Mining Rights Transfer Contract between Chen Fuquan and Que Shan County Tuanshan Mining Development Co., Ltd.

(1) Basic Facts of the Case

On January 15, 2014, Chen Fuquan signed a mining rights transfer agreement with Tuanshan Company, under which Tuanshan Company agreed to transfer its mining rights to Chen Fuquan for a consideration of 3.6 million yuan and to actively assist Chen Fuquan in obtaining the mining permit. After signing the contract, Chen Fuquan paid the full amount as agreed. On February 15, 2014, Tuanshan Company authorized Chen Fuquan to handle the extension procedures for the mining permit with the Department of Natural Resources and Land of Henan Province, and the procedures were completed on July 21, 2014. Subsequently, however, Tuanshan Company refused to cooperate with Chen Fuquan in carrying out the approval and registration procedures for the transfer of the mining rights. Chen Fuquan therefore filed a lawsuit, requesting that the mining rights transfer agreement be confirmed as valid and that Tuanshan Company cooperate with Chen Fuquan in completing the transfer procedures for the mining rights.

(2) Ruling Outcome

In the first instance, the People’s Court of Queshan County, Henan Province, held that the mining rights transfer agreement was lawful and valid, and that Chen Fuquan was responsible for handling the relevant procedures for the transfer of mining rights. In the second instance, the Intermediate People’s Court of Zhumadian City, Henan Province, held that Chen Fuquan and Tuanshan Company had reached a mutual agreement on the transfer of the mining rights in question, both having signed the transfer agreement, thus establishing the validity of the agreement. According to the "Administrative Measures for the Transfer of Prospecting Rights and Mining Rights" issued by the State Council, the transfer of mining rights must be submitted to the competent department of natural resources for approval, and the transfer contract shall take effect from the date of such approval. After the mining rights transfer agreement in this case was established, the obligation stipulated in the agreement for both parties to apply for approval became legally binding. Since Tuanshan Company failed to carry out the approval procedures as agreed, it violated the principle of good faith and fair dealing. In accordance with Article 8 of the "Interpretation (II) of the Supreme People’s Court on Several Issues Concerning the Application of the Contract Law of the People’s Republic of China," the People’s Court may, based on the specific circumstances of the case and upon request of the other party, order the other party to handle the relevant procedures themselves. Therefore, the second-instance court ruled that the mining rights transfer agreement was valid and that Chen Fuquan should handle the relevant procedures for the transfer of mining rights.

(3) Typical Significance

The approval process for the transfer of mining rights is an important institutional mechanism through which the state regulates the orderly circulation of mining rights and ensures the scientific protection and rational development of mineral resources. A mining rights transfer contract that has not been approved by the competent department of natural resources and undergone the formalities for registering the change of mining rights shall not produce any effect regarding the transfer of property rights in the mining rights. However, the clause in the transfer contract obligating the party responsible for obtaining approval shall be legally effective from the moment the contract is concluded, and the party obligated to obtain approval shall fulfill its obligation in accordance with the contract terms. Provided that the transfer contract does not fall under any legally invalid circumstances and the conditions for fulfilling the approval obligation have been met, the counterparty is entitled to request the party obligated to obtain approval to perform its approval obligations. Based on the facts of the case and the counterparty’s request, the people’s court may also rule that the counterparty itself shall handle the approval procedures. Allowing the counterparty to handle the approval procedures independently not only conforms to the principles of good faith and encourages transactions, but also helps to balance the interests of both parties.

▎Commentary Expert: Cui Jianyuan, Professor at the School of Law, Tsinghua University, and Doctoral Supervisor.

▎Commentary: The vast majority of contracts take effect upon their establishment. However, some contracts, due to the presence of conditions precedent or a commencement date, will only become enforceable once those conditions are met or the commencement date arrives. There are also contracts that, according to laws and administrative regulations, take effect only after the competent administrative authorities have completed the necessary approval and registration procedures. The disputed “Mining Rights Transfer Agreement” falls into the category of contracts whose effectiveness is contingent upon review and approval by the competent administrative authority, as stipulated in Article 44, Paragraph 2 of the Contract Law. Such contracts acquire legal effect upon being reviewed and approved by the competent department of natural resources and land; if the competent department refuses to approve them, the contract is definitively invalid; and if the competent department has yet to render its decision, the contract remains in a state of pending effectiveness.

In practice, there is a dispute over the validity of mining rights transfer contracts, with conflicting provisions between Article 15 of the Property Law, Paragraph 2 of Article 44 of the Contract Law, and Paragraph 3 of Article 10 of the Administrative Measures for the Transfer of Prospecting Rights and Mining Rights. The so-called property registration stipulated in Article 15 of the Property Law is a registration for the creation of property rights. In cases where the change of property rights depends on such a registration for effectiveness, whether or not the registration has been completed determines whether the property right has actually changed—but this does not affect the validity of the underlying act that triggered the change of property rights, such as the transfer contract itself. However, it would be incorrect to conclude from this that all contracts are no longer subject to the provisions of Paragraph 2 of Article 44 of the Contract Law. Registration as a requirement for the effectiveness of property right changes and the review and approval by the administrative authority as a requirement for the effectiveness of a contract are two distinct concepts. While Article 15 of the Property Law concerns registration, it is entirely separate from the administrative authority’s review and approval process. Compared with the special requirements for the effectiveness of a contract stipulated in Paragraph 2 of Article 44 of the Contract Law, Article 15 of the Property Law provides merely a general rule regarding the underlying act; moreover, it does not positively specify the requirements for the effectiveness of the underlying act but rather declares—in a negative sense—that registration is no longer a requirement for the effectiveness of the underlying act. Requiring the review and approval by the competent department of natural resources as a condition for effectiveness is essential to prevent the transfer of mining rights to transferees lacking the requisite qualifications, to avoid waste of natural resources, and to reduce—or even eliminate—mining accidents. Even against the backdrop of administrative system reform and the delegation of powers, this requirement should still be respected. It is important, however, to interpret and characterize the obligation to obtain approval in mining rights transfer contracts as a statutory, pre-contractual obligation—a separate obligation distinct from the obligations related to the transfer of mining rights and the corresponding payment obligations. The validity of this obligation is not affected by the fact that the transfer contract has not yet been approved.

IV. The Dispute Case Regarding the Contract for the Mining Rights of the Daping Marble Mine in Baoxing County, Sichuan Province, and Li Jing

(1) Basic Facts of the Case

Baoxing Daping Mine holds a valid and legal mining license as well as all relevant permits and certificates. On September 22, 2009, Baoxing Daping Mine entered into an Agreement with Li Jing, stipulating that Baoxing Daping Mine would provide legal mining procedures, as well as infrastructure including the mining site, power facilities, roads, and explosives storage facilities. Upon expiration of the cooperation period, any newly added forest land and roads within the mining area would become the property of Baoxing Daping Mine. Li Jing would pay Baoxing Daping Mine a fixed fee, enjoy autonomy in production and operation, independently organize personnel for production and marketing, bear the costs of wages, and pay taxes in accordance with applicable laws and regulations. If Baoxing Daping Mine breached the agreement, it would be required to compensate Li Jing for all expenses incurred. Li Jing duly provided initial investment and commenced mining operations as agreed. Baoxing Daping Mine has filed a lawsuit requesting that the Agreement be declared invalid, demanding that Li Jing cease production, vacate the premises, and return the mine along with its associated equipment and facilities.

(2) Ruling Outcome

In the first instance, the Intermediate People’s Court of Ya’an City, Sichuan Province, held that the “Agreement” was a contract for the transfer of mining rights through a contracting arrangement and therefore should be deemed invalid. In the second instance, the Higher People’s Court of Sichuan Province ruled that the transfer of mining rights involves the transfer of all rights and interests associated with such rights and requires a change in the entity holding the mining rights. However, the “Agreement” stipulated that Baoxing Daping Mine possessed a valid mining license and other permits required by law, and undertook to provide all legal mining procedures within the scope permitted by law, as well as infrastructure such as mining sites, power facilities, roads, and explosives storage facilities—all without any change in the entity holding the mining rights. In actual performance, all external relations were conducted in the name of Baoxing Daping Mine. Li Jing paid Baoxing Daping Mine a fixed sum of fees, independently organized production and marketing personnel, bore the costs of wages, and paid taxes according to regulations; moreover, he enjoyed autonomy in production and management—features entirely consistent with those of a contracting agreement. Therefore, the “Agreement” should be recognized as a mining rights contracting agreement. Although the “Agreement” specified that Li Jing’s operating period roughly corresponded to the remaining term of Baoxing Daping Mine’s existing mining permit, according to relevant laws and regulations, Baoxing Daping Mine could apply for an extension upon expiration of the permit. The “Agreement” merely represented an internal arrangement of rights and obligations between the two parties to the contract and did not have the transfer of mining rights as its contractual purpose. It did not violate any mandatory provisions of laws or administrative regulations and thus should be considered valid. Consequently, the second-instance court reversed the first-instance judgment and dismissed Baoxing Daping Mine’s claim.

(3) Typical Significance

China’s laws and administrative regulations concerning mineral resources prohibit the transfer of mining rights through contracting arrangements. In practice, it is important to distinguish between two different modes of transferring mining rights: the transfer of mining rights via contracting and the contracting of mining rights themselves. If the parties enter into a mining-rights contracting agreement stipulating that the contractor waives management responsibilities for the mine and, apart from collecting a fixed fee or share of profits, no longer performs any statutory obligations as the holder of the mining rights nor assumes any legal liability, such arrangement should be recognized as a transfer of mining rights via contracting. However, if the parties sign a mining-rights contracting agreement under which they agree to allow others to jointly engage in mining activities or to assign the operational and management rights embedded in the mining rights to others, yet the ownership of the mining rights itself remains unchanged and the contractor—as the holder of the mining rights—does not withdraw from the management of the mine but continues to fulfill its statutory obligations and bear corresponding legal liabilities, provided that such arrangement does not violate any mandatory provisions of laws or administrative regulations, its validity should be affirmed in accordance with the law.

▎Commentary Expert: Yao Hui, Professor at the Law School of Renmin University of China and Doctoral Supervisor.

▎Commentary: The central issue in this case lies in determining the nature and validity of the “Agreement” signed by the parties involved—in particular, whether it constitutes a mining rights transfer contract or a mining rights contracting agreement. Academically, mining rights are generally regarded as private rights with elements of public authority. Given their frequent involvement with national strategic interests and the livelihood of the people, the transfer of such rights is subject to stricter conditions and restrictions. Specifically, in addition to the genuine expressions of intent by both the transferor and transferee, the transfer of mining rights also requires the consent of the relevant administrative authorities and compliance with procedures prescribed by laws and regulations. More importantly, once mining rights are transferred, the entity holding those rights must change, and the original holder’s rights and obligations will accordingly be transferred to the new holder. By contrast, mining rights contracting differs fundamentally from transfer. Essentially, contracting involves the mining rights holder freely exercising its right to exploit resources; the holder has the right to permit others to jointly engage in mining activities or to assign the management and operational powers inherent in the mining rights to a contractor. Such an arrangement, by its very nature, does not imply or equate to a transfer of mining rights. The highlight of this case is that the second-instance court correctly and appropriately distinguished between contracting mining rights and transferring mining rights through contracting. The key distinction between the two lies in whether the entity holding the mining rights changes. If the mining rights holder relinquishes its right to enjoy the mining rights and fails to fulfill its management and operational obligations, completely handing over the mining rights to the contractor, such arrangement should be recognized as a transfer of mining rights through contracting, and its validity should be negatively evaluated. However, if the mining rights holder merely enters into a contracting agreement without withdrawing from mine management and continues to perform its obligations and assume responsibilities—as long as such agreement does not violate any mandatory provisions of validity—its validity should be affirmed.

The determination of the nature of a contract and the evaluation of its validity have long been challenging issues in judicial practice. A proper approach to resolving these issues lies in thoroughly understanding civil law theory and accurately applying existing laws and regulations, seamlessly integrating the two.

V. Case of Labor Contract Dispute between Zizhong County Hongji Mining Company, He Shenghua, and Lü Zhihong

(1) Basic Facts of the Case

Hongji Company is a limited liability company wholly owned by He Shenghua. On April 30, 2009, Lü Zhihong entered into a “Mining Labor Contract” with Hongji Company, which stipulated the mining methods, unit prices, the rights and obligations of both parties, and liability for breach of contract. During the performance of the contract, Hongji Company made a written commitment to Lü Zhihong that it would settle and pay the relevant amounts on a regular basis as agreed in the contract. If Hongji Company failed to make such payments, forcing Lü Zhihong to suspend operations due to funding issues, Hongji Company would be liable for any resulting losses. On February 25, 2010, because Lü Zhihong’s mining activities had caused losses to villagers in the mining area, Hongji Company advanced 48,418 yuan to cover these losses. Hongji Company then filed a lawsuit seeking a court order declaring the “Mining Labor Contract” invalid and demanding that Lü Zhihong compensate for losses totaling 668,418 yuan. In response, Lü Zhihong also filed a lawsuit, requesting that Hongji Company and He Shenghua jointly and severally compensate him for losses amounting to 4,635,558.67 yuan. The two cases were consolidated for trial and were decided separately.

(2) Ruling Outcome

In the first instance, the People's Court of Zizhong County, Sichuan Province, held that the “Mining Labor Contract” constituted a disguised transfer of mining rights and was therefore invalid. The court ordered Lü Zhihong to pay Hongji Company 48,418 yuan, and Hongji Company and He Shenghua were jointly and severally liable to pay Lü Zhihong labor fees and compensation for losses totaling 1,682,770.98 yuan. In the second instance, the Intermediate People's Court of Neijiang City, Sichuan Province, held that the “Mining Labor Contract” signed between Hongji Company and Lü Zhihong, under which Hongji Company contracted out mining labor to Lü Zhihong, was merely a contract for the provision of mining services and did not constitute an unauthorized transfer of mining rights through contracting. Thus, the contract was lawful and valid, and both parties should fulfill their obligations in accordance with the contract’s terms. Although the rights and obligations of both parties had already terminated on July 29, 2010, this did not affect the settlement process based on the contract nor the right to claim compensation for losses according to the actual performance. The second-instance court ruled that Lü Zhihong should pay Hongji Company 93,418 yuan, while Hongji Company and He Shenghua were jointly and severally liable to pay Lü Zhihong labor fees and compensation for losses totaling 309,235.66 yuan.

(3) Typical Significance

Labor contracting is widely prevalent in the production and operation of mining enterprises. Properly identifying the nature and validity of such contracting agreements is conducive to stabilizing transaction order and safeguarding transaction security. When a mining rights holder entrusts mining tasks to a contractor for completion, pays the contractor certain labor remuneration, and retains ownership of the contractor’s labor outcomes, the nature of this arrangement should be recognized as a labor contracting agreement. Labor contracting for mineral resource exploration and mining does not result in a change of the mining rights holder’s legal entity; therefore, it does not constitute a transfer of mining rights through contracting and is not subject to the legal requirement that such contracts must be approved by the competent department of natural resources before taking effect. Provided that the contract does not violate any mandatory provisions of laws or administrative regulations, it should be deemed lawful and valid.