mineral resources

In fact, for mining rights holders, in addition to directly participating in the bidding, auction and listing procedures of the natural resources authorities to obtain the original mining rights, there are also many mining rights holders of small mines or non-metal mines, who often transfer the mining rights through contracts or agreements, cooperative development and other models. Although the transferor and the purchaser have reached an agreement and have the same intention, it is unknown whether the exploration and mining rights transfer contract signed by the transferor and the purchaser will be effective.

A legal concept that must be made clear is that the establishment and effectiveness of a contract are different. The establishment of a contract means that the parties reach an agreement on the main terms through offers and acceptances, thus marking the completion of the contract formation process. Its core is the consistency of meaning, which is a matter of factual judgment. The validity of a contract means that a contract that is protected by state compulsory force and established in accordance with the law is legally binding. Its core is legality review, which is a matter of value judgment. The establishment of a contract is the prerequisite for the contract to take effect. Therefore, we can conclude that the validity of the contract needs to be verified. In other words, the contract will only take effect if it complies with the provisions of the law. On the contrary, if the content of the contract does not comply with the provisions of the law, the contract is invalid. However, because the mining rights transfer contract for exploration rights is a special type of transfer contract, it also has the special status of the contract being established but not taking effect. Article 6 of the original Mineral Resources Law established the principle that the transfer of exploration rights and mining rights must be approved in accordance with the law from the perspective of legal norms. Article 10 of the "Measures for the Administration of the Transfer of Exploration and Mining Rights" further clarifies this provision. The mining rights transfer contract for exploration rights shall become legally effective from the date of approval; the "Nine Minutes of the People" requires that the validity of an unapproved transfer contract be clearly stipulated and defined as a contract that is established but not yet effective; Article 6 of the Supreme People's Court's "Interpretation of Several Issues Concerning the Application of Law in the Trial of Mining Rights Dispute Cases" stipulates that if a party claims that the contract is invalid solely because the transfer application has not been approved, it will not be supported. Mining rights are a special usufruct right in our country's legal system. Its essence is that the right holder enjoys the right to use it and can also obtain benefits from the use, but it does not include the final right to dispose of the property. It only gives the right holder, that is, the mining right holder, the right to exploit mineral resources and obtain profits within a specific time and within the mining area. However, mining rights are not simply private rights. They also bear the attributes of public rights, and their ownership belongs to the state. Whether it is ensuring sustainable economic development, protecting the ecological environment or maintaining mine production safety, they are all closely related to public interests. It is precisely because of the particularity of the prospecting and mining rights transfer contract that disputes over such issues are often complicated. This article intends to explain the establishment and effectiveness of the exploration and mining rights transfer contract through practical case analysis.

The establishment and effectiveness of a mining rights transfer contract is one of the easiest legal relationships to understand in practice. The parties to the contract should strictly perform their contractual obligations, conclude the transaction as agreed under this relationship, and perform their contractual obligations.

In the 2016 Supreme Court case No. 781, the court pointed out that the transferee can apply for the application of the principle of change of circumstances. The main basis is the "Guizhou Province Coal Mining Enterprise Merger and Reorganization Work Plan (Trial)" (Qianfu Banfa [2012] No. 19) submitted during the second review stage. According to the facts that have been found, the relevant mining rights still have transfer conditions after the implementation of the work plan. The transfer agreement involved in the case is not unable to continue to be performed, and it does not constitute a situation that is obviously unfair to the transferee or makes the purpose of the contract impossible to be achieved. The transfer of mining rights of the coal mine involved in the case was approved by the Guizhou Provincial Department of Land and Resources twice, in 2013 and 2015. Based on this, the court determined that the transferee’s claim for change of circumstances lacked factual and legal basis, and therefore did not support its request to terminate the Transfer Agreement. Since the transfer of geological coal mine mining rights in the contract involved has been approved by the administrative department, the contract is legal and valid, and both parties should perform their contractual obligations in accordance with legal provisions, unless otherwise stipulated by law or agreed between the parties. Neither party may modify or terminate at will.

In the practical trial of mining rights dispute cases, there is a special type of contract, that is, the contract has been established but has not taken effect. In such a case, the validity of the contract involved in the case has not been confirmed by the natural resources authorities, so it can only be regarded as a contract that was established but not yet effective. In practical trials, the court also adopted this view. Because this situation is more complicated, the following is an illustration of this issue through actual cases decided by two courts.

In the (2018) Hei 04 Min Zhong No. 309 case, the court held that although the "Integration Agreement" involved in this case was concluded seven years ago, it has never been approved by the natural resources authority, so it is more appropriate to identify it as a contract that was established but not yet effective. The transferee, Hengxing Coal Mine, signed the agreement for the purpose of mining coal resources. It requested the court of first instance to support and rule that the termination of the agreement was not inappropriate. It was unable to obtain the mining rights for a long time due to reasons other than its own and was unable to achieve the purpose of the contract at all. According to Article 10 of the "Interpretations of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Mining Rights Disputes" No. 12 [2017]: Due to failure to pass the examination and approval, the transferee has the right to request the return of the money and interest paid to the transferee, resulting in the termination of the contract. If the transferee requests return, the transferee has the right to demand return. This case clearly shows that in judicial practice, the establishment and validity of a contract are strictly distinguished. Failure of the contract to take effect will lead to legal consequences such as return of property and compensation for losses.

In the case of (2018) Heimin Zhongzi No. 760, the court held that the transfer contract was not effective because it was not approved. According to the provisions of Article 6 of the "Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Mining Rights Dispute Cases" No. 12 [2017], "the mining rights transfer contract shall be legally binding from the date of its establishment in accordance with the law." A contract that has been established is binding on the parties. In this case, the transferor has fulfilled its obligation to deliver the coal mine, the transferee has subsequently changed hands, and the contract has been actually performed. Therefore, the court supported the transferor’s request to pay the transfer fee. At the same time, the court also pointed out that the transferor has the necessary obligation to assist.

It can be seen that even if the contract has not come into effect, the established contract is already binding on the parties to the contract. According to Article 7 of the "Judicial Interpretation of Mining Rights Dispute Cases", the obligation to submit for approval and review stipulated in the contract has legal effect on the parties to the contract. The mining rights transfer contract will not have the legal effect of changing the property rights of the mining rights until the natural resources department approves and completes the change registration. The client has the obligation to submit for approval in accordance with the contract, and the terms of the obligation to submit for approval agreed in the contract are independent and effective. The counterparty has the right to petition to perform the obligation to submit for approval. When the contract is valid in accordance with the law and the conditions for approval are met; the people's court may also directly order the counterparty to complete the approval procedures on its own based on the specific circumstances of the case. Its purpose is to implement the principle of good faith, promote the realization of transactions, and fairly safeguard the rights and interests of all parties. In other words, the fact that a contract is established but does not take effect does not mean that the contract is invalid. The legal consequences are essentially different from the invalidity of the contract. It also proves that the establishment of a contract does not mean that the contract is a valid contract. This point must be emphasized.

What needs to be made clear is that mining rights are a special usufruct right in our country’s legal system. It refers to the rights enjoyed by non-owners to possess, use and benefit from things owned by others, including land contract management rights, construction land use rights, homestead use rights, etc. The essence is the right to possess, use and profit by directly controlling other people's things. Mining right holders have the right to possess, use and benefit from their mining rights in accordance with the law. That is, the right holder has the right to use it and can also obtain benefits from its use, but it does not include the final right to dispose of the thing. It gives the right holder the right to mine mineral resources and obtain the mined mineral products within the scope of a specific mining area. However, mining rights are not simply private rights. They also carry public interests. Whether it is ensuring sustainable economic development, protecting the ecological environment or maintaining mine production safety, the transfer of mining rights is closely related to the approval of public interests. It is an important system for the country to regulate the orderly transfer of mining rights, realize the scientific protection and rational development of mineral resources, and is an important system for the country to orderly transfer mining rights. If the prospecting and mining rights transfer contract violates national mandatory legal provisions, it will be deemed to be an invalid contract and will have no legal effect.

Similarly, in the (2016) Qian Minzai Case No. 36, the court held that mineral resources belong to the state. According to the provisions of Article 3, Paragraph 3 of my country's Mineral Resources Law, the mining of mineral resources must apply for and obtain mining rights upon approval and registration in accordance with the law, and no unauthorized mining is allowed. In this case, the party concerned did not obtain the mineral rights, which is contrary to the above-mentioned legal provisions. According to Article 52 of the Contract Law of the People's Republic of China, "A contract is invalid under one of the following circumstances: (5) Violation of mandatory provisions of laws or administrative regulations." Therefore, the contract involved in this case should be considered invalid. “After the contract is invalid or revoked, the property acquired as a result of the contract shall be returned,” according to Article 58 of the Contract Law: If the return cannot be made or is unnecessary, compensation shall be made in the form of a discount. The party at fault must compensate the other party for the losses suffered due to any reason. Both parties are at fault and each bears corresponding responsibilities. The transfer fee charged by the transferee shall be returned if the transferor knows that it has not obtained a mining right certificate. At the same time, when signing the agreement, the transferee did not strictly examine whether the other party had a mining right certificate and made a mistake by blindly investing, and should bear corresponding liability for losses.

It can be seen that mineral resources belong to the state. Only by obtaining mining rights through procedures such as bidding, auction, and listing, or by obtaining mining rights with approval and registering, can we obtain the right to mine mineral resources in accordance with the law. If the transferor transfers the ownership to the state without obtaining a mining right certificate and transfers it to another third party for mining or mortgage, it is an act that violates the mandatory laws of the state and should be deemed as an invalid contract.

In the case of (2016) Xiang 31 Min Zhong No. 234, the court held that according to the provisions of Article 35, Paragraph 2 of the Mineral Resources Law of the People's Republic of China: "The scale of mineral resource reserves suitable for development by mining enterprises, the specific mineral types that require protective mining according to national regulations, and national regulations..." Individual mining of other mineral resources is strictly prohibited. In this case, on December 12, 2012, the respondent and the third party in the original trial signed an "Agreement". The "Agreement" stipulated that the third party in the original trial would participate in the bidding for the mining rights involved in the name of the respondent, and its rights and obligations were borne by the third party in the original trial and had nothing to do with the respondent. The two parties later signed an "Agreement" on October 20, 2015. The above-mentioned affiliation facts were confirmed, and the mining rights agreed upon by a third party in the original trial who had nothing to do with the appellee. The second agreement was actually a confirmation and supplement to the first agreement, and the two agreements dealt with the matter of natural persons borrowing the name of another company to participate in the bidding and the nature of the matter. The two agreements clearly violated the mandatory provisions of the above-mentioned laws and were both invalid contracts. Moreover, as a natural person, the third party in the original trial did not have the bidding qualifications stipulated in the transfer announcement, nor did he have the qualifications to mine the ores involved.

A contract for the transfer of exploration rights and mining rights is established, but some of the terms are effective and the rest of the terms are not effective. This type of contract often transfers the entire assets of the mine, including the mining rights. When handling this type of case, the court distinguished between the transfer of mining rights and the transfer of other assets. The part involving the transfer of mining rights requires the approval of the geological and mineral authorities to take effect, while the asset transfer takes effect from the date of signing the contract.

In the (2017) Heimin Zai No. 305 case, the court held that according to Article 44, paragraph 1, of the Contract Law and Article 55 of the General Principles of the Civil Law, the provisions in the mining rights transfer contract that require approval will only take effect from the date of approval, and other assets that do not require approval will take effect from the date of signing. In this case, if the transfer contract signed by Zhang Zhaobin and China Energy Guodian and the list of attachments can prove that the subject matter of the contract involved in the case is transferred, Zhang Zhaobin has delivered all the subject matter involved in the case to Guodian, and the transfer of the subject matter is not clearly stipulated in the law and must be approved before it can take effect. Therefore, the transfer clause of the subject matter involved in the case is legal and valid. The second-instance judgment found that the fact-finding was wrong and the fact that all the contracts involved in this case were not effective should be corrected.

In the 2017 Supreme Court Civil Application Case No. 1868, the court held that the case involved a transfer contract and three supplementary agreements. The transfer contract clearly stipulated that the transfer target was "100% of the mining rights of the coal mine and all other assets remaining after the coal mine is closed", and the transfer amount was 26 million yuan. Based on the content of the entire "Transfer Contract" and the statements of the parties in court, it can be determined that the purpose of the contract involved in the case should be the overall transfer of the coal mine, including mining rights and other assets. According to Article 6 of the "Mineral Resources Law of the People's Republic of China" and Article 10, Paragraph 3 of the "Measures for the Administration of Transfer of Exploration and Mining Rights", although the part of the contract regarding the transfer of mining rights has not yet taken effect without the approval of the geological and mineral authorities, the contract is still valid. However, the clauses regarding the obligation to approve the application for transfer of mining rights, the relevant clauses established for the obligation to apply for approval, and the clauses regarding the transfer of other assets do not require approval and have legal effect from the date of establishment of the contract. The content of the three supplementary agreements, including liquidated damages and late payment penalty clauses, aims to remove approval obstacles for coal mine acquisitions and mining rights transfers, as well as agreements on how to deal with obstacles if they cannot be removed. These contents are regulations related to the performance of review and approval obligations, do not violate the mandatory validity provisions of laws and administrative regulations, and should be legal and valid.

The establishment and effectiveness of a contract are two completely different legal concepts in the transfer of exploration rights and mining rights. The establishment of a contract does not mean the effectiveness of the contract. The conclusion of a contract is the agreement reached by the parties on the main terms through offers and acceptances, thus completing the confirmation of the contract formation process. Its core is to express consistent meaning, which is a problem in factual judgment. ‌‌A contract becomes effective‌ when a contract established in accordance with the law is legally binding and is protected by state compulsory force. Its core is legality review, which is a matter of value judgment. The establishment of a contract is the prerequisite for the contract to take effect. Therefore, the author recommends that mineral rights holders who want to obtain mining rights through the transfer of exploration rights and mining rights should find a professional lawyer to draft a contract before the transaction, verify the original mining license held by the transferor, and go to the publicity system of the natural resources authority to verify whether the information recorded in the mining license is true, whether the transfer qualification subject complies with legal provisions, and the rights of both parties Issues such as the obligation arrangement, the node and amount of installment payment of the mining rights transfer price stipulated in the contract, whether the mining rights are located in prohibited mining areas such as nature reserves, scenic spots, key ecological functional areas, ecologically sensitive areas and fragile areas, or belong to mining rights that are about to be consolidated by the state or closed down by policy, etc. It is best to entrust a lawyer to conduct professional investigation and evidence collection for such matters. This prevents the transferor from discovering problems only after it actually obtains the mineral rights, leading to disputes and thus investing a lot of time and cost in safeguarding rights.

Author of this article:Wei Xingchen Lawyer

Bachelor of Laws, Master of Civil and Commercial Laws

Deputy Director of the Mining Department of Beijing Yingting Law Firm

Civil and commercial dispute resolution, contract disputes, creditor's rights and debts, tort compensation, mineral resource disputes, administrative litigation disputes, etc.

He has published articles and papers such as "Research on Big Data Reports on Mining Rights Disputes", "Research on Mining Contracting Disputes Cases", "Mining Rights Achievements", "Responsibility after Mine Closure", "Identification of Illegal Income from Cross-Border Mining", etc.