Introduction

Under the existing legal framework, the state owns all mineral resources in China and the allocation of mining rights is heavily regulated. A mining right is both a property and a usufructuary right – and both a public and a private right – and this duality continuously leads to disputes. However, the existing laws and regulations concerning mining rights focus mainly on administrative supervision, which cannot fully adapt to the increasing trend of marketing mining rights. The various courts have different understandings of the relevant laws and regulations and judgment criteria for mining right disputes vary from court to court.

In this context, on June 24 2017 the Supreme People's Court issued the Interpretation of the Supreme People's Court on Several Issues concerning the Application of Law in Hearing Cases involving Disputes over Mining Rights (Document Fa Shi [2017] 12), which took effect on July 27 2017. Following numerous investigations into the practical issues and the extensive soliciting of opinions, the interpretation unifies the adjudication rules with regard to:

  • the hearing of mining right disputes, particularly with regard to:
    • providing legal protection for the allocation of mining rights,
    • safeguarding the market and transactions; and
    • ensuring the rational exploitation and utilisation of mineral resources;
  • the validity and rescission of mining right contracts;
  • the validity, enforcement and rescission of mining right transfer contracts and liability in the case of a breach;
  • the establishment and realisation of mortgage mining rights and their subrogation;
  • judicial reviews of the validity of mining right contracts in certain regions; and
  • environmental public interest litigation, judicial advice and the coordination of environmental and administrative law enforcement.

Following the imposition of severe transfer restrictions several years ago, the interpretation aims to balance and protect the interests of relevant parties and the market. In practice, and while developing the interpretation, the discussion has centered on the allocation of mining rights – in particular, through mining right contracts and mining right transfer contracts.

Mining right grant contracts

The grant (establishment) of a mining right occurs by way of:

  • an application, which the competent authorities must approve;
  • a bidding round;
  • an auction; and
  • a listing registration.

In general, obtaining a mining right, which endows the holder with specific goods or assets, is the first step towards entering the market.

Mining right granting schemes have changed significantly over the years – from:

  • unpaid to paid granting schemes; and
  • first-come, first-served to competitive granting schemes.

In 2015 the Communist Party Central Committee and the State Council demanded that mining rights be granted through market-oriented means in the Overall Reform Plan for the Ecological Civilisation System. In December 2016 the Reform Plan for the Mining Rights Grant System and other documents were passed, which stressed the promotion of a competitive granting scheme for mining rights.

On the one hand, the state owns mineral resources. However, on the other hand, the government, as the state's representative, exercises administrative authority regarding mining rights. Therefore, the aim of establishing a mining right contract between the state and the grantee is, in essence, to establish a usufructuary right based on an administrative licence that also has the basic attributes of a civil contract.

The courts should ensure that the interests of the relevant parties are protected. According to Article 2 of the interpretation, if the parties to a mining right contract request confirmation that the contract will come into force when it is established, the court should support such request unless otherwise provided by law or regulation.

According to the general principles of civil law, if a party fails to fulfil its contractual obligations, the non-breaching party may request the rescission of the contract. Therefore, Article 4 of the interpretation stipulates that the non-breaching party may request to rescind the contract where:

  • the grantor fails to:
    • turn over the prospecting operation or mining area; or
    • issue the prospecting or mining licence; or
  • the grantee:
    • fails to meet the environmental requirements of the competent authorities and refuses to correct this within the prescribed time limit;
    • has its prospecting or mining licence revoked for violating the law or a regulation; or
    • fails to pay the price for the mining right in accordance with the contract.

Mining right transfer contracts

Mining rights can be transferred from the original grantee to other market subjects provided that certain conditions are met, including with regard to:

  • sales;
  • investment;
  • cooperation; and
  • reorganisation.

The transfer of mining rights forms the secondary market of mining right allocation, which also includes renting or mortgaging mining rights and other economic activities.

In accordance with the Regulations for Transferring Exploration Rights and Exploitation Rights (as amended in 2014),(1) the transfer of a mining right is subject to approval and the transfer contract must take effect from the date of approval. In practice, it is common for a mining right transfer contract to be signed before the competent authorities have approved the transfer. Under such circumstances, the validity of the mining right transfer contract is controversial.

The establishment of a contract is different from its coming into force. A mining right transfer contract will be deemed to be established as long as two parties have completed an offer and promise. Whether such contract comes into force depends on whether special legal requirements apply. Before the promulgation of the interpretation, the Supreme People's Court and some of the local high courts were generally of the opinion that in such cases, a contract is established but not yet valid.(2) Consequently, the terms of the contract would not be binding and no liability for breach of contract would be generated (Supreme People's Court (2011) Min Ti Zi 81).

The interpretation clarifies that without the competent authorities' approval, parties cannot register a change of mining rights by virtue of a transfer contract. However, this does not mean that the mining right transfer contract has no legal effect or that it should be deemed invalid. A mining right transfer contract established by law is legally binding on the parties and they must perform it in accordance with the pacta sunt servanda principle (ie, agreements must be observed), including by applying for or assisting with approval. Most importantly, the assignor will be liable for breach of contract if it refuses to perform the obligation of applying for approval without proper justification.

Simultaneously, the interpretation also stipulates that if an application for the transfer of mining rights that has been submitted to the competent authorities for examination and approval is rejected, the mining right transfer contract is unlikely to come into force and its performance is thus unnecessary. As such:

  • the parties will have the right to rescind the contract;
  • the property acquired according to the contract will be returned; and
  • the defaulting party must indemnify the non-defaulting party for its losses.

Comment

The interpretation reflects a major conceptual change in how the Chinese courts will adjudicate mineral right cases, as it not only sets out the rules for mining right contracts, but also stipulates rules regarding other issues relating to mineral rights, such as:

  • the creation of security interests;
  • mineral rights leasing;
  • the contraction of mineral rights for utilisation; and
  • the contribution of mineral rights for cooperation.

These new rules are extremely significant for the standardisation of the mineral rights market. Following more case experience and legislative discussion, the rules are expected to be further formalised and codified in the upcoming new laws and regulations regarding mineral rights, as well as the amendment to the Mineral Resources Law.

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For further information on this topic please contact Lin Shile or Meili Tan at Broad & Bright by telephone (+86 10 8513 1818) or email (shile_lin@broadbright.com or meili_tan@broadbright.com). The Broad & Bright website can be accessed at www.broadbright.com.

Endnotes

(1) Article 10 of the Regulations for Transferring Exploration Rights and Mining Rights (as amended in 2014) reads as follows:

"If anyone applies to transfer exploration rights or mining rights, the examining and approving agency shall deny or approve the transfer within 40 days from receipt of the application for transfer, and notify the transfer applicant and the potential assignee of the decision.

The transferor and the assignee shall, within 60 days from receipt of an approval notice, modify the registration with the licensing authorities that originally issued the corresponding licenses. The assignee shall pay the relevant fees in compliance with the provisions of the state, and obtain the exploration license or mining license before becoming the exploration licensee or mining concessioner.

If a transfer is approved, the transfer contract shall take effect on the date of approval.

If the transfer is denied, the examining and approving agency shall give an explanation."

(2) For example, Supreme People's Court (2011) Min Ti Zi 8 (civil judgment), Sichuan Provincial High People's Court (2014) Chuan Min Zai Zhong Zi 8 (civil judgment) and Yunnan Provincial High People's Court (2008) Yun Gao Min Yi Zhong Zi 60 (civil judgment).