Case Brief
On 1 August 2008, * Mining LLC. in Xilin Gol League (* Mining) signed a Mining Rights Transfer Contract (the contract) agreeing to transfer the mining rights for the Li Ying fluorite mine in the third production brigade of Bayantuga, Abaga Banner, to Yu * Yan (Yu *) for value. Yu * paid CNY 1.5 million for this transfer of mining rights according to the contract, made a preliminary design for the mining area after taking possession, and began mining. However, * Mining failed to complete the mining rights transfer procedures for Yu * in accordance with the contract.
In October 2012, the parties’ dispute was brought before the Intermediate People’s Court of Xilin Gol League of Inner Mongolia Autonomous Region (XGL court). The XGL court held that the contract signed by * Mining and Yu * was based on the real intent of both parties, and the contract had been established in accordance with the law; but the contract could only take effect with the competent administrative agency’s approval, according to laws and regulations. The transferee’s eligibility to acquire mining rights was subject to the examination and approval of the administrative agency, not the court’s jurisdiction.
Therefore, * Mining’s claims that Yu * was not qualified to acquire mining rights as required by law, and that the court should invalidate their contract and order the payment of liquidated damages by Yu *, could not be upheld by the court.
Yu * counterclaimed for an order compelling * Mining to obtain the administrative approvals required for the transfer of the mining rights. Since the two parties clearly agreed in the contract that such approvals should be obtained by * Mining, the court upheld Yu *’s counterclaim.
However, Yu *’s claim that * Mining should pay liquidated damages was not upheld by the court because although the contract was legally concluded, it was pending approval and had not yet come into force—and liability for breach of contract was premised on the validity of the contract. The XGL court issued a civil judgment ordering * Mining, within 15 days of the judgment’s execution, to complete the procedures required for their mining rights transfer approval in accordance with the contract.
* Mining appealed. The High People’s Court of the Inner Mongolia Autonomous Region (High Court of Inner Mongolia) held that the contract represented the parties’ real intent, and was concluded with their signatures or seals. According to Article 44 of the Contract Law of the People’s Republic of China, the contract concluded according to law becomes effective upon its execution. Where it is provided by laws or administrative regulations that formalities such as approval and registration shall be completed for a contract to take effect, such provisions shall be followed. According to Article 10 of the Measures for the Administration of Transfer of Mineral Exploration Right and Mining Right, for applicants seeking the transfer of mineral exploration rights or mining rights, the examination and approval administration agency should—within 40 days from the date of receiving an application for transfer—decide whether to approve it and then inform the parties of its decision.
If the transfer is approved, the contract shall take effect on the day of approval. If the transfer is not approved, the examination and approval administration agency should explain the reasons. As stipulated in Article 9(1) of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Contract Law of the People’s Republic of China and in accordance with Article 44(2) of the Contract Law, where contracts are subject to approval or registration as provided by laws or administrative regulations, their provisions shall be followed.
If parties have not complied with registration or approval formalities before the end of the trial court’s hearing, it shall determine the contract has not come into effect. The contract signed by both parties had not complied with the approval and registration formalities. Therefore, the contract was concluded according to law, but it had not come into force; its validity was to be determined. Whether Yu * was qualified as a mining right transferee and whether the contract could be approved by the relevant authorities was not up to the court to decide. However, it was appropriate for the trial court to determine that the contract was lawfully concluded, and that * Mining should complete the transfer approval formalities for Yu * in accordance with the contract. If the administrative authority does not grant approval to the transfer proposed in the contract, both parties may claim their rights separately in accordance with the Contract Law. The High Court of Inner Mongolia issued a civil judgment affirming the original judgment.
Based on Yu *’s application, the XGL court filed a case for enforcement and issued an enforcement notice to * Mining, requiring it to perform the obligations prescribed by the effective judgment. Since * Mining did not perform the obligation, a notice of assistance in enforcement was issued to the Land and Resources Bureau of Xilin Gol League requesting the Bureau to assist Yu *, the applicant for enforcement, to complete the formalities required for administrative approval of the transfer according to the contract, in accordance with the effective judgment. The Bureau replied that after * Mining signed the contract with Yu *, * Mining did not submit a transfer application to the Bureau and that the contract was a mining rights transfer contract signed between a business and a natural person. According to the Bureau, as stipulated by laws, administrative regulations, and local regulations, the assistance in enforcement requested by the XGL court in the notice could not be provided.
On 19 May 2014, Yu * established the Xilin Gol League * Fluorite Sales Co., Ltd. (Fluorite Sales Company), solely owned by a natural person, and applied to the XGL court to assign the enforcement application to this company.
Ruling
On 14 December 2016, the XGL court issued an enforcement ruling [Xilin Gol, Intermediate, Execution, No. 11], rejecting Yu *’s request to assign the enforcement application to Fluorite Sales Company.
Yu * appealed to the High People’s Court of the Inner Mongolia Autonomous Region for reconsideration. On 15 March 2017, the High People’s Court of the Inner Mongolia Autonomous Region issued an enforcement ruling [2017, Inner Mongolia, Execution, Reconsideration, No.4], dismissing Yu *’s application for reconsideration.
Yu * appealed to the Supreme People’s Court. On 26 December 2017, the Supreme People’s Court issued an enforcement ruling [2017, Supreme Court, Execution, No. 136], dismissing Yu *’s appeal.
Reasoning
The Supreme People’s Court held that the enforcement of this case was based on the agreement that * Mining should complete the mining rights transfer procedures for Yu * in accordance with the contract. According to current laws, in an application for the transfer of mineral exploration rights or mining rights, approval of the transfer should be obtained from the examination and approval administration agency before the transfer is made. If the transfer was approved, the contract should take effect on the day of approval. The courts of first and second instance held that the qualification of the transferee seeking mining rights was subject to the examination and approval of the administrative agency. Whether Yu * qualified as a mining rights transferee, and whether the contract could be approved by the relevant authorities, were not issues within the court’s jurisdiction.
Since the contract had not yet been approved by the administrative agency, it was determined by the trial court that the contract was concluded according to law, but had not yet taken effect. The appellate court also held that if the administrative agency did not approve the contract, the parties could assert their rights through other remedies regarding the legal consequences, rights, and obligations of the contract.
While the contract did not come into effect because the transfer had not been approved by the administrative authority, it did not compromise the validity of clauses in the contract requiring submission to the authority for approval; and combined with the reasons for judgment in this case, the order that “* Mining shall go through procedures required for the mining rights transfer approval in accordance with the Mining Rights Transfer Contract” was not a determination of the ownership of mining rights. The judgment referred to the fulfillment of an obligation to submit the contract for approval to render it effective, and the contract should be approved by the administrative agency before the registration of this transfer of mining rights. Therefore, the XGL court issued a notice to the Land and Resources Bureau of Xilin Gol League to assist in the transfer of mining rights, which was only equivalent to * Mining completing the application to the administrative authority for the transfer of mining rights and starting the examination and approval process by that administrative authority. This step could only be understood as requiring the Bureau to perform the function of examining and approving the transfer contract according to law.
Unlike general civil legal rights, mining rights required examination, approval, and licensing from administrative agencies. The rights of acceptance of an unapproved mining rights transfer contract were quite different from the rights of acceptance and transfer of creditor’s rights in ordinary civil judgments.
The issue could not be resolved by applying to change the enforcement party in the enforcement procedure. In this case, Yu * claimed to satisfy approval formalities for the transfer of mining rights in the name of Fluorite Sales Company, which he had established. In essence, this issue still fell within the scope of administrative examination and approval, to determine whether the transferee of mining rights met the statutory requirements; and this should be decided by the administrative authority in accordance with regulations on the management of mining rights.
Believing he could fulfill rights and obligations determined by the legally effective judgment, Yu * established the Fluorite Sales Company intending to meet the requirements for approval of the transfer in accordance with the administrative agency’s provisions—which was not transferring the rights in the contract to a third party, nor did it harm the state’s or any other party’s interests.
Yu * also believed his application to satisfy transfer formalities under the Fluorite Sales Company name complied with the: (i) Mineral Resources Law of the People’s Republic of China; (ii) Interim Provisions on the Administration of the Assignment and Transfer of Mining Rights; (iii) Administrative Measures for the Registration of Mineral Resources Exploitation; (iv) Supplementary Notice on Regulating the Management of Prospecting Rights and Mining Rights, issued by the Department of Land and Resources of the Inner Mongolia Autonomous Region; and (v) other regulations on handling mining rights transfer procedures by administrative authority, in the case of a natural person signing a contract for the transfer of such rights. Therefore, this view should be asserted in a request to the administrative authority responsible for the examination and approval.
The XGL court and the High Court of Inner Mongolia rejected Yu *’s application for the transferee change, following opinions expressed in the binding judgment of this case on the approval of the contract—and the judgment did not conflict with the laws and judicial interpretations of the enforcement procedure.
The court held that the parties’ mining rights transfer contract was lawfully concluded, but had not yet been executed; the transferor was ordered to complete formalities for transferring mining rights in accordance with the contract—but this judgment was not concerned with determining ownership of the mining rights.
Relying on the order, the enforcement court issued a notice to the competent authorities requesting assistance to complete the transfer of mining rights. But the notice was only used for requesting the competent authorities to initiate the review and approval process for the mining rights transfer; it should be decided by the competent authorities in accordance with the law whether the mining rights should be transferred.
Where the enforcement applicant sought to amend the transferee of the mining rights, this should also be determined by the competent authorities in accordance with the law.