Perspective | Judicial Determination of Common Disputes Over Overlying Mineral Resources and Prevention of Legal Risks

In judicial practice, people's courts have significantly diverged in their determinations as to whether a construction project constitutes an encroachment upon mineral resources, giving rise to the “substantial impact theory” and the... Spatial Overlap Theory Two judicial pathways.

The “Substantial Impact Theory” holds that a construction project can be deemed to have “overlying” mineral resources only if it substantially impedes the exploitation and utilization of those resources. The core elements of this theory include: (1) spatial overlap between the land use scope of the construction project and the exploration block or mining area of the mineral resources, and (2) such overlap must have substantially hindered the normal exploration, development, and utilization of the mineral resources. In the second-instance appeal in a property damage compensation dispute between a certain mining company and a certain railway limited liability company, the Supreme People’s Court explicitly pointed out that the essence of overlying mineral rights lies in the fact that the pre-existing mineral rights cannot be normally exercised due to interference by the construction project, thereby causing the corresponding mineral resources to lose their potential for development and utilization. In this case, the court adopted as the basis for its judgment the “Verification Report on Mineral Resource Reserves of a Certain Iron Mine of a Certain Mining Company in a Certain County of Hebei Province,” which had been reviewed and filed by the competent department of natural resources. The reason given was that the mineral resources... Reserve Filing As a statutory administrative act, it serves as an important vehicle for the state to exercise its ownership and management of mineral resources and, in the absence of contrary evidence to the contrary, carries inherent legal effect. Accordingly, the court held that the railway project in question, by effectively obstructing the exploration and development of mineral resources whose reserves have been filed, constitutes what is legally termed “overlying” or “overlaying.” This judicial reasoning aligns with... Document No. 137 In line with the spirit of consistency, this document not only emphasizes that overlying conditions must have a substantial impact but also specifies exceptional circumstances: even if there is spatial overlap, if the overlap does not affect mineral development, no overlying treatment is required. Given that such determinations involve specialized technical standards in fields such as coal and transportation, people’s courts typically entrust qualified appraisal institutions to conduct technical assessments to ascertain the actual extent of the construction project’s impact on mineral development.

Relevant Case: Dispute over Tort Liability Involving a Certain Logistics Co., Ltd. and a Certain Energy Co., Ltd.

Summary of the Ruling in this Case: First, if the construction entity and the mining rights holder have reached an intention to compensate for the overlying mineral resources and have duly completed the approval procedures required by relevant laws and regulations, then the construction entity’s act of overlying the mineral resources is not unlawful, and there is no subjective fault on its part; hence, it does not constitute a tort. The mining rights holder may obtain lawful compensation for the losses suffered due to the overlying of the mineral resources. Second, if a construction project overlies mineral resources for reasons of public interest, the construction entity shall compensate the mining rights holder for the market-value price that would have been payable for the overlying resource reserves under prevailing market conditions at the time of overlying, as well as for direct losses such as the exploration investment apportioned to the overlying mine area, the investment already made in existing mining facilities, and the costs associated with relocating such facilities.

Ultimately, the court adopted the expert report and recognized the “Mineral Resource Reserve Verification Report,” which had been reviewed and filed by the competent department of land and resources. The court held that this report constitutes the legally prescribed basis for determining mineral resource reserves. The court explicitly stated: “The essence of overlying mineral resources lies in the fact that a construction project prevents the exploitation and utilization of already identified important mineral resources.” The constitutive elements not only include spatial overlap but, more critically, also involve the potential for the loss of the capacity to exploit and utilize these mineral resources.

As can be seen from this, for mining right holders seeking to assert “substantial overburden,” officially filed reserve reports and professional technical assessments demonstrating the “loss of mining feasibility” are crucial pieces of evidence.

The “spatial overlap theory,” by contrast, adopts a more stringent standard for determining whether an encroachment has occurred: it holds that as long as the land-use scope of a construction project spatially overlaps with that of a mining area or exploration zone, such overlap constitutes an encroachment. In a second-instance case involving Guizhou Coal Industry Co., Ltd. and a certain Ultra-High Voltage Transmission Company Limited under a power grid corporation, the court employed the “surface deformation method” for its assessment. By comparing the overlapping areas between the construction project’s blueprints and the coordinates of the mining area, the court ruled that as long as permanent facilities of the construction project—such as tower foundations—fall within the boundaries of the exploration rights’ coordinates, this constitutes an encroachment in a legal sense, without the need to further examine whether the encroachment actually affects exploration operations. This judicial approach relies on the nation’s unified coordinate system, holding that the mere physical occupation of space inherently imposes an exclusive limitation on the exercise of mining rights. Ultimately, the court directly based its decision on this principle. Overlapping coordinate area In terms of area, the court ruled that the power grid company bears corresponding compensation liability for overlying interference. A similar judicial approach can be seen in a dispute between a mining company and a highway management authority. The Supreme People’s Court, based on the spatial relationship between the exploration rights coordinates and the highway project—specifically, that the main affected area lies within 1,000 meters of the highway and its closest point is only 300 meters away—determined that overlying interference had indeed occurred. This judicial logic takes spatial correlation as the central criterion for judgment, effectively lowering the threshold for establishing overlying interference. Technically, this approach relies primarily on precise coordinate system comparisons, eliminating the need for additional proof that development and utilization have actually been impacted.

As can be seen from this, in regions that adopt such standards, the accuracy of mining rights coordinates and the compliance of mapping documents are of paramount importance. During the preliminary investigation phase, construction entities must conduct detailed coordinate overlay analyses.

The dispute over the scope of compensation following the encroachment of mineral resources by construction projects is primarily characterized by the opposition between the “cost-compensation theory” and the “full-compensation theory.” The core disagreement lies in whether or not expected profits should be included.

The “cost-compensation theory,” primarily based on Document No. 137, argues that the scope of compensation should be limited to direct losses. The document explicitly lists the following items as eligible for compensation: the fee paid for mining rights corresponding to the reserves of mineral resources that have been overlaid (except in cases where such rights were obtained free of charge), as well as direct expenditures such as exploration investments, costs incurred for already-built mining facilities, and expenses related to facility relocation. In a certain mining case, the Supreme People’s Court reaffirmed this principle, noting that although the document does not absolutely exclude other types of losses, compensation should nonetheless be grounded in direct losses. At the same time, the court emphasized that the construction of infrastructure projects such as railways involves national security and public interests; in the absence of explicit legal provisions, limiting compensation to direct losses is both consistent with China’s national conditions and strikes a proper balance between protecting public interests and safeguarding private rights.

Relevant Case: Dispute over Property Damage Compensation Involving a Phosphorus Products Co., Ltd. in Sichuan and a Railway Limited Liability Company

In this case, railway construction overlapped with a phosphate mine, leading to a dispute between the parties over the scope of compensation. The phosphate products company claimed that the compensation should cover all losses, including expected profits. The court explicitly pointed out that, in the absence of specific provisions in laws or administrative regulations, the scope of compensation should be determined by reference to Document No. 137 issued by the former Ministry of Land and Resources. According to Document No. 137, the scope of compensation—including the mining rights fee, exploration expenditures, and already constructed shaft and tunnel works—constitutes direct losses and thus should be compensated.

Ultimately, the court held that railway construction involves significant public interests, and the loss of expected benefits (lost profits) “does not constitute a loss that was inevitably going to occur.” In the absence of clear legal grounds, such losses were not supported. The final judgment compensated only for direct investment costs.

As can be seen from this, in disputes involving major national infrastructure projects, advocating for “comprehensive compensation” faces considerable resistance, and efforts must focus primarily on gathering evidence related to direct losses.

The “comprehensive compensation theory,” based on the usufructuary nature of mining rights, argues that the scope of compensation should cover both direct losses and expected profits. As a usufructuary right stipulated in the Civil Code, mining rights encompass the powers of possession, use, and enjoyment of proceeds; among these, the right to enjoy proceeds naturally extends to the long-term benefits derived from mineral development. Several provincial normative documents have already responded to this issue, giving rise to two distinct calculation approaches: one determines expected losses by multiplying annual profits by a certain factor, while the other calculates them based on the residual profits from mining investments. In judicial practice, some cases have adopted this logic, including expected profits within the scope of compensation, reasoning that such an approach better aligns with the legal principle of comprehensive protection of property rights.

Relevant case: Contract dispute involving Shanxi Coal Industry Co., Ltd., Yangquan City Coal Industry Co., Ltd., and others. In this case, local highway construction overlaid coal mine resources, triggering a lawsuit over compensation issues.

The Shanxi Provincial High People's Court held that mining rights are usufructuary rights, with the core right being the right to generate income. The act of overlying resources results in the extinction or devaluation of mining rights, thereby infringing upon the right holder’s ability to derive income. The court supported including “expected profits” within the scope of compensation and adopted a specific calculation method: referring to the mine’s average profits over recent years, its remaining recoverable reserves, and its remaining service life, the court comprehensively estimated the loss of expected earnings.

Although the judgment referred to Document No. 137, it held that the document did not preclude compensation for other lawful and reasonable losses. In accordance with the principle of fairness and the spirit of property rights protection, the court could uphold the claim for expected profits. Ultimately, in addition to covering exploration costs and losses of fixed assets, the court partially granted the mining rights holder’s claim for expected profits.

As can be seen from this, in regions where local judicial practice tends to protect mining rights—or when dealing with non-nationally significant public-interest projects—parties may actively invoke the provisions of the Property Rights Section of the Civil Code to claim fair and reasonable compensation that includes anticipated benefits.

(1) Rights Confirmation and Evidence Consolidation: Ensure that mining rights certificates and permits are complete and coordinates are precise, and regularly file reserve estimates. (2) Early Intervention: Closely monitor project planning and proactively engage from the feasibility study stage to assert rights and strive for early compensation agreements. (3) Litigation Strategy Selection: When sufficient evidence is available, assert “substantial impact” to cover all resources. In areas where the “spatial overlap theory” applies, place particular emphasis on strengthening coordinate-based evidence. (4) Compensation Claims Should Be Made in a Hierarchical Manner: Direct losses should serve as the bottom line, while expected profits should be the core target for negotiation, and interest claims must be clearly specified.

(1) Preemptive Due Diligence: After a project is approved, it is mandatory to engage a professional agency to conduct a query and assessment of underlying mineral resources and obtain explicit approval from the competent natural resources authority. (2) Contractual Risk Isolation: The engineering contract should clearly stipulate the allocation of responsibilities in the event of compensation for underlying mineral resources—e.g., whether the owner bears such responsibility. (3) Negotiation Over Litigation: Proactively negotiate with the mining rights holder; consider reaching an agreement through either a “lump-sum fixed compensation” or a “cost-based compensation plus appropriate incentives” approach, thereby avoiding the risks of anticipated profit loss and protracted litigation processes that may arise from litigation. (4) Judicial Response: During litigation, emphasize the public welfare nature of the project and guide the court to apply the principle of “cost-based compensation” and adopt a later starting point for interest calculation.