England and Wales Court of Appeal (Civil Division) Decisions
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URL: http://www.bailii.org/ew/cases/EWCA/Civ/2009/579.html
Cite as: [2010] 1 Ch 100, [2009] NPC 78, [2009] 2 P & CR 23, [2009] 3 WLR 1010, [2010] RVR 127, [2010] 1 All ER 26, [2009] 25 EG 136, [2010] Ch 100, [2009] EWCA Civ 579
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT
CHANCERY DIVISION
MR JUSTICE PETER SMITH
HC06C02870
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE AIKENS
and
LORD JUSTICE SULLIVAN
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| (1) STAR ENERGY UK ONSHORE LIMITED (2) STAR ENERGY WEALD BASIN LIMITED |
Appellants |
|
| - and - |
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| BOCARDO S.A. |
Respondents |
____________________
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Jonathan Gaunt Q.C. and Edward Peters (instructed by Denton Wilde Sapte, LLP, London) for the Respondents
Hearing dates: 3rd, 4th and 5th February 2009
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Crown Copyright ©
- This case raises interesting issues about the rights of landowners in England under whose land there are naturally occurring deposits of petroleum. The specific questions raised are: (1) where an oil company has been granted a licence under the Petroleum (Production) Act 1934[1] ("the 1934 Act") to search, bore for and get petroleum in the licensed area which is beneath land belonging to another and, without obtaining that landowner's agreement, or an "ancillary right"[2] pursuant to statute to do so, the licensee bores pipelines at depth beneath the landowner's land in order to recover petroleum from within the licensed area, is he committing a trespass? (2) if the petroleum licensee is thereby committing a trespass, then what measure of damages is the landowner entitled to obtain for any past and continuing trespass, assuming that the court does not grant an injunction?
- In his judgment of 24 July 2007, Peter Smith J held that in this case the defendant/appellants had committed such a trespass. He also held that damages for that trespass should be assessed at 9% of the value of the income received by the trespassers from the time the trespass began (subject to a limitation point) and until the oil and gas became exhausted or the extraction was finished. Both conclusions are challenged in this appeal.
- Star Energy UK Onshore Limited ("Star Energy") is the former holder of a petroleum production licence ("the licence") that was originally issued on 17 November 1980[3] by the Secretary of State for Energy pursuant to section 2 of the 1934 Act. Star Energy Weald Basin Limited ("Star Weald") acquired the licence from Star Energy on 16 October 2007. I will refer to both companies as "Star". Bocardo SA ("Bocardo") is the freehold owner of Barrow Green Court and Barrow Green Farm, which form the Oxted Estate at Barrow Green Road, Oxted, Surrey. The ultimate beneficiary behind Bocardo is the family of the well – known businessman, Mr Al Fayed.
- The licence that permits the licensee to search, bore for and get petroleum extends to areas beneath land owned by others besides Bocardo. Beneath this land is a naturally occurring reservoir of petroleum and natural gas, known as Palmers Wood Oilfield ("the oilfield"). I have reproduced as Annex 1 to this judgment a diagram showing the location of the licence area relative to the Oxted estate. The diagram also shows the three pipelines, called PW5, PW8 and PW9 which the predecessors of the two Star companies had bored and fitted from a well head located at Coney Hill, which is situated just outside the Oxted estate. At no stage did the two Star companies (or their predecessors as licensees) obtain Bocardo's agreement to laying pipes beneath the surface of Bocardo's land. Nor did they apply for or obtain from the court any "ancillary rights" to do so pursuant to the terms of the 1934 Act.
- The three pipelines were drilled along a "deviated path". That means that they were not drilled straight down from the well head at Coney Hill, but at an angle into the terrain around it.[4] The three pipelines therefore enter the Oxted estate at a depth of about 800 feet below the surface. PW5 and PW8 run, respectively, for about 0.5 and 0.7 kilometres beneath the estate and both terminate at greater depths; something between 2300 and 2800 feet beneath the surface. The wells were drilled and the pipelines installed in this way so that oil could be extracted from the top of the reservoir where the oil is situated, thus enabling the maximum oil to be removed.[5] PW9 is used to pump water into the oilfield to put the oil under greater pressure and so speed up the rate of extraction.[6] The casing pipes for the pipelines are of 8.5 and 12 inches diameter. Neither oil nor water can leak from the pipes into the surrounding strata.
- Oil production from PW5 began in October 1990 and from PW8 in September 1992. PW9 was used to inject water from August 1992.[7] By the end of 2007 approximately 1,006,000 barrels of oil had been extracted. Production rates have declined over the life of the field and at present it produces about 2,000 barrels a month. The judge stated that, "in rough terms", the oil extracted at the Coney Hill wellhead, via PW5 and PW8, was from the "eastern" part of the oilfield within the licence area. Oil has also been extracted at another wellhead situated at Rooks Nest, which is to the west of Coney Hill. The judge found, again "in rough terms", that the oil extracted through Rooks Nest was from the western part of the oilfield.[8]
- The judge held that Bocardo's title to the land beneath the surface of the Oxted estate extended to the depths at which the three wells/pipelines passed through the strata under the estate. However, he found that laying the pipes, extracting the oil and pumping in water did not result in any physical or other actual damage to Bocardo. There was no disturbance of the soil or the like.[9] In fact, he decided, the whole exercise "did not affect the use and enjoyment of the Oxted estate one iota".[10]
- However, the judge held that although Star (and its predecessors as licensees) had the right to bore for and get petroleum from within the strata beneath the Oxted estate, that licence did not automatically grant a right to gain access to the oil within the strata that were owned by Bocardo. He therefore concluded that, as neither Star nor its predecessors had ever sought a right of access, either by agreement with the landowner, or by obtaining an "ancillary right" to do so pursuant to section 3(1) of the 1934 Act,[11] the insertion of the pipelines beneath the Oxted estate for the purposes of removing oil from beneath the estate (and in the remainder of the oil field) "[cannot] be anything other than a trespass".[12]
- There was a limitation issue before the judge with which this court is not concerned. Having considered the evidence, the judge concluded that, for limitation purposes, Bocardo had the requisite knowledge about the oilfield activities of Star from 1997.[13] The Claim Form was issued on 22 July 2006 and the limitation period for a claim in trespass is six years.[14] Therefore, the judge concluded that Bocardo was entitled to damages for the trespass committed by Star from 22 July 2000 until the trial and also to damages (in lieu of an injunction) for the continued trespass until the oilfield was exhausted.[15] The judge held that the measure of damages for Star's trespass was equal to the money sum that the parties would have agreed had they negotiated a payment for the right of the licensee to have access to the strata beneath the Oxted estate to bore the wells, lay the pipes for PW5, PW8 and PW9 and recover the oil. He held that this negotiation should be deemed to have taken place in 1994, when Star Energy became an operator of the licence and all the pipelines had been laid.[16]
- The judge decided that these negotiations would have taken place against the background of three important factors. The first was that the pipes would remain where they had already been laid, because it was impractical to relay them outside the Oxted estate and that the pipes would be used, effectively, to extract half the oil from the licensed field.[17] The second was the existence of section 8(2) of the 1966 Act. That provision stipulates that, if necessary, the court may determine the amount and nature the compensation or consideration to be paid for an "ancillary right". It will do so on the basis of "what would be fair and reasonable between a willing grantor and a willing grantee, having regard to the conditions subject to which the right is or is to be granted". The third factor was that, in the judge's opinion, there was legal uncertainty as to the true construction of section 8(2) of the 1966 Act.[18]
- The judge concluded that the result of the negotiations would have been that the parties would have settled on a compensation payment to Bocardo "calculated on 9% of the income received from the extraction of the oil under the field via PW5 and PW8".[19] Accordingly, the judge awarded Bocardo damages for trespass between 22 July 2000 to 31 December 2007 on the basis of 9% of the value of the oil extracted from the two wells between those dates, which, on the evidence, he found to be £6,902,000. He also awarded damages for the continuing trespass on the same basis, ie. 9% of the value of all oil subsequently to be extracted.[20]
- The order of Peter Smith J dated 24 July 2007 was, therefore, that Star must pay Bocardo damages for trespass for the period from 22 July 2000 to 31 December 2007, which was assessed at £621,180, plus interest. In addition, by paragraphs 4 and 5 of the order, he granted an injunction in favour of Bocardo, forbidding Star from trespassing on or under Bocardo's land in making use of the wells PW5, PW8 and PW9 for any purpose. This injunction would operate unless Star Weald paid Bocardo 9% of the gross revenue derived from oil which continued to be extracted from PW5 and PW8. The order set out detailed provisions for calculating the "gross oil revenue", how it was to be verified and how it would be paid. The judge refused Star permission to appeal. The order had a penal notice attached to it.[21]
- Permission to appeal was granted by Sir John Chadwick after he had considered a paper application by Star and also written representations on behalf of the Minister of State for Energy. In granting permission, Sir John stated that he was satisfied that "the decision raises issues of wider public importance in relation to the extraction of oil and gas onshore". Subsequently, Lloyd LJ granted the Secretary of State for Business, Enterprise and Regulatory Reform ("SSBERR") permission to make written submissions on the issue of the correct approach to the calculation of compensation for the acquisition of "ancillary rights" under what was section 3 of the 1934 Act,[22] together with section 8(2) of the 1966 Act.
- Accordingly, in addition to the extensive written submissions we had from the two sides to the appeal, we also had full written representations from Mr James Strachan on behalf of the SSBERR, for which we are grateful. Mr Michael Driscoll QC, leading Mr Ciaran Keller (representing Star) and Mr Jonathan Gaunt QC, leading Mr Edward Peters (representing Bocardo) made helpful and interesting oral submissions on 3 to 5 February 2009, supplementing their written arguments. Judgment was reserved.
- Before 1918 there was no statutory regime concerning ownership of any petroleum to be found naturally in strata beneath "onshore" land within Great Britain. There was an English common law rule that any gold, silver and saltpetre found on or under the land of the kingdom belonged to the Crown.[23] But this rule did not extend to other valuable minerals, such as coal. We were not shown any material which indicated how the common law treated the rights of ownership and possession of liquid petroleum deposits found in strata beneath land in the United Kingdom. Whether those rights were treated by the common law in the same manner as other valuable solid minerals such as coal, or whether (if the petroleum is in liquid form) those rights were treated in the same way as water,[24] may be an open question which I need not investigate.
- The Petroleum (Production) Act 1918 prohibited anyone other than the Crown (or someone licensed under that Act) from searching or boring for or getting "petroleum"[25] within the United Kingdom. If an unauthorised person did so, he would forfeit to the Crown a sum equal to three times the value of any petroleum so "gotten" (sic) by him.[26] By section 2 of that Act, the Minister of Munitions was empowered to grant licences conferring authority to search and bore for and get petroleum. But, section 2 continued:
- The 1918 Act was repealed by the 1934 Act. I have set out the relevant provisions of the 1934 Act and those of the 1966 Act in Annex 1 to this judgment. But for convenience I will explain here the scheme of the 1934 Act and the 1966 Act, as well the predecessor of the latter, the 1923 Act.
- Section 1(1) of the 1934 Act stated that the property in petroleum existing in its natural condition in strata in Great Britain "is hereby vested in His Majesty, and His Majesty shall have the exclusive right of searching and boring for and getting such petroleum". Section 1(2) defines petroleum in the same terms as in the 1918 Act: see footnote 25 above. Section 2(1) provides that the Board of Trade will have power, "…on behalf of His Majesty", to grant licences to search and bore for and get petroleum.[27] These licences will be granted for such consideration as the Board of Trade (with the consent of the Treasury) shall determine and upon such other terms and conditions as the Board of Trade shall think fit. Section 6(1) provides that before any licences are granted under the 1934 Act the Board of Trade (now the DTI) will make regulations prescribing various matters. These include, by section 6(1) paragraph (d), "model clauses" which are to be incorporated in any licence granted, unless the relevant department of state thinks fit to modify or exclude them in any particular case.[28]
- The Mines (Working Facilities and Support) Act 1923 had been passed to enable a minerals operator to go to court[29] to acquire compulsorily the right to work minerals where there was a danger of minerals being left permanently unworked. The Act also gave powers to enable persons entitled to work minerals to acquire compulsorily "ancillary rights" to enable the operator to work minerals when those rights could not be agreed with others who had the ability to grant the relevant right, facility or privilege. Section 3(1) of the 1934 Act stipulates that that the 1923 Act will apply so as to enable licensees under the 1934 Act to "acquire such ancillary rights as may be required for the exercise of the rights granted by the licence" to search, bore for and get petroleum pursuant to the 1934 Act. Section 3(1)(a) of the 1934 Act also provides that references to "minerals" in the 1923 Act will include petroleum, as defined in the 1934 Act, and that references to "the working of minerals" shall include references to "the getting, carrying away, storing, treating and converting of petroleum". Section 3(2) of the 1923 Act set out the kind of rights that are included within the term "ancillary rights". The 1923 Act also made provision for how "ancillary rights" were to be obtained and how "compensation or consideration" for the grant of them was to be calculated.[30]
- The 1923 Act has been replaced by the 1966 Act and that is now the relevant Act, at least for the second main issue in this case. Section 1 of the 1966 Act states that the court may confer "any rights described in the Table below" subject to and in accordance with the terms of that Act. Paragraph 5 of the Table is headed "All minerals: ancillary rights." This paragraph provides, broadly, that an "ancillary right" may be conferred on a person having the right to work minerals (including petroleum) or who is working them, "…if the right is required in order that the minerals may be properly and conveniently worked by him and the proper and efficient working of the minerals is unduly hampered by his inability or failure to obtain that right".
- Section 2(1) of the 1966 Act defines "ancillary rights" as meaning, in relation to minerals (including petroleum) "any facility, right or privilege and in particular…" those set out in succeeding paragraphs of the subsection. Paragraph (b) of section 2(1) stipulates that "ancillary rights" include "…a right of….surface or underground wayleave or other right for the purpose of access to or conveyance of minerals…".[31] But section 3(1)(b) of the 1934 Act also deals with "ancillary rights". It makes it clear that the ancillary rights mentioned in section 3(2) of the 1923 Act (and so now section 2 of the 1966 Act) shall include:
- The issue of how "ancillary rights" are to be obtained and the compensation or consideration that is to be paid for the grant of them are dealt with in sections 3 to 9 of the 1966 Act. So far as this case is concerned, it is necessary to describe the scheme set out in sections 3, 4, 5, and 8 of the 1966 Act.
- Section 3(1) puts limits on the grants of rights. It provides that the rights, including "ancillary rights" that can be granted under the 1966 Act will not be granted unless the court is satisfied that it is "expedient in the national interest" to do so. Section 3(2) also forbids the grant of a right under the Act unless it is shown that it is "not reasonably practicable to obtain the right by private arrangement" for one or more of four reasons that are identified in the sub – section. For present purposes the most important one of these is in paragraph (d), viz. "that the person with power to grant the right unreasonably refuses to grant it or demands terms which, having regard to the circumstances, are unreasonable".
- Section 4 deals with the method of applying for a right. Under section 4(1) an application has first to be sent to "the Minister".[32] The application must set out the circumstances alleged to justify the grant of the right concerned.[33] The Minister will consider the application. He may refer to other parties, and will do so where the ground for the application is that the person who could grant the right unreasonably refuses to do so or demands unreasonable terms. If the Minister, having made such communications as he should, thinks that a prima facie case is made out, he will refer the matter to the court.[34]
- Section 5(1) gives the court[35] the power to grant rights with which the Act is concerned, "…on such terms and on such conditions and for such period, as the court may think fit". Once the order is made, the right will vest in the applicant, subject to the terms of the Act.[36]
- Under section 5(2), where the right is granted, "such compensation or consideration as in default of agreement may be determined by the court" is to be paid or given by the applicant to the person the court determines is entitled to it. By section 5(4), the court must take into account "all the circumstances of the case" when deciding whether to grant a right or when fixing the conditions on which it is to be granted.
- Section 8 of the 1966 Act deals with the compensation or consideration that is to be paid for the grant of a right under the Act, including an "ancillary right". The terms of section 8(1) and 8(2) are, on one argument at least, central to the issues of damages that arise on this appeal and so I will set them out now:
- It is important to note that this section must be read subject to section 3(2) of the 1934 Act, which sets out further provisions which must be applied if there is an application to obtain "ancillary rights" under the 1966 Act. Section 3(2)(a) of the 1934 Act stipulates that the court must have regard (amongst other considerations) to the effect on amenities of the locality of the proposed use and occupation of the land in respect of which a right is applied for, when determining whether to grant it or in setting the conditions. Section 3(2)(b) states:
- Lastly I must draw attention to section 10(3) of the 1934 Act, which was much relied upon by both sides in this appeal on the first main issue. That provides:
- In the written submissions of Mr Strachan on behalf of the SSBERR, he made extensive reference to the terms of the 1998 Act. Broadly speaking, that Act reproduces the relevant provisions of the 1934 Act. It is accepted by both Mr Driscoll and Mr Gaunt that, for the purposes of this case, the relevant Act is the 1934 Act, not the later one. Neither of them relied on any provisions in the 1998 Act and neither submitted that it affected the construction or operation of the provision of the 1934 Act. I do not propose, therefore, to set out any of the terms of the 1998 Act.
- In the course of his submissions, Mr Driscoll also referred to various sections of the Pipelines Act 1962, both in its original form and as subsequently amended. I do not need to set out those provisions at this stage.
- The preamble and Clause C of the licence state that "the Minister"[37] acting "for and on behalf of Her Majesty" grants to the licensee the "…exclusive licence and liberty during the continuance of this Licence and subject to the provisions thereof to search and bore for, and get, petroleum in the area of 247.5 square kilometres more particularly described in Schedule 1 hereto…". Clause A incorporates into the licence clauses 1 and 4 to 39 of the model clauses for production licences in landward areas, as set out in Schedule 4 to the 1976 Regulations, referred to in footnote 28 above. Schedule 1 describes the licensed area by reference to lines between grid points on the Ordinance Survey map.
- Schedule 2 of the licence sets out the consideration for its grant. The licensee has to pay to the Minister an initial fee of £4950 and further fees after the fourth anniversary of the grant of the licence. Under clause 9 of the model clauses, the licensee has to pay to the Minister a royalty on oil recovered. The royalty is calculated as a percentage of the value of units of oil "won and saved" each year. A "unit" is defined in model clause 9 as "one tonne of petroleum saved in the licensed area". The relevant percentages are set out in Schedule 3 of the licence. The licensee has to pay a royalty of 5% of the first 100,000 tonnes won and saved in any year; then 7.5% for the next 50,000 tonnes; then 10% of the next 50,000 tonnes and then 12.5% of units in excess of 200,000 tonnes won and saved in any year.
- Clause 14 of the model clauses obliges the licensee during the initial term of the licence to "carry out with due diligence the scheme of prospecting…set out in Schedule 4 to this licence". Schedule 4, headed "Working Obligations", states that the licensee shall, during the initial term of the licence, drill not less than three exploration wells. At least one has to be in the area comprised in the licence. Under clause 14(4) the Minister can serve upon the licensee a written notice requiring the licensee to submit to the Minister "an appropriate programme for exploring for petroleum in the licensed area during a period so specified". By clause 14(7) the licensee has to carry out any programme that has been submitted to the Minister and which has been approved by him.
- Clause 15(2) of the model clauses requires the licensee to prepare and submit to the Minister a programme specifying the "relevant works" which the licensee proposes to carry out for the purpose of getting petroleum from the licence area. Clause 15(1) forbids the licensee from carrying out any "relevant works" except with the consent in writing of the Minister. Once the licensee has submitted his proposed programme to the Minister, it is his duty "expeditiously to consider" the programme submitted and either approve it or reject it: clause 15(4). If the Minister approves the programme then the licensee "shall carry out any programme approved…": clause 15(8). Clause 15(9) defines "relevant works" as:
- Clause 17 of the model clauses stipulates that the licensee cannot commence drilling any well without the consent in writing of the Minister, which may have conditions attached to it. Those can relate to the position, depth or direction of a well or to any casing of the well: clause 17(4).
- Mr Driscoll relied on model clause 37(2), which provides:
- He argued that the effect of the judge's calculation of future damages and the order made by him in relation to the payment of future damages was to contravene the first part of clause 37(2). I will say at once that I cannot accept that argument. Neither the calculation nor the effect of the order entitles Bocardo to any proceeds of sale of petroleum not yet won from the licensed area but which may be won. They only calculate how the damages for any future trespass are to be assessed and paid.
- This is the only reported decision on the construction and application of section 8(2) of the 1966 Act. The case was central to the arguments of the parties and the conclusions of the judge on the question of damages. I think, therefore, that it is sensible to outline the facts and the main points of Peter Gibson J's decision before considering the issues and the arguments of the parties on the appeal.
- In 1980 BP Petroleum Developments Ltd ("BP") and another (who subsequently sold its interest to BP) had been granted a licence under the 1934 Act, to search, bore for and get oil under an area which covered the Isle of Purbeck and into Poole Harbour. The Ryders owned an estate within the territory of the licence and which was also in an area designated as being of outstanding beauty. The estate included Wytch Farm. BP was permitted to sink a well near the farm; oil was found and BP wished to develop the oilfield. To do this, BP needed various surface sites. Arrangements were made with the Ryders. Further drilling led to the discovery of a much larger reservoir of oil at a greater depth. BP needed further sites to develop this new field. Negotiations between BP and the estate to grant BP these further rights failed. BP then applied to the Secretary of State under section 4 of the 1966 Act. By the time it did so, BP had obtained from local authorities all the planning consents that it needed, in particular for the construction of pipelines. The Secretary of State referred the matter to the court. BP sought "ancillary rights" pursuant to the 1966 Act under seven headings. In summary, the "ancillary rights" requested were for the use of the surface for well sites, a station to gather oil ("the gathering station"), a pumping station, pipelines and cables and associated works.
- The principal issue between the parties was the basis for the assessment of the "compensation or consideration" that the estate should have for the grant of the ancillary rights: see the judgment at page 243G. Both sides accepted that section 8(2) of the 1966 Act must govern that question. But BP submitted that the general principles of assessment used under the compulsory acquisition legislation were applicable to section 8(2), whereas the Ryders submitted that those principles were irrelevant to it.
- Peter Gibson J analysed the history of the compulsory acquisition legislation from the first statute, the Land Clauses Consolidation Act 1845. He considered the cases decided under that Act and the subsequent legislation. Mr Mark Waller QC (as he then was) argued on behalf of the estate that the compulsory acquisition principles that had been developed in the cases had no place in the statutory scheme of the 1966 Act, which (he argued) emphasised negotiations between a willing grantor and willing grantee and which did not bar any particular factors from consideration.[39]
- Peter Gibson J rejected Mr Waller's submission on this point. He stated:
- Peter Gibson J then considered various authorities under the 1923 Act. These included Re Markham Main Colliery Ltd,[42] on which Mr Gaunt QC placed particular reliance before us; Re Naylor Benzon Mining Co Ltd,[43] a decision of Wynn – Parry J and Re Associated Portland Cement Manufacturers Ltd,[44] a decision of Buckley J (as he then was). Peter Gibson J summarised the effect of those authorities as follows:
- Peter Gibson J then asked whether there were any other authorities which "militated in favour of a different approach". He considered a number of cases put forward by Mr Waller. He concluded that they did not persuade him to depart from the principles decided in cases under the 1923 Act.[45] He expressed his overall conclusion as follows:
- Peter Gibson J then discussed the issue of whether the fact that BP had a special interest in acquiring the "ancillary rights", because it was an oil company with a licence under the 1934 Act, would cause the value of the land to exceed the "existing use" value. Peter Gibson J accepted that the fact that BP could use compulsory powers to exploit the oil should be disregarded. But he held that it would be "unreal" to ignore the special value to the licensee. This special value would be "reflected in the value to the estate of the rights because the licensee would be prepared to pay more to secure those rights than those interested in purchasing the land only for its agricultural or forestry value".[47] He noted the evidence that oil companies would be more generous to avoid references to the court, which could result in delay and extra cost, but held that the willing grantor and the willing grantee under the 1966 Act were not to be affected by such considerations.[48] He referred to the well - known Privy Council decision in Raja Vyricherla Narayana Gajapatiraju v The Revenue Divisional Officer, Vizagapatam,[49] sometimes referred to as "the Indian case". He noted that, in giving the Advice of the Board, Lord Romer had rejected the suggestion that it would be possible to ascertain the potential special value of land to a "special purchaser" by imagining an auction, as being "an entire waste of the arbitrator's imagination".[50]
- Peter Gibson J concluded, however, that there was some utility in this exercise, because "…in the real world the willing special purchaser would bid a price sufficient to make sure he would beat all who were acquiring the lands for their existing use". Thus, in this case the additional value given to the land by the presence in the market of a special purchaser, viz. the licensee, was an increase in the annual rental of the land concerned from £40 per acre to £45, subject to three year rent reviews.[51] He ruled accordingly.
- Mr Driscoll and Mr Gaunt agreed that the issues raised on the appeal should be considered under two broad headings. The first heading concerned property law issues. Counsel agreed that the key question under this heading was: did the predecessors of Star commit a trespass to Bocardo's land by drilling the wells/pipelines PW5, PW8 and PW9 through strata under the surface of Bocardo's land? Mr Driscoll accepted that if a trespass was committed by drilling the wells, then the trespass would have continued until now. I think it is logical to examine the question of whether there was a trespass or not at the time when, (having taken account of the limitation issue) the cause of action arose, ie. July 2000, although I believe nothing turns on the precise date at which the issue is considered.
- Counsel accepted the general proposition that a trespass occurs when there is an unjustifiable intrusion by A upon the land in the possession of another, B.[52] Counsel also agreed that, given the provisions of the 1934 Act and the terms of the licence granted to Star's predecessors, Conoco (UK) Limited, it must follow that Bocardo had neither ownership nor possession of the oil in the reservoir beneath its land. Nor did Bocardo have the right to possess such oil. Further, by virtue of section 1 of the 1934 Act, at no time did Bocardo have any right to search, bore for or get that oil from beneath its land; only the Crown or its licensee had the right to do so.
- Counsel therefore agreed that the court must consider three questions under the first main heading: (i) Did Bocardo have ownership to the strata beneath the surface of the Oxted estate at the depth where the deviated bores for PW5, PW8 and PW9 had been drilled and remain? (ii) Did Bocardo have such "factual" or "exclusive" possession or a right to possession of those strata as to give it a right to sue in trespass?[53] (iii) Counsel agreed that if an intrusion onto another's land is justifiable in law, then no action for trespass will lie.[54] Therefore the third question is whether the intrusion into the strata beneath the Oxted estate by Star and their predecessors as licensees is justifiable, generally or by virtue of the provisions of the 1934 Act and the licence granted under it, so as to amount to a defence to an action for trespass?
- The second main heading concerned issues of damages for the past and continuing trespass, assuming that such has been established. Counsel were agreed on five preliminary points. First, that the only possible remedy for a past trespass would be an award of damages. Secondly, with regard to any continuing trespass, Mr Gaunt did not argue that this was an appropriate case for the grant of a permanent injunction. Instead, he submitted that the court should exercise its jurisdiction (under section 50 of the Supreme Court Act 1981, originally under the Chancery Amendment Act 1858 or "Lord Cairns' Act"), to award damages in lieu of an injunction against a continuing trespass.[55] Thirdly, the general principle for the assessment of damages in lieu of the equitable remedy of an injunction is that the damages will be compensatory, just as at common law.[56] Fourthly, that the measure of damages must be determined against the background of what Bocardo could have obtained under section 8(2) of the 1966 Act, as "compensation or consideration" for the grant by it to Star of an "ancillary right" to enter upon the strata within Bocardo's land to drill and place PW5, PW8 and PW9 and then use them for the extraction of petroleum from the reservoir within Bocardo's land. Lastly, it was agreed that the actual sum of damages would be the equivalent of the price a reasonable person would be prepared to pay for the right (described above) as a result of hypothetical negotiation against the statutory background referred to above. This would put Bocardo, as claimant, in the same position as if no trespass had occurred and would compensate it for the loss of its right to prevent the drilling and future use of the three pipelines.[57] Mr Gaunt accepted that the actual date of the hypothetical negotiations was irrelevant. He accepted that he could not use a later date as a means of putting Star at a disadvantage because, at such a date drilling had begun or a pipe had been completed. For practical purposes, therefore, it was agreed that it should be assumed that the hypothetical negotiations took place before the trespass occurred.
- On that footing, there was broad agreement that, essentially, three questions arise under the second main heading: (i) what is the correct construction of section 8(2) of the 1966 Act? (ii) In the light of the conclusion on (i), how should section 8(2) be applied by the court when deciding what "compensation or consideration" to award to Bocardo in return for the grant of an "ancillary right" to Star to enter upon the strata within Bocardo's land to drill and place PW5, PW8 and PW9 and then use them for the extraction of oil from the reservoir beneath that land? (iii) What would have been the result of the hypothetical negotiations between the parties, thereby quantifying the damages for the past trespass and any damages for future trespass in lieu of an injunction?
- Under the first of these headings there are two principal sub – arguments. They are, first: does section 8(2) of the 1966 Act import a regime which is analogous to the regime for compensation for compulsory purchase of land in the UK? Secondly, was Peter Smith J correct to conclude that Peter Gibson J's decision in BP Petroleum Developments Ltd v Ryder,[58] the only reported case which has decided the proper construction of section 8(2), was incorrect?
- In relation to the first main heading, ie. the property law issues, Mr Driscoll's arguments were, in summary, as follows: (i) the owner of the surface of land does not have title to the strata beneath down to the centre of the earth, any more than he owns the air above "to the heavens". The owner can only claim title for so far beneath the surface as is reasonable to enjoy his ownership of the surface land. (ii) The 13th century latin maxim "cuius est solum, eius est usque ad coelum et ad inferos"[59] is not and never has been a rule of English law. It is, to adopt Lord Wilberforce's remarks in Commissioner for Railways v Valuer General,[60] "so sweeping, unscientific and unpractical a doctrine [as] is unlikely to appeal to the common law mind" and it has not done so.[61] (iii) Even if Bocardo has title to the strata through which the pipes run, it does not have "factual" or "exclusive" possession of them. Although the person with paper title to land (which for this argument is assumed to include the subjacent strata concerned) therefore has the right to possession and so will prima facie have factual possession of the strata, that position can be displaced upon proof that another had both exclusive physical control of the land (or relevant substratum) and an intention to possess it.[62] (iv) In the present case Bocardo does not have exclusive physical control of the strata through which the pipes run, because Star and its predecessors as licensees have been given the right to bore for and get oil within the licensed area, pursuant to section 2 of the 1934 Act. (v) Alternatively, the licence granted pursuant to section 2 is sufficient to justify the licensee entering the strata in pursuance of the right to bore for and get oil within the licensed area. Therefore, on either basis, the Star companies have a defence to an action for trespass.
- Mr Gaunt's arguments on the property law issues were, in summary: (i) There is a rule of English law that he who owns the surface land will own the substrata beneath it unless there is some reservation or conveyance to the contrary.[63] A proposition that there is a limitation of ownership to only that portion of the substrata which enables the surface owner to enjoy the surface is not borne out by the cases. (ii) The latin maxim may be hyperbolic, but is illustrative of the basic English law position. (iii) It is possible to commit a trespass by invading someone's land at depth, eg. where minerals, which are owned by someone other than the landowner have been worked and there is a void, which then reverts to the landowner.[64] (iv) If, as Star must concede, Bocardo is the owner and in possession of the surface land of the Oxted estate, it has the right to possess and so must, prima facie, have exclusive physical possession of the strata beneath.[65] But in any event, it is sufficient that Bocardo has the right to possession and an invasion of the substrata is an interference with the right to possession which constitutes a trespass.[66] (v) On the correct construction of section 2 and section 10(3) of the 1934 Act, they do not detract from either Bocardo's physical possession of the strata, nor its right to possession. Furthermore, those sections do not give a person who is granted a licence under that Act any justification, on their own, to go through strata beneath someone else's land in order to get access to oil under that land, even if the licensed area is beneath that land. Section 10(3) confirms this position and the word "interference" there includes "entering into something without right or invitation".[67] That is why there is such a wide definition of "ancillary right" in section 3(1)(b) of the 1934 Act. The licensee should have sought an underground wayleave once it had been decided to perform a "deviated bore" from Coney Hill under Bocardo's land. As it had failed to do so, the wells and pipes constituted a trespass and will continue to do so.
- In relation to the second main heading, ie. the damages issues, Mr Driscoll's arguments were, in summary: (i) if there has been a trespass, it is trivial and the judge has found that it has not interfered with Bocardo's enjoyment of the surface or subjacent strata "one iota". (ii) Damages must be assessed on the "compensatory principle", ie. they must put Bocardo in a position, so far as money can do so, as if the tort of trespass had not been committed. (iii) That must assume that Star would have had to obtain an "ancillary right" to drill beneath Bocardo's land. Therefore, payment for that (whether by negotiation or by order of the court) would have been on the basis of section 8(2) of the 1966 Act, together with the "uplift" referred to in section 3(2)(b) of the 1934 Act. (iv) As the trespass was trivial, Bocardo would only have been entitled to receive "compensation" not "consideration", under section 8(2). (v) On the correct construction of section 8(2) it creates a regime for paying "compensation" which is closely analogous to that for compulsory purchase of land, as now explained by Lord Nicholls in the House of Lords decision in Waters and others v Welsh Development Agency.[68] (vi) The right to drill beneath the surface of Bocardo's land at depths of between 800 and 2800 feet was worthless before the grant of the licence to Star's predecessors and any value was only created by the grant of the licence. That grant equates to the "scheme", in the language of compulsory purchase. (vii) Even if it is deemed that there were negotiations between Bocardo and Star in 1994 before any trespass had occurred and that Star would have been anxious to avoid the cost and delay of going to court, the amount it would have been prepared to pay was minimal. (viii) Accordingly, the "compensation" that would have been negotiated would have been minimal. Therefore the judge was wrong to award damages as a percentage of the value of the oil that had been and would be recovered. He should have awarded only nominal damages.
- Mr Gaunt's arguments on the damages issues were, in summary: (i) Bocardo seeks damages for trespass, not compensation under section 8(2) of the 1966 Act, but it is accepted that the statutory regime is relevant to the assessment of damages for trespass in this case. (ii) Effectively, Star had rights to get the oil, but Bocardo had the only means of access. Therefore, although each is willing and anxious to do a deal, Bocardo has always held a "key" to the oil, by having the only means of access to it. It is like a "ransom strip" of land. The damages must be assessed with that in mind.[69] (iii) In cases of trespass, as in breach of covenant or nuisance, where a defendant has exceeded its rights the court will take into account the profits thereby obtained, when assessing damages on "the negotiating basis", ie. between two willing parties.[70] (iv) The court has to put itself into the position of the parties in an imaginary negotiation between them. This must be a negotiation without compulsion, and which was also not an auction, but which would take in points (ii) and (iii) above. (v) On that basis the parties would have arrived at a compromise figure of compensation based on a percentage of revenue to be received by Star in respect of the oil it recovered. That compromise would have taken account of the costs of possible litigation and the delay in exploitation that Star might have suffered. The percentage would have been 9%, as the judge found.[71] (vi) The decision of Peter Gibson J in BP Petroleum Developments Ltd v Ryder[72] is distinguishable because it concerned surface rights, not underground wayleaves. But, in any case, it was wrong, principally for two reasons. First, Peter Gibson J wrongly concluded that the effect of section 8(2) of the 1966 Act was to remove the landowner's power of veto if he considered the price (for access) was not high enough.[73] Secondly, whilst Peter Gibson J recognised that the licensee had a special interest in acquiring the access to get the oil, which could not be ignored, he was misled by the notion of a hypothetical auction and thus into seeing "…no logic in a purchaser, however willing, being assumed to pay a price far in excess of other bidders".[74] The criticisms of Peter Gibson J's decision by HHJ Hague QC in Mercury Communications Ltd v London & India Dock Investments Ltd[75] were adopted as submissions. (vii) The judge was therefore right not to follow Ryder; but he was also correct to discount the percentage of revenue to be paid as compensation on account of the doubts concerning the correctness of that decision.
- Mr Strachan, on behalf of the Secretary of State, confined his written submissions to the correct approach concerning the calculation of compensation pursuant to the 1966 Act. He submitted that: (i) the findings of the judge were a radical departure from the previously understood legal position as to the calculation of compensation for the acquisition of ancillary access rights by a petroleum production licensee under the 1934 (now 1998) and 1966 Acts. (ii) The judge was wrong to reject the analysis of Peter Gibson J in Ryder. (iii) Under the 1966 Act, the basic principle of compensation is the loss of the ancillary right to the grantor (Bocardo in this case), not the value of the ancillary right to the grantee, ie. the licensee. (iv) Therefore, compensation could not be based upon profits which the grantee (the licensee) will derive from the exploitation of rights under the licence. Instead, compensation must be based on the nature of the entry onto or interference with the land (if any) experienced by the grantor landowner. (v) The statutory requirement under section 8(2) of the 1966 Act, that the court assess compensation or consideration on the basis of a willing grantor and willing grantee, precludes the application of "ransom" principles. (vi) Assuming an underground wayleave is required at all in the present case, Bocardo, as a willing grantee, would own very little of value in respect of an underground wayleave because the actual use that Bocardo could make of the land affected by the grant of that "ancillary right" is negligible. (vii) The compensation payable under the 1966 Act in a case such as this "would not, therefore, be substantial".[76] The damages should be assessed accordingly.
- I have no doubt that Accursius' maxim, or brocard, [77] "cuius est solum eius esse usque ad coelum et ad inferos" is not part of English law. As Lord Wilberforce stated somewhat tartly in Commissioner for Railways v Valuer General,[78] its use, "whether with reference to mineral rights, or trespass in the air space by projections, animals or wires, is imprecise and it is mainly serviceable as dispensing with analysis". If that is correct, then, in the absence of any complications concerning deposits of gold, silver, saltpetre and petroleum, it is necessary to ask: what is the general rule at common law about the ownership of the substrata beneath the surface of land of which A is the registered freehold proprietor? I think that the law is as stated by the Court of Appeal in Mitchell v Mosley,[79] but shorn of its references to Accursius' maxim. In short, the registered freehold proprietor of the surface will also be the owner of strata beneath the surface of his land, including minerals, unless there has been some express or implied alienation of the whole or a particular part of the strata to another.
- In this case it is not suggested that there is, or was at any relevant point, any other entity with the right to claim title to the strata beneath the Oxted estate, apart from any petroleum deposits situated there. In my view, Bocardo's title certainly extends to the strata (other than the petroleum) to be found at the depth of the pipes PW5, PW8 and PW9 at 2800 feet below the surface of the Oxted estate. Precisely how much further into the earth's crust that ownership may go is a question that I need not decide; but if ownership carries on to the centre of the earth, landowners all have a lot of neighbours.
- In my opinion it is not helpful to try and make analogies between the rights of an owner of land with regard to the airspace above it and the rights of the landowner with regard to the strata beneath the surface. First, there are many potential users of the airspace above land, whereas, generally speaking, the general public has no right to use or go into substrata beneath someone else's land. Secondly, the use of airspace above land is highly regulated by statutes and regulations concerning aviation, which have to take account of the actual and potential rights and duties of many others apart from those with a proprietary interest in the surface land. There is no such equivalent regime for strata beneath the surface.
- Therefore, like the judge,[80] I would answer the first of the property law questions in favour of Bocardo.
- I appreciate that this title conflates the second and third issues I have set out above. But it seems to me that these questions have to be taken together because they both revolve around the provisions of the 1934 and 1966 Acts and the licence.
- As I have already noted, it is common ground that the tort of trespass is committed when a person, A, commits an unjustified intrusion upon land in the possession of another, B. The essence of the action is that B's possession of his land suffers an intrusion. It is also common ground that if an intrusion by A, upon the land of B is justifiable, then there is a defence to an action for trespass.
- The concept of possession, for the purposes of the tort of trespass, consists of two elements; physical or factual possession and the intention to possess: see JA Pye (Oxford) Ltd v Graham.[81]. Those elements were considered in detail by Slade J, in Powell v McFarlane,[82] in what Lord Browne – Wilkinson described subsequently[83] as a "remarkable judgment". In Powell v McFarlane, Slade J had to construe the meaning of the expression "adverse possession" in the context of the Limitation Acts. He started by examining what is meant by the common law concept of possession. He said, on the issue of physical or factual possession, that:
- It follows from this analysis that, in the case of the owner of the land with paper title, he must be "deemed" to have exclusive physical possession and the requisite intent to possess the strata beneath the surface to the land he owns, because, in the absence of evidence to the contrary, he has the prima facie right to have such possession of those strata. But it seems to me that these statements do not take one very far once questions about the exclusive physical possession of land (or strata beneath the surface) and intention to possess arise. In the present case it is difficult to say that Bocardo has actual possession of the strata beneath the Oxted estate. It has done nothing to reduce those strata into its actual possession.
- Mr Gaunt takes this point. He answers it by saying that the tort of trespass is also committed when there is an interference with the right to possession of land. Because Bocardo is the paper owner of the land and therefore the substrata, it has the right to possession of the substrata. This is so even if it has not reduced the substrata to actual physical possession by carrying out any work in them or signifying possession in some other way. Mr Gaunt relies on statements of Scott J in Anchor Brewhouse Developments Ltd v Berkley House (Docklands Developments) Ltd.[89] In that case the claimant was developing land on its site in London, south of the Thames. The defendants owned adjacent sites which they were also developing. The arms of cranes erected on the defendants' land "oversailed" the claimant's land. The claimant asserted that this oversailing constituted trespass and claimed a permanent injunction. The defendants denied that the oversailing was a trespass. Scott J granted an injunction. He recognised that an owner of land cannot easily be said to have actual physical possession of the airspace above it, even if it is the paper title "owner" of it. But he held that a landowner is entitled to possession of the airspace above the surface of his land and is entitled to put structures on that land, thereby reducing the airspace to actual possession. However, if "…an adjoining owner places a structure on his (the adjoining owner's) land that overhangs his neighbour's land, he thereby takes into his possession air space to which his neighbour is entitled. That, in my judgment, is trespass…".[90]
- I have some difficulty with the proposition that the jib of a crane, placed on one plot of land, "takes possession" of airspace over the adjacent plot of land if it "oversails" that land. But in any event I think that the Anchor Brewhouse case is not very helpful in the present context, for two reasons. First, as with the question of ownership of substrata, it is better not to try and draw analogies with cases concerning the "possession" or "right to possession" of airspace. Secondly, the right to the possession of airspace is circumscribed by statute, not least the Civil Aviation Act 1982. Section 76 of that Act deals specifically with the question of trespass by aircraft.
- So I return to the facts of this case. On the face of things, Bocardo is the paper title owner to the strata and all within it (other than any gold, silver, saltpetre and the petroleum). Subject to arguments about the effect of the 1934 Act, it has the prima facie right to possession of those strata, so is deemed to be in factual possession of them. On the face of things, therefore, any intrusion into those strata is an interference with the possessory rights of Bocardo and so is a trespass. There are, it seems to me, only two ways that Star can avoid that conclusion. First, if it can show that there is some common law principle by which a party entitled to recover minerals from a particular area beneath the surface is also entitled to create and use a passage (at depth) through the land belonging to another to get at and recover those minerals. Alternatively, by establishing that the effect of sections 1(1) and 2(1) of the 1934 Act "justifies" what would otherwise be a trespass by Star by boring and using pipelines at depth through land owned by Bocardo. Mr Driscoll submits that both propositions can be established.
- First, the common law issue: the 1934 Act and the 1923 Act (to which it refers on the issue of "ancillary rights") were passed against the background of the common law rights of landowners and mineral owners to get at and exploit minerals, particularly coal, beneath the surface. Was there a principle at common law, (and if so why), whereby a person (A) who owned or was entitled to work minerals subjacent to the land owned by another (B), had some kind of right, as against B to construct an underground tunnel under the land of B to get to the minerals, although the actual entrance to the tunnel was on land owned by A, or even C? As I read the cases, the answer is that the common law gave A the right to do so in certain circumstances, even in the absence of an express agreement between A and B.
- This seems clear from statements of the Court of Appeal in Re an Arbitration between Lord Gerard and London and North Western Railway Company,[91] on which Mr Driscoll relied. Lord Esher stated:
- In my view the decision of Jessel MR in Eardley v Granville[94] on which Mr Gaunt relied, is actually to the same effect. The facts of the case are complicated and I will not set them all out. The key points, which I have simplified for present purposes, are as follows: the defendant, the Earl Granville, was a lessee under the Crown (in right of the Duchy of Lancaster) of collieries, mines and minerals under lands of which the Crown was lord of the manor near Newcastle – under – Lyne. The plaintiff was the copyholder of part of that manor. Adjacent to the plaintiff's copyhold land was freehold land owned by Mr Sneyd. He leased mines beneath his land to another, who sub-leased them to the defendant (Earl Granville), who worked that mine, called the "Sneyd mine". The defendant was also the lessee, from the Crown, of the manorial collieries, mines and minerals beneath the manor of which the plaintiff was the copyholder. There was an underground road, or "crut", which ran from a deep pit, outside the plaintiff's copyhold land, then under the plaintiff's copyhold land (of which the Crown was lord of the manor) and then under the land owned by Mr Sneyd, where, as I have said, the defendant had a lease of the collieries, mines and minerals. The defendant used that underground road to convey coal dug from the Sneyd mine to the deep pit. By his bill in equity, the plaintiff sought, amongst other things, an injunction to prevent the defendant from conveying coals from the Sneyd mine to the deep pit along the underground road.
- Jessel MR granted an injunction. He pointed out that where land is held in copyhold, the lord of the manor owns the minerals beneath it, but the copyholder has possession of them. Once the minerals have been extracted, the copyholder has possession of the "space" that is thereby created. The lord of the manor, or his lessee, is entitled to use that "space" for a purpose that is connected with the extraction of minerals within the copyhold lands (assuming that there is an agreement with the copyholder/owner to permit that), but not for any other purpose. Any other purpose would, in the absence of agreement, constitute a trespass. Therefore, the defendant had no right to use the underground passage to carry coal from the Sneyd mine; what Jessel MR described as "foreign coal". An injunction would restrain Earl Granville from using the underground road for that purpose. However, most importantly, the injunction did not extend to carrying Crown minerals on it: "It is not trespass when carrying Crown minerals".[95] Therefore, as I read Jessel MR's judgment, he is confirming that if a person has a right to extract minerals from within an area of which another has possession of "non – mineral" space (ie. the underground way in that case), then he commits no trespass when he uses "non – mineral" space for that purpose. That is consistent with the subsequent decision in Lord Gerard's case.
- Although the judges in those cases do not expressly say so, it seems to me that the principle of law which they invoke to give the right of the relevant person to get access to the minerals in strata which he owns or has leased must be the principle of non – derogation from grant. A person who sells or lets land, knowing that the purchaser intends to use it for a particular purpose, may not do anything to hamper the use of the purchaser's or lessee's land for the purpose which both parties contemplated at the time of the transaction. The principle binds successors in title to the vendor or lessor.[96]
- The same principle cannot apply directly to the present case, because, although the Crown owns any petroleum existing in the strata where it is to be naturally found and, can, effectively, "sell" it to a licensee, the Crown does not own the surrounding strata; a third party, Bocardo, does so. The Crown has not sold to a licensee the right to search and bore for and get petroleum from within land owned by the Crown. Therefore, I must reject the submission of Mr Driscoll that there is some right, analogous to the common law right, which entitles Star to have access to the petroleum through the surrounding strata, even if this would involve no unreasonable interference with the rights of anyone else.
- That leaves the second possibility, viz. that sections 1(1) and 2(1) of the 1934 Act, taken together with sections 3(1) and 10(3) give some right or justification for the intrusion, at depth, within Bocardo's land. The question is whether, together, they preclude Bocardo from suing Star, as licensee under the 1934 Act, in trespass, if it bores or uses pipelines at depth, through strata owned by Bocardo, for the sole purpose of searching for and getting petroleum in the licenced area; and does so without causing "one iota" of interference to Bocardo's use or enjoyment of its land? Before the judge, counsel for Star (not Mr Driscoll) had conceded that, as a matter of law, the effect of the licence from the Crown did not entitle Star to extract the petroleum from the reservoir and get it through the strata above the reservoir. That concession of law was withdrawn before us; being a concession of law, we could not be bound by it anyway.
- I start from the position Bocardo would have been in apart from the 1934 Act. Apart from section 1(1), it must be highly arguable that Bocardo would have owned the petroleum lying beneath the surface of its land. Furthermore, apart from section 1(1) of the Act, it must also be highly arguable that Bocardo would have had the exclusive right (as landowner) to search, bore for and get any petroleum under its land, just as a landowner could extract coal found beneath its land. (I accept that these two propositions are subject to the question of whether, at common law, petroleum would have been treated in the same way as coal or as water). But section 1(1) of the 1934 Act declares that the petroleum belongs to the Crown, not the paper title owner of the land in which it is to be found. Moreover, sections 1(1) and 2(1) of the Act take away any rights that the landowner may have had to search, bore for and get petroleum beneath its land and instead give the Crown or its licensee the exclusive right to do those things.
- Mr Driscoll argues that the effect of these provisions is that the owner of the strata within which the petroleum is to be found has suffered a curtailment of its rights of exclusive possession of its land. The effect is said to be analogous to the owner (or lessee) of land (A) granting another (B), a limited right to enter onto (or beneath) land for limited, defined purposes. The right can be implied (as in Earl Granville's case), so that, in respect of the particular limited purposes only, no trespass is committed. In that case, the copyholder of the land did not have exclusive factual possession of the strata beneath his land because Earl Granville was entitled to use it to transport Crown coal.
- But this argument by analogy then prompts the question: is this consistent with the provisions of the structure of the Act as a whole and in particular section 3(1) concerning 'ancillary rights" and section 10(3)? Any rights enabling a licensee under the 1934 Act to intrude into strata beneath the land owned by another could only be granted by virtue of the effect of sections 1(1) and 2(1) of the Act. However, they do not positively give a licensee that right. They only declare the three things mentioned above: the Crown's ownership of the petroleum; the Crown's exclusive right to search, bore for and get that petroleum; and the Crown's exclusive right to grant licences to others to do those things.
- I confess I have found the question of the effect of the 1934 Act a very difficult one and I have altered my view as to its effect more than once. But, ultimately, and (I confess with some reluctance), I have concluded that it is impossible to say that the 1934 Act, when read with the 1923 Act and the existing common law, grants a licensee under the 1934 Act the express or implied right to bore pipelines at depth through the land of another within the licensed area in the absence of agreement or the grant of an "ancillary right" under that Act, even where this will not interfere with that land "one iota".
- My reasoning is as follows: first, there is no express right in the 1934 Act which permits the boring of a pipeline at depth through land within the licensed area, in pursuance of the licence. Secondly, section 3(1) expressly acknowledges that a licensee under the Act may need to acquire "ancillary rights" to exercise the rights granted by the licence given to it. One of the types of "ancillary right" expressly contemplated is the "right to enter upon land and to sink boreholes therein for the purpose of searching for and getting petroleum…". I have concluded that the phrase "enter upon land" is intentionally general and must embrace land within the licensed area.[97] Moreover, I think that Mr Gaunt is correct in submitting that the phrase is broad enough to include entering into land beneath the surface.[98]
- Thirdly, confirmation that the kind of "ancillary rights" that might be required includes "ancillary rights" for use of land beneath the surface is found in the description of the types of "ancillary rights" in section 3(2)(b) of the 1923 Act, which includes a "right of…underground wayleave". That phrase is, in my view, broad enough to encompass a right to bore a pipe through strata as well as create and use a passage to get to and carry minerals such as coal.
- Fourthly, there is the wording of section 10(3) of the 1934 Act. The section was clearly intended to protect the rights of landowners where petroleum might be found, whose rights might otherwise have been adversely affected by the grant of licences pursuant to section 2(1) of the Act.[99] I take the wording of section 10(3) to mean that if a licensee has a right (by agreement, the common law, or some other statute) to "enter on or interfere with land", the licensee can continue to do so. Furthermore, it can do so by exercising rights expressly provided for by the 1934 Act, that is, by acquiring an "ancillary right". But, apart from those rights, no other right is conferred by the Act on a licensee and the Crown cannot by licence confer any other right on a licensee to "enter on or interfere with land". To my mind, the words "enter on….land" in that section must include entering on land at depth. I would be prepared to give "interfere with land" a practical meaning, such as having some deleterious effect upon the land or its use by the landowner, but that does not assist Star in this case, because it has entered upon Bocardo's land at depth.
- This means that Star have trespassed on Bocardo's land. I reach this conclusion with reluctance on the facts of the present case. First, because, as the judge found, this trespass did not affect Bocardo's use or enjoyment of the land "one iota". Secondly, the boring and use of the pipelines to extract the oil did not impinge on any rights that Bocardo had previously had. It had no rights to the oil or to search, bore for or get it. Thirdly, the fact that there is a trespass has resulted in expensive and protracted litigation on the issue of damages, whereas, for reasons I shall give in the next section of this judgment, Bocardo will gain virtually no economic benefit at all.
- It may be that part of the problem is that when the 1934 Act was passed, "deviated drilling" was unknown. One can think of even more extreme cases. Imagine (as was the fact in the BP v Ryder case) that, within the licensed area, there are many owners of the surface land, eg, within a town, underneath which lies a large deposit of petroleum in its natural state, with the apex of the oilfield directly under the centre of the town. In order to minimise disruption to the urban environment, the well head is situated out of town and the licensee drills from there in a "deviated" way to the apex of the oilfield, which is, say, at 2800 feet under the surface. This means boring beneath many houses or back gardens, at considerable depth, to get from well-head to the apex of the oilfield. I will assume, as in the present case, that the owners' land and their enjoyment of it is not affected "one iota". My conclusion means that, in the absence of agreement with each landowner, an "ancillary right" to bore beneath each house owner is needed and each householder would be entitled to some form of compensation under section 8(2) of the 1966 Act. Private arrangements with so many landowners would be impractical, so the licensee would have to apply to the court under sections 1 and 3(2) of the 1966 Act. Doubtless the process would be long and costly and for no one's benefit other than the lawyers, unless substantial compensation, pursuant to section 8(2) of the 1966 Act, was be shared between the numerous owners of the town. But, as I say, for reasons I will explain below, my conclusion is that the compensation payable for the construction of a pipeline at depth through an area licensed under the 1934 Act would be very small indeed if there is no interference (in any practical sense) with the land through which the pipe is bored.
- The judge arrived at the same conclusion, although, I think, by a slightly different route. The essence of the judge's reasoning is that because the object of creating the access through strata owned by Bocardo was to insert pipes to remove the valuable petroleum lying beneath the surface, that constitutes an unjustifiable intrusion within Bocardo's land and was thus a trespass.[100] As I understand it, the judge concluded that the trespass is triggered by the fact that the intrusion is to remove a valuable mineral within the land, even if the person removing it has the right to do so by his licence. In the light of my conclusion, I do not propose to refer to the three cases upon which the judge particularly relied: Re Markham Main Colliery Ltd,[101] Bulli Coal Mining Co v Osborne[102] and the majority opinions in the Kentucky Court of Appeal in Edwards v Simms.[103]
- My conclusion on the first main issue is, therefore, that Star and its predecessors committed an actionable trespass within Bocardo's lands by the construction of the pipelines PW5, PW8 and PW9 at a depth of 800 to 2800 feet beneath the surface of the Oxted estate. I must therefore consider next the damages issue.
- I have already stated that, in argument, the parties agreed: (i) the only remedy for a past trespass that Bocardo can obtain is damages; (ii) any damages that are to be awarded in lieu of the equitable remedy of an injunction will be compensatory; (iii) the measure of damages recoverable in this case would be defined by reference to what Bocardo could have obtained under section 8(2) of the 1966 Act as "compensation or consideration" for the grant of an "ancillary right" to Star to enter upon the strata within Bocardo's land to drill and place the pipelines and use them for the extraction of petroleum in the reservoir within Bocardo's land.
- Before I consider the extensive arguments raised on the damages issues by the parties, I ought to deal with what might be thought of as a short answer to the question of what damages is Bocardo entitled to for the trespass that Star has committed and will continue to commit by the use of the three pipelines. It might be argued that Bocardo should receive only nominal damages. The argument would be as follows: first, the judge found that the exercise of drilling and using PW5, PW8 and PW9 did not interfere with Bocardo's use or enjoyment of its land "one iota". Secondly, by virtue of section 1(1) of the 1934 Act, Bocardo neither owned the oil found beneath its land nor did it have any right to bore, search for or get that oil. Therefore, thirdly, it lost nothing by virtue of the actions of Star's predecessors as licensees or Star's own actions in relation to the exploitation of the oilfield beneath the Oxsted estate. Bocardo could not have made any profit out of the use of the pipelines or the oil because the terms of the 1934 Act and the licence precluded it from doing so. Thus Bocardo has suffered no loss at all.
- I accept, of course, the rule in trespass cases (which are an exception to the general rule of damages in tort) that a claimant can recover substantial damages even if he has suffered no damage to his property by the trespass, nor lost any proprietary right. Thus, in the so – called "way-leave" cases, a landowner could recover damages equal to the rent the defendant would have had to pay for a way – leave (eg. for an underground railway) during the period that the defendant used the underground tunnel without permission.[104] This is what Nicholls LJ subsequently described as the "user principle" of damages;[105] ie. if a person has been using another's land without permission, he ought to pay for it.
- I would be inclined to say that the present case is distinguishable from the "way – leave" cases and similar situations, because Star and its predecessors as licensees under the 1934 Act effectively owned the oil and they had the right to search for and get it. Their only wrongful act was in committing a technical trespass within Bocardo's land which caused it no loss or damage at all. Therefore, there is an attraction in concluding that Bocardo should be entitled only to nominal damages.
- However, I have concluded that this would not be right, because if it were, it would mean (assuming what I say below is correct) that Star would be in a better position by committing the technical trespass that it has, rather than obtaining Bocardo's agreement or the "ancillary right" to bore the pipelines that I have concluded that it should have done. It cannot be correct, in principle, that a tortfeasor should be liable for a smaller sum in damages than it would have had to pay the claimant if it had followed the law. So, again with some reluctance, I have to consider the main arguments about the effect of section 8(2) of the 1966 Act and how that affects the damages that Star must pay for its past and any continuing trespass.
- I set out the terms of section 8(1) and (2) of the 1966 Act again:
- Given point (iii) in paragraph 88 above, it is necessary to assume that Star (or its predecessor) would, in fact, have been granted an "ancillary right" pursuant to section 1 of the 1966 Act to drive PW5, PW8 and PW9 through strata within Bocardo's land at depths of between 800 and 2800 feet. Neither side suggested in argument that there would have been any special conditions attached to the grant which would have had any affect on the level of the "compensation or consideration". For the purposes of section 8(2), it must also be assumed that Bocardo is in the position of being the "willing grantor" and Star the "willing grantee", although the correct meaning of those terms is in dispute.
- There are a number of preliminary points to note about the wording of section 8(2). First, it is dealing with the case where the court is assessing the "compensation" or "consideration" in respect of any right granted under section 1 of the 1966 Act. Generally, that "right" must be something which, apart from the statute, only the grantor can dispose of to another. Secondly, the section pre-supposes that the parties have not been able to agree the appropriate figure to be paid by the grantee to the grantor, so it is the court that has to assess it. Thirdly, the court is entitled to award either "compensation" or "consideration" for the right that has been conferred pursuant to section 1 of the Act. Fourthly, a "willing" grantor must mean a grantor that is prepared to grant the right or "ancillary right", (in this case to Star to bore the three pipes at that level under Bocardo's lands in the knowledge that they will not disturb Bocardo's enjoyment of the land "one iota"), but is not going to do so at any price, however low. Fifthly, a "willing" grantee must mean a grantee that is keen to have the right or "ancillary right", but not so desperate for it that it is prepared to pay any price to get it. Sixthly, the court has to assess the "compensation" or "consideration" on the basis of what is "fair and reasonable" between the willing grantor and grantee. That is a very broad concept and it is not inhibited by any other wording in section 8(2), save for the words "……… having regard to the conditions subject to which the right is or is to be granted". The conditions to which the right is subject when granted may be agreed between the parties or may be imposed by the court pursuant to section 5(1) of the 1966 Act.
- As I have already noted, the construction of the predecessor to section 8(2) of the 1966 Act, ie. section 9(2) of the 1923 Act, was considered in a number of cases which were analysed by Peter Gibson J in BP v Ryder. I now need to consider those cases in a little more detail to see if they assist on the correct approach to the construction of section 8(2). The first case Peter Gibson J considered was the Markham Colliery case.[106] That case is of very little help on this point, because there is no proper discussion in it of the meaning of section 9(2) of the 1923 Act. In my opinion, Peter Smith J's criticism of the way Peter Gibson J dealt with that case in BP v Ryder is therefore unwarranted, precisely because Sankey J does not analyse the construction of section 9(2). The next case is Denaby and Cadeby Main Collieries' Application,[107] decided by the Railway and Canal Commissioners in 1928. As Peter Gibson J pointed out, the decision of Salter J in that case does not spell out the principles on which the Commissioners' conclusions were based.[108] Next is Consett Iron Co Ltd v Clavering,[109] a decision of the Court of Appeal. Only Greer LJ commented on section 9(2) and he did so in a dissenting judgment, so that also is of little help.
- The next case is the decision of Wynn – Parry J in Re Naylor Benzon Mining Co Ltd.[110] The principal issue was the correct assessment of the amount of "compensation or consideration" to be paid by a grantee to a grantor of a right to work ironstone on the grantor's land. Wynn – Parry J identified his first task as being to construe the phrase "on the basis of what would be fair between a willing grantor and willing grantee".[111] The judge considered the wording of section 63 of the Lands Clauses Consolidation Act 1845,("the 1845 Act") the decision of Eve J in South Eastern Railway Company v London County Council,[112] that of Fletcher Moulton LJ in Re Lucas and Chesterfield Gas and Water Board[113] and a statement of Lord Dunedin in the Privy Council's advice in Corrie v MacDermott.[114] He noted the different statutory wording in the 1845 Act and the 1923 Act and the fact that there was no authority binding on him on the construction of section 9 of the 1923 Act. However, he concluded that, in his opinion:
- Lastly, there is the decision of Buckley J in Re Associated Portland Cement Manufacturers Limited's Application.[116] He held that section 9(2) required the court, in mandatory terms, to:
- Peter Gibson J in BP v Ryder[117] decided that the effect of these cases is to support the conclusion that when the court assesses the "compensation or consideration" pursuant to the terms of section 8(2) of the 1966 Act, it should do so in a manner consistent with the general principles evolved for the assessment of payments made for compulsory acquisitions under the 1845 Act. I have set out Peter Gibson J's summary of those principles at paragraph 44 above. I agree that Wynn – Parry J's decision in Re Naylor Benzon Mining Co Ltd supports Peter Gibson J's conclusion. I am less sure that Buckley J's statements do so. He appears to be founding his remarks solely on the wording of section 9(2) of the 1923 Act.
- The more important question, however, is whether Peter Gibson J was correct to conclude, as effectively he did, that he also should construe section 8(2) in a way that is consistent with those "compulsory purchase" principles as they have been evolved. To answer that question, two issues have to be considered. First, what are those principles? Secondly, to what extent does the wording of section 8(2) of the 1966 Act encapsulate them or differ from them?
- The compulsory purchase principles have most recently been analysed by the House of Lords in Waters v Welsh Development Agency,[118] which was not considered by Peter Smith J. The principal speech was given by Lord Nicholls of Birkenhead, with whom Lord Woolf and Lord Steyn agreed. [119] Lord Nicholls traced the development of the law of compensation for land compulsorily acquired by the state from the first statute, the Lands Clauses Consolidation Act 1845, to its application under the current statute, the Land Compensation Act 1961 as subsequently amended by the Local Government, Planning and Land Act 1980.
- For the purposes of the present case, the important points in Lord Nicholls' review are as follows: first, the yardstick for compensation set out in the 1845 Act was the "value" of the land acquired. That was interpreted to mean the "open market value", which was to be assessed by reference to "the price a willing seller might reasonably be able to obtain from a willing buyer". The first should not be regarded as disinclined to sell and the second should not be regarded as under any urgent necessity to buy.[120] Secondly, in general, the compensation given to a seller under a compulsory acquisition would normally reflect any enhanced value possessed by the subject land because its location made it specially valuable to a particular buyer or class of buyers.[121] But, thirdly, this second principle was subject to a qualification. This is that "enhancement in the value of the land that is attributable solely to the particular purpose for which it is being compulsorily acquired and an acquiring authority's pressing need of the land for that purpose, are to be disregarded".[122] This is the so – called "value to the owner" principle, to be contrasted with the "value to the purchaser or acquirer". In working out what, if any, increased value has to be disregarded, Lord Nicholls expressed the principle, as developed in the cases, thus:
- Fourthly, Lord Nicholls noted that the effect of the current Rule 3 of section 5 of the Land Compensation Act 1961 reflects the statement made by Fletcher Moulton LJ in Re Lucas and Chesterfield Gas and Water Board,[124] that insofar as the special suitability or adaptability of the land gives it a special or enhanced value that exists only for a particular purpose obtained by powers of compulsory purchase, that value is not to be taken into consideration when fixing the price.[125] Lord Nicholls explained that:
- However, fifthly, where land possessed potential that, theoretically, could be realised by other purchasers but, in practice, the only person who could realise the land's potential was the compulsory purchaser, that did not mean that this potential was to be entirely disregarded when fixing the price to be paid as compensation. Insofar as the statement of Fletcher Moulton LJ in Re Lucas and Chesterfield Gas and Water Board (at page 31) suggested the contrary, that was wrong. That special suitability or adaptability still had to be taken into account, on the assumption of a willing purchaser and willing vendor of that land with its characteristics, but also assuming there would be several possible purchasers.[127]
- Sixthly, Lord Nicholls analysed the so-called "Point Gourde principle".[128] He concluded that it is not, ultimately, distinct from the general "value to the owner" principle of compensation. The particular aspect of that general rule that is encapsulated in the "Point Gourde principle" is that in assessing the "value to the owner" of the land that is to be acquired compulsorily, no regard is taken of the enhanced value of that land by the acquiring authority, either as a result of the use of that land in the scheme for which it is to be acquired, or as a result of the use of other land that is compulsorily acquired for the same scheme.[129] The "Point Gourde principle" still applies after the Land Compensation Act 1961, which is not an exhaustive statutory code of compensation principles.[130] Practical difficulties may arise in identifying the area of the "scheme" in question, but it is a question of fact in each case.[131]
- Lastly, Lord Nicholls considered the relationship between the "value to owner" principle (including the "Point Gourde principle") and the principle that if the land to be acquired has a special or enhanced value because of its location account should be taken of that value. If that land has a pre - existing "key" or "ransom" value to the development of other land, which is not dependent on the "scheme", then that feature has to be taken into account when assessing value "as much for the purposes of compensation as on an actual sale in the open market".[132]
- Lord Brown of Eaton-under-Heywood had sympathy with Lord Scott's (dissenting) view that the "Point Gourde principle" was a "misconceived accretion to the legislative scheme which itself, therefore, ought henceforth to be disregarded".[133] But he concluded that the combination of time, a steady stream of case law and the assumptions of many analyists, including the Law Commission, prevented an adoption of that approach. So he concluded that the principle embodied in the "Point Gourd" line of decisions remained a rule of law. However, he emphasised that "any key value that land may have is to be included within its open market value and is to be disregarded, if at all, solely by reference to the Point Gourde rule".[134]
- I have concluded that section 8(2) of the 1966 Act should be construed, so far as the words allow, in a manner which is consistent with the statutory and case law regime establishing the principles for compensation when there is compulsory acquisition of land. This is for the following reasons. First, the 1966 Act and its predecessor, the 1923 Act, were passed by Parliament in the knowledge of the compulsory acquisition regime and the principles developed in the cases under it. Secondly, section 1(1) of the 1966 Act gives the court a power to confer rights, by compulsion if necessary, concerning the use of land upon persons having "…a right to work minerals if the right is required in order that the minerals may be properly and conveniently worked by him". The use of this power may therefore involve taking away rights or benefits enjoyed by the "grantor". In this sense the power given to a court under section 1 of the 1966 Act is analogous to the state's statutory power to acquire land compulsorily. Thirdly, as Peter Gibson J pointed out in BP v Ryder,[135] it is contemplated by section 3(2)(d) of the 1966 Act that the court can grant a right when there have been no negotiations between the "grantor" and "grantee" because a person with the power to grant a right unreasonably refuses to grant it or makes or demands unreasonable terms. That position is also akin to a compulsory acquisition of land by the state. Fourthly, section 8(2), just like the compulsory purchase regime, assumes a willing seller/grantor and a willing buyer/grantee. In my view the phrases "willing grantor" and "willing grantee" should be given the same meaning as those given to "willing buyer" and "willing seller" by Lord Nicholls in the Waters case, unless there is some reason not to do so and I cannot see any. Fifthly, the phrase "what would be fair and reasonable between a willing grantor and a willing grantee" in section 8(2) is analogous, in my view, to the principles in compulsory acquisition of (a) enhanced value by virtue of location of the subject land or pre-existing "key value"; but (b) subject to the principle of compensation by reference only to the "value to the owner" principle, including the "Point Gourde principle".
- Buckley J's construction of section 9(2) of the 1923 Act in the case of Re Associated Portland Cement Manufacturers Limited's Application[136] may suggest a different approach to mine. If his construction of section 9(2) (and therefore section 8(2) of the 1966 Act) as meaning "willing parties negotiating outside the statute – that is in a free market", implies no restraints on either side, I cannot accept it, because it is not what the wording states. Nor would I accept that the section involves, without qualification, "investigating comparable transactions in the free market, so far as they can be found". Again, that is not what the section states. Moreover, that analysis fails to take account of the requirement, under section 3(2)(b) of the 1934 Act, that the court add an allowance of at least 10% to the assessment, on account of the acquisition being compulsory. That provision seems to me to be reminiscent of the customary allowance that was added to the price of land by tribunals prior to the reforms of the compulsory acquisition regime by the Acquisition of Land (Assessment of Compensation) Act 1919.[137] In other words, it assumes a compulsory purchase regime for compensation/consideration is the basis on which the assessment is made.
- In BP v Ryder, Peter Gibson J summarised the correct approach to the valuation of the "compensation or consideration" to be awarded under section 8(2) for a right granted under section 1 of the 1966 Act as: "…the value of what the estate will lose by the grant".[138] As I read the judgment of Peter Smith J, at various points he appears to accept that looking at compulsory purchase principles by analogy was, in principle, a legitimate aid to the construction of section 8(2).[139] However, he seems ultimately to have concluded that section 8(2) is "not a compulsory acquisition section; it provides for acquisition of ancillary rights as between a willing grantor and a willing grantee".[140] He expressly criticised the approach of Peter Gibson J in BP v Ryder on three grounds. First, because, in his view, Peter Gibson J did not give proper attention to the requirement in section 8(2) that the compensation or consideration should be assessed on what would be "fair and reasonable between a willing grantor and a willing grantee". Secondly, because, in his view, Peter Gibson J did not pay proper regard to three particular decisions which had considered the compulsory acquisition compensation regime or an analogous rent review regime.[141] Thirdly, because in his opinion, the effect of Peter Gibson J's decision was that the figure of what would be "fair and reasonable" would be reduced because it treated the licensee as being the only possible interested party.[142]
- In my opinion these criticisms of Peter Gibson J's analysis and his construction of section 8(2) in BP v Ryder are not justified. First, as I have already stated, I think that Peter Gibson J was right in examining the compulsory purchase principles and cases as an aid to the construction of section 8(2). Secondly, with the benefit of the House of Lords' analysis of that regime in the Waters case, it seems to me, with respect, that Peter Gibson J correctly analysed the effect of the regime and the cases which have interpreted it. Thirdly, given those principles, Peter Gibson J gave full effect to the words in section 8(2) that the assessment should be on the basis of "what is fair and reasonable between a willing grantor and willing grantee". He was therefore right to say that the loss of a grantor's "veto" should not be taken into account. Fourthly, however, Peter Gibson J was correct to be conscious of the fact that when section 8(2) is used to assess compensation/consideration for the grant of rights or ancillary rights under the 1934 Act, there is an unusual factor to take into account: viz. that the grantee will be a monopoly licensee of the right to bore for, search and get oil in a certain area. In certain circumstances, therefore, it may be assumed that the licensee will be prepared to pay more for the right than the value the estate will lose by the grant of rights under the 1966 Act, because the licensee is in that monopoly position.[143] I deal below with the question of how that should be approached. But, the reverse of that is also true. The exploitation of the petroleum licence in the specified area is the "scheme" for the purposes of the valuation of what is fair between willing grantor and willing grantee. Therefore, any additional value in the right that arises solely by virtue of the existence of "the scheme" and the use to which the right will be put in pursuance of "the scheme" has to be disregarded.
- On the correct construction of section 8(2) of the 1966 Act, the question is: what would be a fair and reasonable compensation or consideration between a willing grantor (Bocardo) and willing grantee (Star) for the right to drill three pipelines at depths of 800 to 2800 feet under Bocardo's land, which would not disturb or detract from Bocardo's use of the land "one iota"? Put in the terms that Peter Gibson J expressed it in BP v Ryder,[144] what is the value that Bocardo would have lost by the grant to Star of this right? The straightforward answer is "nothing", because the right to drill pipes at those depths is worthless to Bocardo, unless it could be used to exploit the petroleum licence, which Bocardo cannot.
- This initial reaction is reinforced by two further factors. First, the right to drill pipelines at those depths beneath Bocardo's land had no pre-existing "key" value apart from the petroleum licence which might be utilised by either Star or anyone else. Secondly, the only value that the right to drill the pipelines has is that created by virtue of the "scheme", viz. the right to search, bore for and get petroleum granted first to Star's predecessor as licensee. That value has to be disregarded under the "value to owner" principle or its sub – category, the "Point Gourde principle".
- However, Star and its predecessors had a "special interest" in acquiring the right to drill at depths beneath the Oxted estate because of their position as licensees. That has to be taken into account as part of the formula for assessing what is "fair and reasonable between a willing grantor and willing grantee". How is that to be done? Peter Smith J criticised[145] the analysis of Peter Gibson J in BP v Ryder, in which he held (referring to The Indian case in particular) that the extra value of the special interest in the right was the notional amount of "one more bid" to be made by the "special purchaser" to secure the right he needed. [146] Mr Gaunt submitted that Peter Smith J's criticism was well – founded, because Peter Gibson J's approach lead to an unrealistically low value of the right to the "special purchaser".
- On this one point I do find, with respect, difficulty with Peter Gibson J's conclusion that the extra value equates to "one more bid" in an imaginary auction, where there are "competing special purchasers".[147] That seems artificial. I think that it is better to ask a more general question, which is: given that the grantee is in a special position, what (if anything) would that add to the value of the right to be granted, bearing in mind the requirement that overall the assessment must be fair and reasonable between a willing grantor and willing grantee? It is a question of fact in each case.
- Before the judge, Mr Colin Smith, Star's expert valuer, gave his opinion (based on Peter Gibson J's analysis in BP v Ryder) that the compensation payable by Star to Bocardo pursuant to section 8(2) of the 1966 Act for the right to drill 3 pipelines at depth would have been assessed at £82.50.[148] That sum comprised three elements: (i) £50, being the standard compulsory purchase compensation paid for a deep tunnel; (ii) an additional 50% of that sum to account for the fact that Star, as the holder of the petroleum licence, was a "special purchaser"; and (iii) an additional 10% because section 3(2)(b) of the 1934 Act requires it. On the basis of my conclusions as to the correct legal approach, it seems to me that I ought to accept this evidence of what the assessment under section 8(2) would have been. Mr Gaunt attacked the principles adopted by Mr Smith, but not the figures. The 50% addition for Star's position as a "special purchaser" seems adequate, given that, on my analysis, the basic loss of value to Bocardo is zero.
- Therefore, I conclude that if a court had had to assess the compensation or consideration payable by Star to Bocardo for the right to bore the three pipelines under its land, it would have fixed a figure of £82.50. This would have been a one – off, lump sum payment.
- I have already noted that counsel agreed that the measure of damages for the past and future trespass should be assessed on the basis of a hypothetical negotiation between the parties before the trespass began. As I understood the oral argument of Mr Gaunt, he accepted that it should be assumed that the hypothetical negotiations took place before the pipelines were in place; to do otherwise would be unfair and unreasonable. The negotiation would be for the price to pay for the right of Star to bore and use the three pipelines in the positions as they are now. It must also be assumed that the parties would act on my conclusions on the law. Therefore they would know that the total sum that would be assessed by a court under section 8(2) of the 1966 Act, to be given to Bocardo as compensation/consideration for granting this right to Star, would be very small, ie. in the region of £82.50. I would be prepared to hold that Star would have been prepared to be generous in negotiation, so as to avoid delay and the possible expense of having to take the issue to court.
- I would assess this figure at a maximum of £1000, or over 10 times the figure a court would award under section 8(2) of the 1966 Act, together with a 10% uplift in accordance with section 3(2)(b) of the 1934 Act. I have made that assessment on the basis that lawyers are expensive and time wasted on legal wrangling would be petroleum - and so money - lost.[149]
- I can summarise my conclusions as follows:
- In these circumstances, I think that there is no need for me to deal with Mr Driscoll's arguments based on the Pipelines Act 1962 and I shall not do so.
- I would therefore allow the appeal, set aside the order of Peter Smith J and declare: (i) that Star has committed and continues to commit a trespass so long as it continues to use the pipelines PW5, PW8 and PW9 insofar as they are within Bocardo's land; but (ii) Bocardo is entitled to damages of £1000 only in respect of any such past and continuing trespass.
- I agree.
- I also agree.
Lord Justice Aikens:
Outline of the case so far, including the decision of Peter Smith J
The order of the judge and permission to appeal
The Statutory Framework
"…nothing in this Act shall be construed as conferring on any person any right to enter on or interfere with land for the purpose of searching or boring for or getting petroleum which he does not enjoy apart from this Act, or shall prejudice or affect the rights, if any, of any person interested in any land in respect of petroleum gotten through or from the land in which he is so interested."
"…a right to enter upon land and to sink bore holes therein for the purpose of searching for and getting petroleum, and a right to use and occupy land for the erection of such buildings, the laying and maintenance of such pipes, and the construction of such other works as may be required for the purpose of searching and boring for and getting, carrying away, storing, treating and converting petroleum".
"(1) Where a right is granted under section 1 of this Act…..the court may determine the amount and nature of the compensation or consideration to be paid or given and the persons to whom it is to be paid or given, either at the time when it determines whether the right should be granted….or at any subsequent time.
(2) The compensation or consideration in respect of any right…shall be assessed by the court on the basis of what would be fair and reasonable between a willing grantor and a willing grantee, having regard to the conditions subject to which the right is or is to be granted".
"in determining the amount of any compensation to be paid in respect of the grant of any right, an additional allowance of not less than ten per cent. shall be made on account of the acquisition of the right being compulsory".
Mr Driscoll emphasises that the word "compensation" is used in that paragraph, not "compensation or consideration". He also submits that this provision demonstrates that the basis for calculating any "compensation" for the grant of an "ancillary right" is closely analogous to the statutory regime that has evolved in relation to compulsory purchase of land.
"(3) Nothing in this Act shall be construed as conferring, or as enabling the [relevant department of State] to confer, on any person, whether acting on behalf of His Majesty or not, any right which he does not enjoy apart from this Act to enter on or interfere with land".
The terms of the licence granted to Conoco (UK) Limited
"…any structures and any other works whatsoever which are intended by the licensee to be permanent and are neither designed to be moved from place to place without major dismantling nor intended by the Licensee to be used only for searching for petroleum".
"The Licensee shall not enter into any agreement providing for a person other than the Licensee to become entitled to, or to any proceeds of sale of, any petroleum which, at the time when the agreement is made, has not been but may be won and saved from the licensed area unless the terms of the agreement have been approved in writing by the Minster either unconditionally or subject to conditions; but the preceding provisions of this paragraph do not apply to-
(a) an agreement for the sale of such petroleum under which the price is payable after the petroleum is won and saved; and
(b) an agreement in so far as it provides that, after any petroleum has been won and saved from the licensed area, it shall be exchanged for other petroleum".
The decision of Peter Gibson J in BP Petroleum Developments Ltd v Ryder[38] (the "BP v Ryder case")
"The Land Clauses Act referred to the purchase money or compensation in much the same way as the 1966 Act refers to the consideration or compensation and yet it is firmly established that it is the loss to the grantor that must be valued on compulsory acquisition. To my mind it would be very surprising if the general principles of compulsory acquisition, which seem to me to have the merit of common sense, did not apply to the particular form or compulsory acquisition authorised by the 1934 and 1966 Acts".[40]
I do not need to go through the "general principles of compulsory acquisition" that Peter Gibson J set out, because those have been reconsidered definitively in the subsequent House of Lords decision in Waters v Welsh Development Agency,[41] which I will have to analyse if I conclude that those principles are relevant.
"The effect of these authorities is to support the conclusion that, consistently with the general principles applicable to compulsory acquisitions under the Lands Clauses Act, on applications under the 1966 Act:
(1) the grantor must receive consideration or compensation on the basis of the value of what he has lost, not on the basis of the value to the grantee of what he is acquiring;
(2) the value is of rights over land with its existing use and subject to its existing restrictions, but together with all its potentialities; and, subject to not receiving more than he has lost, the landowner is entitled to compensation for disturbance and injurious affection as well;
(3) the existence of the scheme underlying the compulsory acquisition must be disregarded, but the presence in the market of a purchaser for whom the rights have a special value may be taken into account;
(4) the loss of the bargaining power of the landowner through his veto which he enjoyed until compulsory powers are invoked by the making of the application is not a factor to be taken into account,…"
"In my judgment, therefore, the correct basis of valuation under section 8(2) of the 1966 Act of the rights to be acquired is the value of what the estate will lose by the grant that is to say the rights over land having its existing agricultural and forestry use plus compensation for disturbance and injurious affection".[46]
The issues on the appeal
The arguments of the parties on each of the issues.
The submissions on behalf of the Secretary of State for Business, Enterprise and Regulatory Reform.
The property law issues.
Issue one: does Bocardo have title to the strata beneath the surface its land through which the lines PW5, PW8 and PW9 have been bored?
Issues two and three: Has Bocardo "factual" or "exclusive" possession of the strata beneath the surface of its land such as to give it the right to sue the defendants in trespass? If so, or in any event, is the intrusion by Star and the predecessors to the licence justifiable by virtue of the terms of the 1934 Act and the licence, so as to be a defence to an action for trespass?
"…factual possession signifies an appropriate degree of physical control. It must be a single and [exclusive][84] possession, though there can be a single possession exercised by or on behalf of several persons jointly. Thus an owner of land and a person intruding on that land without his consent cannot both be in possession of the land at the same time. The question what acts constitute a sufficient degree of exclusive physical control must depend on the circumstances…but broadly, I think what must be shown as constituting factual possession is that the alleged possessor has been dealing with the land in questions as an occupying owner might have been expected to deal with it and that no one else has done so."[85]
Slade J also dealt with the position of the owner of the land with paper title. He said:[86] "In the absence of evidence to the contrary, the owner of land with the paper title is deemed to be in possession of the land, as being the person with the prima facie right to possession". As for the intention to possess, Slade J characterised this requirement as being: "…[an] intention, in one's own name and on one's own behalf, to exclude the world at large, including the owner with the paper title if he be not himself the possessor, so far as is reasonably practicable and so far as the process of the law will allow". [87] These formulations were all approved in Pye's case.[88]
"At common law, where, by agreement, the upper portion of land is sold, the mines being reserved, without any express stipulation, I think a necessary implication arises in favour of the mine-owner that, if he cannot get the coal otherwise, he may, working in a reasonable way, bore through the upper land which is sold to get at the mine."
Rigby LJ said:
"…where an owner has sold the surface, reserving the mines, the implication even at common law would be that, if the circumstances of the case rendered it proper, the mine – owner might sink a shaft through the surface for the purpose of getting at the minerals….The law is that, where there is an exception of minerals, there is a right, if necessary, to use the ordinary and proper means of working in order to get the minerals excepted, even although it may involve interference with the land sold."
Halsbury's Laws of England, "Mines, Minerals and Quarries",[92] states:
"If minerals cannot be got otherwise, the owner or lessee of the minerals may bore in a reasonable way through the lessor's land and minerals not included in the demise in order to reach them, and it does not matter whether the barrier is horizontal or vertical".[93]
The Damages Issues: Issue one – what is the correct construction of section 8(2) of the 1966 Act?
"(1) Where a right is granted under section 1 of this Act….the court may determine the amount and nature of the compensation or consideration to be paid or given and the person to whom it is to be paid or given, either at the time when it determines whether the right should be granted…or at any subsequent time.
(2) The compensation or consideration in respect of any right [granted under section 1 of this Act]…shall be assessed by the court on the basis of what would be fair and reasonable between a willing grantor and a willing grantee, having regard to the conditions subject to which the right is or is to be granted."
"…the same principles which have been applied in the application of s. 63 of the Lands Clauses Act, 1845, ought to be applied to cases under s.9 of the Act of 1923, which in my view, on its true construction, is a section directing the assessment of compensation and therefore designed to give to a man the fair value to him of what is being taken from him".[115]
"…ascertain, as well as it can, upon what fair and reasonable terms willing parties negotiating outside the statute – that is in a free market – would be likely to agree for the grant of such rights subject to such conditions as it is proposed that the court shall grant or impose under the statute, and, having ascertained those terms, to assess the compensation or consideration to be paid or given for a grant under the statute upon that basis. This process must involve investigating the nature of comparable transactions in the free market, so far as they can be found".
The compulsory purchase principles
"What is relevant, because this may affect the value of the land, is the use the acquiring authority proposes to make of the land it is acquiring. Accordingly, in identifying any enhanced value that must be disregarded, it is always necessary to look beyond the mere existence of the power of compulsory purchase. It is necessary to identify the use proposed to be made of the land under the scheme for which the land is being taken. Hence, the introduction of the concept of the "scheme" or equivalent expression such as project or undertaking".[123]
"market value does not include enhanced value attributable solely to the particular use proposed to be made of the land under a scheme of which compulsory acquisition of the subject land is an integral part. This element of value is not part of market value because it is not an element that the owner could have realised in the open market".[126]
Are the compulsory purchase principles relevant to the construction and application of section 8(2) of the 1966 Act?
Are Peter Smith J's criticisms of Peter Gibson J's approach in BP v Ryder justified?
What would have been the assessment of the compensation or consideration pursuant to section 8(2) of the 1966 Act for the grant of an "ancillary right" to bore the pipes PW5, PW8 and PW9 at depths of 800 to 2800 feet beneath Bocardo's land?
What would have been the result of the hypothetical negotiation between Star and Bocardo before the (assumed) trespass, thereby fixing the damages for past and future trespass by Star?
Conclusions and disposal
(1) Bocardo is the owner of the paper title to the strata beneath the Oxted estate, but not the owner of any of the petroleum to be found in those strata.
(2) Prima facie, Bocardo, as the paper title owner to the land through which the pipelines PW5, PW8 and PW9 were drilled and used, is deemed to be in exclusive possession of that land. Star or its predecessors as licensees under the 1934 Act can therefore only avoid being trespassers by drilling and using the pipelines, if there is some common law right, or express or implied analogous right by virtue of the 1934 Act which permits them to intrude in Bocardo's land in the way they have. There is no such common law right. Nor is there any analogous right that is either expressly or impliedly granted by virtue of the 1934 Act.
(3) Therefore, Star has committed a trespass by its continued use of the pipelines through Bocardo's land, because it has, without right, intruded upon Bocardo's possession of that land by using the three pipelines beneath Bocardo's land at depths of 800 to 2800 feet.
(4) However, the trespass is purely technical, because it did not interfere with Bocardo's use or enjoyment of its land "one iota". Moreover, Bocardo has lost no rights because it neither owned the oil that has been removed from strata within its land; nor did it have the right to search, bore for and get such petroleum. Those rights belonged exclusively to the Crown and its licensee.
(5) The damages for Star's past trespass and in lieu of an injunction for future trespass are to be assessed at £1000. That sum is based on what the court would assess as Bocardo's entitlement as compensation/consideration under section 8(2) of the 1966 Act for the grant of an "ancillary right" to Star (or its predecessors) under section 1 of the 1934 Act, viz. £82.50. But in a hypothetical negotiation between the parties before any trespass was committed by Star or its predecessors as licensees, they would have been generous in fixing a figure to pay to Bocardo, in order to save time and lawyers' fees.
Lord Justice Sullivan:
Lord Justice Jacob
1. (1) The property in petroleum existing in its natural condition in strata in Great Britain is hereby vested in His Majesty, and His Majesty shall have the exclusive right of searching and boring for and getting such petroleum:
Provided that nothing in this subsection shall apply to petroleum which at the commencement of this Act may lawfully be gotten under a licence in force under the Petroleum Production Act 1918, being a licence specified in the Schedule to this Act, so long as that licence remains in force.
(2) For the purpose of this Act the expression "petroleum" includes any mineral oil or relative hydro-carbon and natural gas existing in its natural condition in strata, but does not include coal or bituminous shales or other stratified deposits from which oil can be extracted by destructive distillation.
2. (1) The Board of Trade, on behalf of His Majesty, shall have power to grant to such persons as they think fit licences to search and bore for and get petroleum.
(2) Any such licence shall be granted for such consideration (whether by way of royalty or otherwise) as the Board of Trade with the consent of the Treasury may determine, and upon such other terms and conditions as the Board of Trade think fit.
(3) The Board of Trade shall, as soon as may be after granting a licence under this section, publish notice of the fact in the London Gazette stating the name of the licensee and the situation of the area in respect of which the licence has been granted, and, if the said area or any part thereof is in Scotland, the Board shall also publish said notice in the Edinburgh Gazette.
3. (1) Part I of the Mines (Working Facilities and Support) Act 1923, as amended by any subsequent enactment, shall apply for the purpose of enabling a person holding a licence under this Act to acquire such ancillary rights as may be required for the exercise of the rights granted by the licence, and shall have effect accordingly, subject to the following modifications:-
(a) references to a person having a right to work minerals shall include references to a person holding a licence under this Act, references to minerals shall include references to petroleum, and references to the working of minerals shall include references to the getting, carrying away, storing, treating and converting of petroleum;
(b) without prejudice to the generality of sub-section (1) of section three of the said Act, the ancillary rights therein mentioned shall include (in addition to the rights specified in sub-section (2) of that section) a right to enter upon land and to sink bore holes therein for the purpose of searching for and getting petroleum, and a right to use and occupy land for the erection of such buildings, the laying and maintenance of such pipes, and the construction of such other works as may be required for the purpose of searching and boring for and getting, carrying away, storing, treating and converting petroleum;
Provided that, where a right to lay and maintain pipes under a highway is granted by virtue of this sub-section, sections nineteen to twenty-eight and thirty to thirty-four of the Waterworks Clauses Act, 1847, shall be incorporated in the order granting the right, subject to any modifications or adaptations specified in the order.
(2) In relation to any application made to the Railway and Canal Commission under Part I of the said Act, as applied by this section, the following provisions shall have effect:-
………
(a) the Commission shall, in deciding whether to grant any right applied for or what terms and conditions, if any, should be imposed upon the grant of such a right, have regard, among other considerations, to the effect on the amenities of the locality of the proposed use and occupation of the land in respect of which the right is applied for:
(b) in determining the amount of any compensation to be paid in respect of the grant of any right, an additional allowance of not less than ten percent, shall be made on account of the acquisition of the right being compulsory:
………
6. (1) The Board of Trade shall, before granting any licence under this Act, make regulations prescribing –
(a) the manner in which and the persons by whom applications for licences under this Act may be made;
(b) the fees to be paid on any such application;
(c) the conditions as to the size and shape of areas in respect of which licences may be granted;
(d) model clauses which shall, unless the Board think fit to modify or exclude them in any particular case, be incorporated in any such licence;
and different regulations may be made for different kinds of licence.
………
9. It is hereby declared that in subsection (1) of section twenty-three of the Mining Industry Act, 1926 (which imposes on persons sinking bore holes for the purpose of searching for or getting minerals obligations to give certain facilities to the Department of Scientific and Industrial Research) the expression "minerals" includes petroleum.
10. ……..
(3) Nothing in this Act shall be construed as conferring, or as enabling the Board of Trade to confer, on any person, whether acting on behalf of His Majesty or not, any right which he does not enjoy apart from this Act to enter on to interfere with land.
………"
1 Grant of working facilities
The court may, subject to and in accordance with this Act, confer any rights described in the Table below.
TABLE
metallic ores,etc.
Paragraph 1 of Table.
(1) This paragraph applies to any minerals other than . . . peat cut for purposes other than sale.
(2) A right to search for or work any minerals to which this paragraph applies may be conferred on any person (exercisable either by himself or through a lessee).
(3) Where the working of any minerals to which this paragraph applies, or the working of any such minerals in the most efficient and economical manner, is impeded by any restrictions, terms or conditions contained in a mining lease, or otherwise binding on the person entitled to work the minerals, a right may be conferred to work the minerals freed wholly or partially from the restrictions or conditions, or to work the minerals on other terms and conditions.
……….
All minerals: ancillary rights
Paragraph 5 of Table.
(1) An ancillary right may be conferred on a person having the right to work minerals, who is working or desirous of working the minerals either by himself or through his lessees, if the right is required in order that the minerals may be properly and conveniently worked by him, and the proper and efficient working of the minerals is unduly hampered by his inability or failure to obtain that right.
…………
2 Ancillary rights
(1)In this Act "ancillary right" means, in relation to minerals, any facility, right or privilege and, in particular, but without prejudice to the generality of the foregoing provisions of this subsection, that expression shall include—
(a)a right to let down the surface,
(b)a right of air-way, shaft-way or surface or underground wayleave, or other right for the purpose of access to [or conveyance of minerals or the] ventilation or drainage of the mines,
(c)a right to use and occupy the surface for the erection of washeries, coke ovens, railways, by-product works or brick making or other works, or of dwellings for persons employed in connection with the working of the minerals or with any such works as aforesaid;
(d)a right to obtain a supply of water or other substances in connection with the working of minerals;
(e)a right to dispose of water or other liquid matter obtained from mines or any by-product works.
…………..
(2)The court in determining whether a right under subsection (1)(a) above should be granted—
(a)shall have regard to the value of minerals required for the support of any works or buildings or intended works or buildings on or below the surface as compared with the value of the buildings or works, and as to whether the support of the works or buildings or intended works or buildings is in the national interest more important than the working of those minerals, or
(b)if there are no such buildings or works, shall have regard to the extent to which the use of the surface for the purposes for which it is used or is intended to be used will be prejudicially affected by subsidence, and as to whether the support of the surface is in the national interest more important than the working of the minerals required for its support.
3 Limitations on grant of rights
(1)No right shall be granted under section 1 of this Act unless the court is satisfied that the grant is expedient in the national interest.
(2)No right shall be granted under section 1 of this Act unless it is shown that it is not reasonably practicable to obtain the right by private arrangement for any of the following reasons—
(a)that the persons with power to grant the right are numerous or have conflicting interests;
(b)that the persons with power to grant the right, or any of them, cannot be ascertained or cannot be found;
(c)that the persons from whom the right must be obtained, or any of them, have not the necessary powers of disposition, whether by reason of defect in title, legal disability or otherwise;
(d)that the person with power to grant the right unreasonably refuses to grant it or demands terms which, having regard to the circumstances, are unreasonable.
4 Applications for rights
(1)An application for the grant of a right under section 1 of this Act shall be sent to the Minister, and the applicant for an ancillary right for the purpose of or in connection with working any minerals may be a person either having or applying for the right to work those minerals.
(2)The application shall set out the circumstances alleged to justify the grant of the right, and shall be in such form and accompanied by such information verified in such manner as the Minister may direct.
(3)The Minister shall consider the application, and shall, unless after communication with such other parties interested (if any) as he may think fit, he is of opinion that a prima facie case is not made out, refer the matter to the court:
Provided that, where it is alleged that the right in question cannot be obtained by reason of any person not having the necessary powers of disposition, or having unreasonably refused to grant it, or having demanded terms which are unreasonable, the Minister shall not refer the application to the court without first having communicated with that person
……..
5 References of applications to court
(1)Where a matter is referred to the court under the last foregoing section, the court, if satisfied that the requirements of this Act are complied with in the case of the applicant, may, by order, grant the right on such terms and subject to such conditions, and for such period, as the court may think fit, and upon such an order being made, the right specified in the order shall, subject to the following provisions of this Act, vest in the applicant.
(2)Where a right is granted, such compensation or consideration as in default of agreement may be determined by the court shall be paid or given by the applicant in respect of the acquisition of the right to such persons as the court may determine to be entitled thereto.
……..
(4)In determining whether any right should be granted or the conditions upon which any such right should be granted the court shall have regard to all the circumstances of the case, and in particular to the extent to which the retention of any minerals is required for the protection of any mines or other works from flooding, or for any other mining purpose, and (so far as relevant) to the royalties, covenants, and conditions reserved by or contained in the applicant's existing mining lease or leases (if any), or customary in mining leases in the district.
…….
8 Compensation
(1)Where a right is granted under section 1 of this Act, or any restriction is imposed under section 7 of this Act, the court may determine the amount and nature of compensation or consideration to be paid or given and the persons to whom it is to be paid or given, either at the time when it determines whether the right should be granted or the restrictions imposed or at any subsequent time.
(2)The compensation or consideration in respect of any right, including a right to enforce restrictions, shall be assessed by the court on the basis of what would be fair and reasonable between a willing grantor and a willing grantee, having regard to the conditions subject to which the right is or is to be granted."
.png)
Note 1 Now repealed and replaced by the Petroleum Act 1998, (“the 1998 Act”) which is in materially identical terms. [Back] Note 2 “Ancillary rights” can be obtained, in default of agreement with a landowner, under section 3 of the 1934 Act, now section 7 of the 1998 Act. See further below. [Back] Note 3 The licence had originally been granted to Conoco (UK) Limited. The licence was assigned to Cairn Energy Onshore Limited, then to Soco International plc and then to Star Energy on 13 October 1999. [Back] Note 4 The report of Dr S.C. Wright, Star’s expert geologist, states that “deviated drilling” has become common practice for onshore sites as a means of maximising production with minimal environmental impact: Bundle B/tab 21/paras. 27-29. But we were informed by counsel at the hearing that this type of drilling did not exist in 1934 when the 1934 Act was passed. [Back] Note 5 Two wells, ie. PW5 and PW8 were drilled because it was thought that there was a geological fault between the areas between them. This is not the case, in fact. [Back] Note 6 Oil is lighter than water, of course, so that the oil sits on top of the water that is pumped in through PW9. [Back] Note 7 Judgment para 78. [Back] Note 8 Judgment para 6. The judge fully appreciated that there was no geological or other barrier between the two halves of the oilfield, so that, ultimately oil might be extracted from any part of the field at either of the two wellheads. [Back] Note 9 Judgment para 20. [Back] Note 10 Judgment para 46. [Back] Note 11 Section 3(1) of the Petroleum (Production) Act 1934 provides that Part 1 of the Mines (Working Facilities and Support) Act 1923 (as amended) would apply to enable a person holding a licence under the 1934 Act to acquire such “ancillary rights” as may be required for the exercise of the rights granted by the licence. It was common ground before the judge and us that if a licensee had to obtain an “ancillary right” and the compensation or consideration for that could not be agreed between the parties, then the court would determine what it should be on the basis of section 8(2) of the Mines (Working Facilities and Support) Act 1966 (“the 1966 Act”), which replaced the 1923 Act. See below for more details. [Back] Note 12 Judgment para 57. [Back] Note 13 Judgment para 120. At para 11 he also records that Mr Al Fayed had noticed in June 1992 that an oil drilling rig had been erected at Coney Hill and he had retained solicitors to enquire about what was going on. [Back] Note 14 It is a claim in tort, so section 2 of the Limitation Act 1980 applies. [Back] Note 15 Judgment para 144. [Back] Note 16 Judgment paras 78, 83 and 85. [Back] Note 17 See paras 6, 17, 78 and 83 of the judgment. As already noted, the judge appreciated (para 6) that there was no barrier between the eastern and the western part of the reservoir of the oilfield and that, ultimately, oil might be extracted from either of the two wellheads (Rooks Nest or Coney Hill) from any part of the oilfield; so this was a pragmatic apportionment. [Back] Note 18 See para 85 of the judgment. The judge decided that there was such uncertainty because he held that the only decision on the construction of section 8(2) of the 1966 Act, that of Peter Gibson J (as he then was) in BP Petroleum Developments Ltd v Ryder & Ors [1987] 2 EGLR 233 had been wrongly decided; although the judge acknowledged (para 94) that this was simply his opinion. See generally paras 45, 92, 94 and 103 – 112 of the judgment. [Back] Note 19 See para 100 of the judgment. The judge stated that this figure included a notional 10% uplift, which section 3(2)(b) of the 1934 Act states must be added (as a minimum) to the compensation awarded by a court to the grantor in favour of the licensee/grantee, for the use of the “ancillary right”. [Back] Note 20 See paras 138, 139 and 144 of the judgment. [Back] Note 21 At the end of the order it stipulates “If you do not obey this order you will be guilty of contempt of court and you may be sent to prison”. [Back] Note 22 Nowsection 7 of the 1998 Act. It is in materially identical terms to the earlier Act. [Back] Note 23 For gold and silver, see Case de Mines (1567) 1 Plowd.310. For saltpetre see The Case of the King’s Prerogative in Saltpetre (1616) 12 Co Rep 12. [Back] Note 24 A landowner has no property in water that either percolates or flows through his land, but he does have certain valuable rights pertaining to the water. See Megarry & Wade: The Law of Real Property (7th Ed. 2008) at para 3 – 047. [Back] Note 25 Section 5(1) of the 1918 Act defined petroleum as “all petroleum and its relative hydrocarbons (except coal and bituminous shales and other stratified deposits from which oil can be extracted by distillation) and natural gas existing in its natural condition in strata”. [Back] Note 26 See section 1 of the 1918 Act. [Back] Note 27 Under the 1998 Act which has replaced the 1934 Act, the licences are to be granted by the Secretary of State for Trade and Industry. [Back] Note 28 At the time the licence in this case was granted, the model clauses which were incorporated in the licence were those set out in Schedule 4 to The Petroleum (Production) Regulations 1976, SI 1129 of 1976 – “the 1976 Regulations”. [Back] Note 29 Initially any applications were dealt with by the Railway and Canal Commission but subsequent amendments provided that applications are to be made to the Chancery Division of the High Court. [Back] Note 30 See: sections 3(1), 4, 5, 6 and 9 of the 1923 Act. [Back] Note 31 Section 3(1)(a) of the 1934 Act states that references in the 1923 Act to “minerals shall include references to petroleum.” That obviously carries over to the 1966 Act. [Back] Note 32 This means the relevant Secretary of State: see section 14(1). [Back] Note 35 In England and Wales this means the High Court: section 14(1). [Back] Note 36 Section 5(1). There was an equivalent provision in section 6(1) of the 1923 Act. [Back] Note 37 Defined in the preamble as the Secretary of State for Energy. [Back] Note 38 [1987] 2 EGLR 233. [Back] Note 39 See page 244F of the report. [Back] Note 40 See page 244G-H of the report. [Back] Note 41 [2004] 1WLR 1304. [Back] Note 42 (1925) 134 LT 253. It was a decision of the Railway and Canal Commission, whose chairman on that occasion was Sankey J. [Back] Note 43 [1950] Ch 567. Peter Smith J concluded that this case was also “incorrect”: see para 111 of his judgment in this case. [Back] Note 45 See page 247D of the judgment. [Back] Note 48 See page 248D – F. [Back] Note 50 [1939] AC 302 at 315 – 6. [Back] Note 51 See page 248H - K. [Back] Note 52 Blackstone’s Commentaries, vol 3 page 209, quoted in Clerk & Lindsell (19th Ed. 2006) para 19-01, fn 1. [Back] Note 53 The requirement of exclusive possession before an action for trespass can be maintained is referred to in Clerk & Lindsell (ibid.) para 19 – 15. See also: Coverdale v Charlton (1878) 4 QBD 104 at 118 per Branwell LJ; 122 per Brett LJ and 127 per Cotton LJ; JA Pye (Oxford) Ltd v Graham [2003] 1 AC 419 at paras 40 – 41 per Lord Browne – Wilkinson, with whom all the other Law Lords agreed. [Back] Note 54 Clerk & Lindsell (ibid.) para 19 – 29. [Back] Note 55 On the principles of awarding damages in lieu of an injunction see: AG v Blake [2001] 1 AC 268 at page 281 per Lord Nicholls of Birkenhead. There was no dispute about this principle amongst the other Law Lords, although there was dispute about its application in that case. [Back] Note 56 See: Johnson v Agnew[1980] AC 367 at 400 per Lord Wilberforce, with whom the other Law Lords agreed; Jaggard v Sawyer [1995] 1 WLR 269 at 281 – 2 per Sir Thomas Bingham MR, at 289 – 291 per Millett LJ. Kennedy LJ agreed with Bingham MR. The issue is whether, as in AG v Blake (supra), the compensatory principle requires a court to award damages by reference to the benefit or profit that the defendant has obtained from the relevant tortious infringement: see pages 278D-H and 281G-H of Lord Nicholls’ speech. [Back] Note 57 See AG v Blake [2001] 1 AC 268 at 281 G – H, per Lord Nicholls, where he describes the measure of damages in lieu of an injunction as “often being analysed as damages for loss of a bargaining opportunity or, which comes to the same, the price payable for the compulsory acquisition of a right”. [Back] Note 58 [1987] 2 EGLR 233 [Back] Note 59 Which can be translated: “he who owns the surface owns up to the heavens and down to hell”. The maxim was apparently coined by Franciscus Accursius of Bologna (1225 – 1293) an Italian lawyer who, in 1275 – 6, lectured in law at Oxford at the invitation of Edward 1. Dante placed him in Hell: Inferno XV, 110. [Back] Note 60 [1974] 1 AC 328 at 351H – 352A. This was a Privy Council decision on appeal from the Court of Appeal of New South Wales. [Back] Note 61 Mr Driscoll referred us to an article by Professor John G. Sprankling, University of the Pacific, McGeorge School of Law, entitled “Owning the Center of the Earth”, 55 UCLA Law Review 579, which discusses at length the history of the “center of the earth theory” in English and US jurisprudence. The thesis of the article is that the “center of the earth theory” is “poetic hyperbole, not binding law”. [Back] Note 62 Mr Driscoll relied on the statements of Lord Browne – Wilkinson in JA Pye (Oxford) Ltd v Graham [2003] 1 AC 419 at paras 40 and 41, where he approved the formulation of Slade J in Powell v McFarlane (1977) 38 P&CR 452 at 470. The other Law Lords agreed with the speech of Lord Browne – Wilkinson. [Back] Note 63 Mr Gaunt relied in particular on Mitchell v Moseley [1914] 1 Ch 438, per Cozens – Hardy MR at 450, Swinfen Eady LJ at 452 and Phillimore LJ at 453. [Back] Note 64 Mr Gaunt relied in particular on Eardley v Granville (1876) 3 Ch D 826 at 832 – 3 per Jessel MR. [Back] Note 65 Mr Gaunt referred to the decision of the Court of Appeal inSeddon v Smith (1877) 36 LT 168. [Back] Note 66 Mr Gaunt referred to Anchor Brewhouse Developments Ltd v Berkley House (Dockland Developments) Ltd [1987] 38 BLR 82 at 94 per Scott J. [Back] Note 67 Mr Gaunt quoted and relied on part of the definition of “interference” in the Shorter Oxford English Dictionary (5th Ed). [Back] Note 68 [2004] 1 WLR 1304. [Back] Note 69 Mr Gaunt relied on the well – known line of compulsory purchase cases, in particular Stokes v Cambridge Corporation (1961) 13 P&CR 77, and the remarks of Lord Brown of Eaton – under – Heywood in Waters v Welsh Development Agency [2004] 1 WLR 1304 at para 140. [Back] Note 70 Mr Gaunt relied (amongst other cases) on Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798, approved by the House of Lords in AG v Blake (supra). [Back] Note 71 Bocardo’s expert valuer, Mr Crawford, had arrived at a figure of 12.5% of revenue received. The judge accepted that would be Bocardo’s “opening gambit” in the negotiations, but it would have been forced to reduce the claim to 9% as a result of (a) the ability of Star to obtain an assessment under the 1966 Act; and (b) the fact that that assessment might be very low, based on the Ryder decision: see paras 85, 96, 98 and 100 of the judgment. [Back] Note 72 [1987] 2 EGLR 233. [Back] Note 73 See page 247F of the report: “…the landowner’s right of veto to prevent the oil company coming onto his land becomes irrelevant once the compulsory powers of the 1966 Act are invoked”. [Back] Note 75 [1994] 1 EGLR 29. [Back] Note 76 See para 74 of the Sec of State’s submissions. [Back] Note 77 Per Lord Wilberforce in Commissioner for Railways v Valuer General [1974] 1 AC 328 at 351 [Back] Note 79 [1914] 1 Ch 438. [Back] Note 80 Para 49 of the judgment. [Back] Note 81 [2003] 1 AC 419, at paras 40 – 43 per Lord Browne – Wilkinson, with whom the other Law Lords agreed. [Back] Note 82 (1977) 38 P&CR 452. [Back] Note 83 JA Pye (Oxford) Ltd v Graham [2003] 1 AC 419 at para 31, where Lord Browne – Wilkinson approved and adopted the principles as set out by Slade J. [Back] Note 84 The quotation in Pye, at para 41, has square brackets around the word “exclusive”, but it is clear from Slade J’s decision that exclusive possession is part of the requirement of factual possession. [Back] Note 85 Powell at page 470 – 1. [Back] Note 88 See paras 40 – 43 per Lord Browne – Wilkinson. [Back] Note 89 (1987) 38 BLR 82 at 94. [Back] Note 91 [1895] 1 QB 459, at 466 per Lord Esher MR; 471 per Rigby LJ. [Back] Note 92 Vol 31, 2003 Re-Issue, para 329 “Shafts”, under the general heading “Rights of Working”. [Back] Note 93 Lord Gerard’s case is cited as authority for this proposition. [Back] Note 94 (1876) 3 Ch D 826 [Back] Note 95 (1876) 3 Ch D at 893. [Back] Note 96 See: Megarry & Wade “The Law of Real Property” 7th Ed (2008) paras 27 – 034 and 19- 015. [Back] Note 97 It will be recalled that the dispute over “ancillary rights” in BP v Ryder concerned rights to enter land within the licensed area. [Back] Note 98 Mr Gaunt reminded us of the broad definition of “land” as including strata beneath the surface in section 205(1)(ix) of the Law of Property Act 1925. [Back] Note 99 We were referred to the speech of the Secretary of State for Air, the Marquess of Londonderry, in debates in the House of Lords on the Bill: see Hansard, vol. 3 of Session 1933 – 4, columns 389 – 391. [Back] Note 100 See para 57. The judge stated, on the other hand, that “…there might be an argument (for example) that a deep tunnel through which a railway might pass can give no actionable trespass…”. However, he does not explain the basis on which that might be the case. [Back] Note 101 [1925] 134 LT 253. [Back] Note 102 [[1899] AC 351. [Back] Note 103 [1929] 24 SW 2 d 619. [Back] Note 104 See, eg: Jegon v Vivian (1871) LR 6 Ch App 742, approved in Whitwham v Westminster Brymbo Coal & Coke Co [1896] 2 Ch 538, particularly at 541-2 per Lindley LJ. [Back] Note 105 Stoke on Trent CC v W&J Wass Ltd [1988] 1 WLR 1406 at 1416. [Back] Note 106 (1925) 134 LT 253. [Back] Note 107 “Colliery Guardian” 30 November 1928. [Back] Note 108 BP v Ryder at page 245D. [Back] Note 109 [1935] 2 KB 42 [Back] Note 111 Ibid. page 578 [Back] Note 112 [1915] 2 Ch 252 at 258 [Back] Note 113 [1919] 1 KB 16 at 30 [Back] Note 114 [1914] AC 1056 at 1065 [Back] Note 115 [1950] Ch 567 at 581 [Back] Note 116 [1966] 1 Ch 308 [Back] Note 117 [1987] 2 EGLR 233 at 246 right hand side [Back] Note 118 [2004] 1 WLR 1304 [Back] Note 119 Lord Woolf and Lord Steyn also agreed with the speech of Lord Brown of Eaton – under – Heywood, which concurred in the result for largely the same reasons as Lord Nicholls. Lord Scott of Foscote agreed with the result, but dissented on the question of whether the “Point Gourde principle” survived the advent of the Land Compensation Act 1961: see below. [Back] Note 120 Paras 15 and 16 of Lord Nicholls’ speech. [Back] Note 121 Para 17 of Lord Nicholls’ speech. [Back] Note 122 Para 18 of Lord Nicholls’ speech. [Back] Note 123 Para 21 of Lord Nicholls’ speech. In para 23, Lord Nicholls states that this principle is given effect in “the well known observations of Fletcher Moulton LJ in Re Lucas and Chesterfield Gas and Water Board [1909] 1 KB 16 at pages 29 – 30” [Back] Note 124 [1909] KB 16 at page 31. [Back] Note 125 Para 28 of Lord Nicholls’ speech. [Back] Note 126 Para 36 of Lord Nicholls’ speech. He rejected the argument that, in his advice in the Indian case, Lord Romer had intended to hold that in valuing the subject land the particular use to be made of the land by the acquiring authority can be taken into account. [Back] Note 127 Paras 29 to 32 and 36 of Lord Nicholls’ speech. Lord Nicholls stated that this was the effect of Lord Romer’s advice of the Privy Council in theIndian case, [1939] AC 302 at page 323, which had disapproved the observation of Fletcher Moulton LJ in the Lucas case, at page 31, that “where the special value exists only for the particular purchaser who has obtained powers of compulsory purchase it cannot be taken into consideration in fixing the price”. So Lord Nicholls accepted Lord Romer’s interpretation of Fletcher Moulton LJ’s remark and endorsed the disapproval of it. [Back] Note 128 After the decision of the Privy Council in Pointe Gourde Quarrying and Transport Co Ltd v Sub – Intendent of Crown Lands [1947] AC 565, particularly the statement of Lord MacDermott at page 572 that: “compensation for the compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the acquisition”. [Back] Note 129 Paras 40 – 42 of Lord Nicholls’ speech. [Back] Note 130 Paras 48 – 55 of Lord Nicholls’ speech. [Back] Note 131 Para 44, referring to the statement of Lord Buckmaster in Fraser v City of Fraserville [1917] AC 187 at 194. [Back] Note 132 Paras 64 – 65, referring to the judgment of Mann LJ in Batchelor v Kent County Council (1989) 59 P&CR 357 at 361; see also Stokes v Cambridge Corporation (1961) 180 EG 839, referred to in the speech of Lord Brown of Eaton-under-Heywood, at para 141. [Back] Note 133 Para 131 of Lord Brown of Eaton – under - Heywood’s speech. [Back] Note 134 Para 143 of Lord Brown of Eaton – under – Heywood’s speech. [Back] Note 135 [1987] 2 EGLR 233 at 244 right hand side. [Back] Note 136 [1966] 1 Ch 308 at 321. [Back] Note 137 See paras 26 – 27 of the speech of Lord Nicholls in the Waters case. [Back] Note 138 Ibid. at 247H. [Back] Note 139 See paras 103, 105, 111. [Back] Note 140 See para 111 of the judgment. [Back] Note 141 See para 103 of the judgment. The cases referred to are: IRC v Clay [1914] 3 KB 466; “The Indian case” [1939] AC 302 and FR Evans (Leeds) v English Electric Co Ltd [1977] 36 P&CR 185. The first is a tax case, not a compulsory purchase case, although it was referred to in The Indian case. The third was a rent review case. [Back] Note 142 Para 107 of the judgment. [Back] Note 143 BP v Ryder at page 247J-M. [Back] Note 144 At page 247 H. [Back] Note 145 Para 104 of the judgment. [Back] Note 146 BP v Ryder at page 248H-J. [Back] Note 147 BP v Ryder at page 248H – J. [Back] Note 148 See Bundle B/tab 24/paras 13 and 23-42. [Back] Note 149 Mr Smith concluded that a fair sum would have been £500: see B/25/paras. 65-68. I accept his reasoning but think his figure too low nonetheless. [Back]