In the first of two articles examining the issues that arise in relation to reservations of mines and minerals, Stuart Jeffries and Zia Bhaloo QC look at the law
The extent of mines and minerals, and parties’ rights in relation to them, are often important factors in sales and development. This article covers the correct approach to the interpretation of a reservation of mines and minerals, what minerals are and what rights of access or working are reserved. Next week’s article will consider the practical implications arising from reservations.
Construction
The meaning and extent of a reservation of mines and minerals is a question of construction.
As with all questions of construction, everything depends on the precise words used and the factual matrix, but in the context of minerals it will also depend on factual and/or expert evidence as to how that phrase was used at the time of the grant. Generally, there is limited assistance to be gained from cases construing particular reservations and there are many cases in which different conclusions are reached because of the context and the evidence as to how particular phrases or words were used at the time and in that specific locality.
In construing any commercial document, the court must do its best to place itself in the same factual background as the parties faced at the time when they entered the transaction (Earl of Lonsdale v Attorney General [1982] 1 WLR 887). This is sometimes referred to as the factual matrix and the court will have regard to the commercial purpose of the transaction, which presupposes knowledge of the genesis of the transaction, as well as the background, the context and the market in which the parties are operating. When considering the commercial purpose of the transaction, one is of course considering objectively what reasonable people would have in mind in the situation of the parties.
“Minerals”
There are many cases in which the definition of “minerals” is considered. They are difficult to reconcile if one starts from the assumption that there is a generally applicable definition. It seems to be fairly clear from the cases that there is not. Everything depends on context.
However, the following propositions are likely to be applied:
- The wide, literal sense given to the phrase “mines and minerals” – that is all substances capable of being worked for profit below the top surface of the land – is not the primary sense in which the words are always to be understood in the absence of sufficiently clear contrary context. That meaning is, however, capable of being applied in a proper context.
- The phrase “mines and minerals” is not a definite term, but is one that is capable of bearing a wide variety of meanings.
- Unless the meaning is clear from the four corners of the relevant instrument itself, the first duty of the court in construing a grant of mines and minerals is to try to ascertain what the phrase meant in the vernacular of “the mining world, the commercial world and landowners at the time of the grant”. These are all people who may ordinarily be expected to have both some knowledge of mines and minerals and also some experience of dealing with them in the course of commerce in this country.
- The meaning of “mines and minerals” in this vernacular sense may be derived either from direct evidence as to the meaning at the relevant time or by inference drawn by the court. If there is clear evidence as to the vernacular meaning at the date of the trial, then, in the absence of evidence to the contrary, the court may be justified in assuming that there was a similar vernacular usage at the date of the grant.
- Where it is clearly established that, at the date of the grant, a particular vernacular meaning was attributed to the phrase “mines and minerals” by “the mining world, the commercial world and landowners”, the court will be predisposed to adopt that meaning. The vernacular test, however, is not a rigid test to be applied without regard to all the other terms of the instrument in question and the circumstances in which it is used. The court must never overlook the commercial background and the apparent commercial purpose of the transaction.
- One pointer to the parties’ intentions may be to consider whether or not the substances in question are exceptional in use, in value and in character. Another pointer is evidence as to the general state of knowledge of the relevant substance at the date of the grant and the way in which it was then regarded and treated as a commercial matter. A third, significant pointer may be derived from any express powers of working that are conferred by the instrument in question.
- In considering whether a grant or reservation of mines and minerals includes a specific substance, it is irrelevant that the parties did not actually have that substance in mind. The test of their intention is an objective one. See Earl of Lonsdale (cf O’Callaghan v Elliott [1966] 1 QB 601, in which the definition adopted was heavily influenced by the perceived purpose of the Landlord and Tenant Act 1954 and in which it was expressly stated that the inquiry under the 1954 Act is necessarily a totally different inquiry from that under an exception and reservation).
The right to work minerals
A grant or reservation of mines and minerals is ordinarily deemed to carry with it an implied grant of the right to work them (see Earl of Lonsdale at 897E, citing Borys v Canadian Pacific Railway Co [1953] AC 217, 227-228). In Besley v John [2003] EWCA 1737 it was also said that the object of a reservation is to enable the owner of the mines to work them in the usual way and with reasonable profit; and the requisites for this purpose vary with the circumstances of time and the locality.
When a landowner sells the surface, reserving to himself the minerals below with power to get them, he must, if he intends to have power to do so in a way which will destroy the surface, frame the reservation in such a way as to show clearly that he is intended to have that power (Hext v Gill (1872) LR 7 CH App 699).
In Waring v Foden [1932] 1 Ch 276 CA, a conveyance of land made in 1925 contained a reservation of mines and minerals with power “to work and get the same by underground workings only without any obligation to leave any subjacent or lateral support for the surface or any building for the time being erected thereon or any adjoining land or building…”
On the facts, it would have been impossible to build a house, make a road or lay down a drain without cutting into the underlying sand and gravel. The appellant alleged that all he had sold was the layer of topsoil, with an implied easement to construct and maintain any buildings, roads and drains upon and within the underlying sand and gravel retained by and belonging to the vendor. It was accepted that the land had potential building value and that that feature must have been present in the minds of the parties to the conveyance in that case.
The Court of Appeal held that regard had to be had to the relative position of the parties interested and to the substance of the transaction. Those considerations, and the evidence, pointed to the exclusion of gravel and sand from the exception reserving minerals and mineral substances, and to the intention that the purchaser should acquire his land without burdensome limitations which might restrict its full user as the soil and subsoil were used in the district.
Lord Hanworth MR referred to the power to work and get the minerals and mineral substances “by underground workings only” and said (at 292):
“The underground workings only are specified for the purposes of getting the mineral substances that lie ‘under the same’, that is under and without destroying the surface conveyed. It seems to me that it would be a negation of the substance of the transaction to hold that all sand and gravel, which is very generally a part of the soil and subsoil of this farm and worked and gotten from the surface, was excepted from the grant and remained the property of the plaintiff. It would not be a reservation of what is exceptional, but of what is general and of general importance to the utility and efficiency of the land conveyed. The exception ought… if it was intended to have the effect now claimed, to have been expressed in far clearer terms.”
In addition, Lawrence LJ held (at 294) that minerals “when found in a reservation out of a grant of land means substances exceptional in use, in value and in character… and does not mean the ordinary soil of the district which, if reserved, would practically swallow up the grant”.
It is fairly clear that express powers of working can provide a strong pointer as to the parties’ intentions (see Waring and Barnard-Argue-Roth-Stearns Oil & Gas Co v Farquharson [1912] AC 864). In Coleman v Ibstock Brick Ltd [2008] EWCA Civ 73; [2008] PLSCS 39, it was argued that the fact that the power of working was limited to underground methods was neutral and not a pointer against the appellants. However, the Court of Appeal rejected this argument. Lawrence Collins LJ referred to Waring and Earl of Lonsdale and held that the surrounding circumstances firmly supported the judge’s conclusion that the underground working restriction was a strong pointer against brickshale being a mineral for the purposes of the conveyance. In that case brickshale was being extracted by surface methods immediately adjacent to the relevant site, there were coal mines in the area and it was common knowledge that there was at least a possibility that a seam ran under the site. Consequently it was a reasonable inference that the reservation and the underground working restriction together were intended to apply primarily to coal.
No easy answer
There is no all-encompassing definition for mines and minerals, nor is there a standard interpretation of a reservation clause. A detailed understanding of local geology and mining activity and methods in the specific area at the date of grant are fundamental to an accurate interpretation of the reservation.
Stuart Jeffries is director of minerals and waste management at Savills and Zia Bhaloo QC is a barrister at Enterprise Chambers
