Trespass – Damages — Licence for oil extraction – Petroleum (Production) Act 1934 – Mines (Working Facilities and Support) Act 1966 – Respondents operating oil pipelines extending beneath appellant’s property – Appellant not giving permission for pipelines – Whether appellant entitled to damages for trespass – Correct approach to assessment of damages – Appeal on quantum dismissed – Cross-appeal on liability dismissed
The respondents were the successive holders of a petroleum licence, granted under section 2 of the Petroleum (Production) Act 1934, authorising them to search and bore for and to extract petroleum from a natural reservoir of petroleum and petroleum gas. Part of the oilfield extended beneath an estate of which the appellant was the freeholder. The respondents operated three “deviated” pipelines that their predecessor had drilled; these ran diagonally down from a well-head close to the boundary of the estate, extending under the estate at depths varying from 800ft to 2,900ft below the surface. The appellant had not given permission for the pipelines, nor had any ancillary right to that effect been obtained with the attendant payment of compensation under section 8(2) of the Mines (Working Facilities and Support) Act 1966.
In 2006, the appellant became aware that the pipelines encroached beneath its estate and brought a claim against the respondents for trespass. It contended that the respondents, although owning the oil, had no rights over its land for the purpose of accessing that oil. The claim was allowed at first instance and substantial damages were awarded, representing a percentage of the value of the extracted oil: [2008] EWHC 1756 (Ch); [2009] 1 All ER 517. The Court of Appeal upheld the decision on liability but reduced the damages award to £1,000: see [2009] EWCA Civ 579; [2010] Ch 100.
The appellant appealed on the quantum of damages; the respondents cross-appealed on liability. The central issue in respect of liability was whether the appellant’s title to the land extended down to the underground strata through which the pipelines ran. The quantum issue depended on whether the principles relevant to compulsory acquisition cases applied to section 8(2) of the 1966 Act, including the rule in Pointe Gourde Quarrying & Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565 that an award of compensation for compulsory acquisition could not include an increase in the value of land that was entirely attributable to the scheme underlying the acquisition.
Held: The appeal and the cross-appeal were dismissed.
(1) The old maxim that the owner of land prima facie owned everything up to the sky and down to the centre of the earth encapsulated a proposition of law that had commanded general acceptance. While that maxim had ceased to apply to the use of airspace above a height that might interfere with the ordinary use of land, with that airspace being regarded as a public highway, that was not a helpful analogy for the strata beneath the surface, to which the considerations relevant to airspace did not apply and in respect of which the maxim was not obsolete: Bernstein v Skyviews & General Ltd [1977] 1 EGLR 96; (1977) 241 EG 917 and United States v Causby 328 US 256 (1946) distinguished. As a general rule, anything that could be touched or worked had to belong to someone. Since the Crown, through which the respondents held their licence, asserted ownership only of the petroleum and not the strata in which it was found, the only plausible candidate for ownership was the registered owner of the land above.
The best view was that the owner of the surface of land owned the strata beneath it, including the minerals to be found there, unless they had been alienated by a conveyance to another party either at common law or by statute: Mitchell v Mosley [1914] 1 Ch 438 applied. Although there had to be a stopping point, because a depth would be reached at which physical features such as pressure and temperature rendered the concept of ownership absurd, the pipelines in question were not so deep as to lead to absurdity; the fact that the strata could be worked on pointed to the opposite conclusion.
Furthermore, if possession or a right to possession was a precondition for bringing a claim in trespass, the appellant met that condition. Its ownership of the paper title sufficed, in the absence of evidence to the contrary, for it to be deemed to be in possession of the land. The appellant had the prima facie right to possession of the strata such as to be deemed in factual possession of them.
The respondents had no defence to a claim for trespass either at common law or under the 1934 Act. The common law principle of non-derogation from grant did not apply since the respondents’ licence had been granted by the Crown and the appellant was not a party to that arrangement. The provisions of section 10(3) of the 1934 Act, which expressly stated that that Act should not be construed as conferring on any party any right that it did not otherwise enjoy to enter on or interfere with land, militated against finding that the Act afforded a defence. The strata constituted land for that purpose; the words “enter on” could include underground workings such as the pipelines and the words “interfere with” referred to interference with the land itself, not merely with the owner’s use and enjoyment of it. Accordingly, the respondents were liable in trespass.
(2)(i) Since the legislation enabled the respondents to acquire such ancillary rights as they required in order to extract the petroleum, and to seek a referral to the court in the event that the appellant unreasonably refused to grant such rights or demanded unreasonable terms, the correct measure of damages for the respondents’ trespass was the sum that the court would have assessed as proper compensation to the appellant for the grant of such rights.
The principles relevant to compulsory acquisition applied to the assessment of compensation under section 8(2) because the grant of ancillary rights to a petroleum licence-holder under the relevant legislation involved the compulsory acquisition of rights over land. Parliament must have intended compensation to be assessed on similar principles to those that applied under other compulsory purchase legislation, save so far as section 3(2)(b) of the 1934 Act expressly provided for a 10% uplift in respect of ancillary rights required to extract petroleum. There was no reason why parliament should have intended such an ancillary right to be valued on a different and more generous basis than comparable rights acquired under general compulsory purchase powers.
(ii) (Lord Hope and Lord Clarke dissenting) On an application of ordinary compulsory purchase principles, the appellant was not entitled to assert and benefit from the “key” or “ransom” value of the ancillary rights without which the respondents could not unlock the value of the oil: Waters v Welsh Development Agency [2004] UKHL 19; [2004] 2 EGLR 103 applied. The relevant “scheme” was the exploitation of the petroleum licence in the specified area. Any value in the ancillary rights required to facilitate that exploitation existed exclusively because of the scheme and thus fell to be disregarded under the Pointe Gourde principle. It was not possible to characterise that value as existing prior to the scheme solely because it had always been possible that a body with compulsory purchase powers might have to acquire land or rights over it to accomplish a statutory purpose: Waters and Re Lucas & Chesterfield Gas & Water Board’s arbitration [1909] 1 KB 16 applied; Gajapatiraju v Revenue Divisional Officer, Vizagapatam [1939] AC 302 distinguished. In practice, a more or less token increase was made over what would otherwise be assessed as the market value of the land to reflect the fact that the acquiring body was a special purchaser. The true effect of the 1934 Act was to extinguish whatever pre-existing key value the appellant’s land might be thought to have had in the open market and creating a new world in which only the Crown and its licensees had any interest in accessing the oilfield and in which they had been empowered to do so compulsorily and thus on terms subject to the Pointe Gourde approach to compensation.
Jonathan Gaunt QC, Michael Beloff QC and Edward Peters (instructed by Denton Wilde Sapte LLP) appeared for the appellant; Michael Driscoll QC and Ciaran Keller (instructed by Norton Rose LLP) appeared for the respondents; James Strachan (instructed by the Treasury Solicitor) appeared for the secretary of state for energy and climate change, as intervener.
Sally Dobson, barrister
