Trespass – Licence for oil extraction – Petroleum (Production) Act 1934 – Mines (working Facilities and Support) Act 1966 – Appellants operating wells with pipelines extending beneath respondent’s property – No permission given by respondent for pipelines – Damages for trespass awarded by reference to share in value of oil extracted – Whether trespass occurring – Correct approach to assessment of compensation for ancillary right under section 8(2) of 1966 Act – Effect on assessment of damages for trespass – Appeal allowed in part
The appellants were the successive holders of a petroleum production licence granted under 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 in Surrey. Part of the oilfield extended beneath an estate of which the respondent was the freeholder. The former holders of the licence had laid three pipelines from a well-head close to the boundary of the estate that passed beneath the substrata of the estate at a depth of approximately 800ft below sea level; production from the pipelines had commenced between 1990 and 1992. The respondent had not given permission for the laying of the pipelines, nor had any “ancillary right” to that effect been obtained under section 3(1) the 1934 Act, with the attendant payment of compensation under section 8(2) of the Mines (working Facilities and Support) Act 1966. The appellants continued to use the pipelines when they took over the licence.
In 2006, the respondent became aware that the wells encroached beneath its estate. It brought proceedings against the appellants for trespass, seeking an injunction in respect of future oil extraction and damages, which it contended should be 12.5% of the value of the oil extracted from the two wells since the trespass began; it submitted that this was the sum that it could have obtained in negotiations for the grant of a wayleave permitting access to the oil. The value of the extracted oil was approximately £10m. The judge held that although ownership of the oil was vested in the Crown, that did not confer any right to access the respondent’s land for the purposes of extraction. He therefore awarded damages of 9% of the value of the income received by the appellants on the wayleave basis from 2000 (to take account of limitation issues) until such time as the oilfield was exhausted: see [2008] EWHC 1756 (Ch); [2008] 30 EG 83 (CS). The appellants appealed. They argued that the drilling of the wells did not constitute a trespass because, owing to their depth, they were too far removed from the respondent’s ownership of the estate and the soil beneath it and did not affect the use and enjoyment of the land.
Held: The appeal was allowed in part.
(1) The registered freeholder of the surface of the land would own the strata beneath the surface, including minerals, unless there had been an express or implied alienation of the whole or part of the strata: Mitchell v Mosley [1914] 1 Ch 438 applied. The respondent owned the paper title to the strata beneath its estate, although not the petroleum to be found there since that vested in the Crown.
(2) The tort of trespass took place when a person committed an unjustified intrusion on land in the possession of another. The respondent, as the paper owner of the land through which the pipelines had been drilled had the right to possession of the strata and was deemed to be in factual possession of them. Therefore, any intrusion into those strata was, prima facie, an interference with the possessory rights of the respondent and consequently a trespass.
(3) That conclusion could be avoided only if there were a common law principle by which a party entitled to recover minerals from a particular area beneath the surface was also entitled to create and use a passage, at depth, through the land belonging to another to reach and recover those minerals or if the effect of sections 1(1) and 2(1) of the 1934 Act “justified” what would otherwise be a trespass by the appellants. Although a common law right might arise under the principle of non-derogation from grant, it would not apply where the Crown had granted a licence to search and bore for petroleum and to extract it from within land that belonged not to the Crown, but to a third party such as the respondent. Moreover, the 1934 Act did not grant to a licensee 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. Consequently, the appellants had trespassed on the respondent’s land. However, that trespass was purely technical because it did not interfere with the respondent’s use or enjoyment of its land, nor did the boring and use of the pipelines impinge on any rights that the respondent may have had previously.
(4). Damages would be awarded for the appellants’ past trespass and in lieu of an injunction of future trespass. Those damages were to be assessed on a compensatory basis, measured against the background of the amount that the respondent could have obtained, under section 8(2) of the 1966 Act, as compensation for the grant of an ancillary right to access the strata within its land to drill and lay the pipelines and to extract petroleum from the reservoir within that land. The sum of damages would reflect the price that a reasonable person would be prepared to pay for the right, following hypothetical negotiations that took place before the trespass occurred, against that statutory background.
Section 8(2) should be construed, so far as the words allowed, in a manner consistent with the principles established by statute and case law for the assessment of compensation for the compulsory acquisition of land: BP Petroleum Developments Ltd v Ryder [1987] 2 EGLR 233 applied. The question under section 8(2) was what would constitute a fair and reasonable compensation or consideration between a willing grantor and willing grantee for the right to drill the three pipelines or, in other words, what was the value that the respondent would have lost by the grant to the appellants of that right? Although the answer might appear to be “nothing”, the fact that the appellants and their predecessors had a special interest in acquiring the right, because of their position as licensees, had also to be taken into account. That was to be achieved by asking a general question as to what the licensee’s special position would add to the value of the right to be granted, given that, overall, the assessment had to be fair between a willing grantor and a willing grantee. That would be a question of fact in each case: BP Petroleum criticised on that issue.
Had a court been asked to assess the compensation or consideration for the relevant ancillary right, it would have awarded a one-off payment of £82.50. That reflected the standard £50 compulsory purchase compensation payable for a deep tunnel, together with an additional 50% of that sum to reflect the fact that the appellants were special purchasers, plus an additional 10% as required by section 3(2)(b) of the 1934 Act. The 50% addition for the appellants’ position as special purchasers was adequate given that the basic loss of value to the respondent was nil.
However, in hypothetical negotiations taking place against that background, the appellants would have been prepared to be generous in order to avoid the delay and possible expense of having to go to court; to that end, they would have been prepared to pay a maximum of £1,000. Damages would accordingly be assessed at that figure.
Michael Driscoll QC and Ciaran Keller (instructed by Norton Rose LLP) appeared for the appellants; Jonathan Gaunt QC and Edward Peters (instructed by Denton Wilde Sapte LLP) appeared for the respondent.
Sally Dobson, barrister
