In their second article on mines and minerals Zia Bhaloo QC, Stuart Jeffries and Matthew West look at the practical issues associated with extraction
The general starting point is that unless there has been an alienation of mines or minerals by conveyance, by lease, at common law or by statute, the owner of land at the surface is also the owner of the surface below it, including minerals. In Bocardo SA v Star Energy UK Onshore Ltd and another [2010] UKSC 35; [2010] 3 EGLR 145, the Supreme Court confirmed that the maxim cuius est solum, eius est usque ad coelum et ad inferos (the owner of the surface is entitled to the surface itself and everything below it down to the centre of the earth and above it up to the heavens) still has value in English law as encapsulating, in simple language, a proposition of law that commanded general acceptance (although it has ceased to apply to the use of airspace above a height that may interfere with the ordinary user of land).
However, the fact that ownership and possession of mines and minerals can be separate from the ownership and possession of the surface can have important practical consequences in relation to sales, development and the commercial exploitation of the minerals. A further complication can be caused by the fact that distinct strata under the same part of the surface may be in different hands.
In the absence of any indication to the contrary, an agreement for the sale of land includes any mines and minerals. Care must be taken in drafting any agreement for the sale of land. A vendor of land who promises to show good title is in breach of contract if he cannot show title to the mines and minerals, even where there are no minerals worthy of the name identified beneath the land: see for example Bellamy v Debenham [1891] 1 Ch 412 (a case of enfranchised copyhold, where mines were reserved as part of the manorial rights).
Commercial exploitation
Rights of profits à prendre can be created in respect of minerals. Such a right permits the person with the right to enter the land and extract the minerals from it. A private licence to mine (ie permission of the owner of the mining rights for mining operations to be carried out) may often amount to a profit à prendre and if so will be an interest in land and not merely contractual.
Mines can also be exploited commercially by means of a mining lease, which is in effect a sale of part of the land with payment by instalments, although mining leases have features of more typical commercial leases such as forfeiture pursuant to a proviso for re-entry (assuming, of course, that such a proviso is included). Just as the value of a landfill site may diminish at a predictable rate as its capacity is filled, the value of a mine may diminish as minerals are extracted, as they constitute a non-renewable resource. Rent is typically payable both as “dead rent” (or certain rent), which is the annual rent familiar in other contexts, and a royalty on minerals extracted. By section 43(1)(b) of the Landlord and Tenant Act 1954, mining leases are excluded from the statutory protection of business tenancies under Part II.
Exploitation
Mines are land and, in the usual way of real property, rights of way and similar rights can exist in respect of mines. Among other things, a trespass can be committed by entering a mine without lawful right, and, for instance, by transporting minerals through land.
The extraction of minerals without the right to do so exposes the party extracting them to liability. When minerals are severed from the land (by extraction rather than by deed) and become chattels, they vest in the person who owned the relevant estate in the land. Where the land is in divided ownership in the sense that the general soil is owned by A, but the mines and minerals are reserved to B, then if C extracts the minerals wrongfully it must be B who can sue for the conversion of the minerals. Thus the identity of the person entitled to sue for wrongful extraction of minerals may depend on the terms of a lease.
Sterilisation of minerals
Development of surface land is likely to sterilise the underlying minerals, thereby preventing future mineral extraction. Where surface and minerals are within separate titles it is imperative that the parties understand the meaning of “mines and minerals” and the associated rights as detailed in the original deed of grant. This will determine the relative strengths of the parties in agreeing terms whereby the surface development may proceed unencumbered by the complicated title.
Actions and remedies
A range of causes of action and remedies may arise depending on the circumstances of the case, including an action for damages for conversion, trespass or reversionary injury, an action for an account and injunctive relief. Damages for conversion may be assessed on the basis of the value of the minerals as chattels, allowing the cost of bringing them to market, but in various sorts of case where the wrongdoer has acted in perfect good faith, or where the owner has become aware of the wrongdoing and failed to intervene, damages may be assessed as if the minerals were being bought in their unextracted state, for example (in the case of coal) as if being bought as part of a coal-field.
Even where the minerals are extracted fraudulently, although the cost of severing the minerals is disallowed, the cost of bringing the minerals to bank is allowed. Where only a person with access to the wrongdoer’s facilities could have worked the minerals at a profit, damages have been awarded on a royalties basis.
Damages for trespass may be assessed in a number of ways, including on a release fee basis, sometimes also referred to as negotiation or Wrotham Park damages. Release fee damages are such sum of money as might reasonably be demanded by the claimant from the defendant as a quid pro quo for granting a licence. A court will attempt to arrive at the amount that the parties would have arrived at after a hypothetical negotiation. The law is still developing on this issue, but as it stands the hypothetical negotiation is likely to have the characteristics set out in the box below.
A person not entitled to minerals who severs them from the land and appropriates them may be guilty of an offence under the Theft Act 1968: see section 4(2)(b). A person wrongfully extracting minerals may also be guilty of an offence under the Criminal Damage Act 1971. This may be significant, in an appropriate case, given the ability to bring private prosecutions.
Points to keep in mind
A transfer of freehold title to land will not always include title to the underlying minerals. The mines and minerals, together with ancillary rights of access to them and powers to work, may be contained in a separate title and the definition of the mines and minerals will depend on the precise wording of the original deed whereby they were reserved out of the surface interest. Development of the surface or minerals may give rise to an action for trespass.
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. A clear understanding of the reservation will inform the discussion on rights to develop either the surface lands or the underlying minerals.
Characteristics of the hypothetical negotiation
- The negotiation is between a willing buyer and a willing seller at an appropriate time.
- The starting point is to identify the acts of trespass, what their purpose was and what alternatives the defendant had to using the claimant’s land. Context will be important in setting the scene for the hypothetical negotiation. If there is a relevant statutory background, the parties must be taken to have negotiated against that background; this can have a significant impact on the assessment (see Bocardo).
- The hypothetical negotiation is generally assumed to have taken place immediately before the wrong complained of. This might have important consequences in relation to the parties’ respective bargaining positions: for example, in relation to costs that may or may not have been incurred.
- The purpose of the hypothetical negotiation is to arrive at the amount that the parties would reasonably have agreed on for the use of the land, with each party making reasonable use of their respective bargaining positions without holding out for unreasonable sums. There have been a number of different formulations as to the characteristics of the parties to the negotiation. It seems to us that the better approach is to assume hypothetical reasonable parties, but faced with their actual circumstances. Having said that, there remains a lack of clarity about the characteristics of the parties to the negotiation and some of the elements of the hypothetical negotiation.
- The outcome of a hypothetical negotiation has been said to be a matter for the court. However, the court can and will take into account whether the parties would have consulted experts and in practice is likely to be assisted and influenced by expert evidence, as long as the expert is answering the right questions.
- The fact that one or both parties would in practice have refused to make a deal must be ignored. Apart from this, the negotiation takes place in the real world.
- An assessment of cost, detriment and benefit on each side is required and will obviously influence the hypothetical negotiation.
- The trespasser’s profits may be relevant to the negotiation and may be taken into account. At the date of the hypothetical negotiation these would, by definition, be anticipated profits. Although there may still be scope for arguing that the court should not use the benefit of hindsight, as things stand on the case law the court is likely to take into account the actual profits. However, this might be limited to cases where there was nothing like actual negotiations at the time and/or the court considers that the eventual outcome is a useful guide to what the parties thought at the time of their bargain.
- Other events after the date of the hypothetical negotiation will probably be excluded, including the parties’ conduct.
- Ultimately, as Anthony Mann QC, sitting as a deputy judge, said in Amec Developments Ltd v Jury’s Hotel Management (UK) Ltd [2001] 1 EGLR 81: “In any negotiation science and rationality gets one only so far. At the end of the day the deal has to feel right.” This makes for a salutary warning for anyone embarking on this sort of litigation. It is vital to keep firmly in mind that what the court is seeking to achieve in these cases is payment of a reasonable sum by the trespasser. How one arrives at this and what is reasonable will of course vary depending on the circumstances and the particular type of trespass, but whatever the circumstances, the court’s function is not to punish the trespasser or impose on it a sum that it would not reasonably have agreed to.
Stuart Jeffries is a director at Savills and Zia Bhaloo QC and Matthew West are barristers at Enterprise Chambers. Extracts have been adapted from the Rural Law Notebook by Savills and Enterprise Chambers (due June 2015).
