Bocardo SA v Star Energy UK Onshore Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Aikens,Lord Justice Sullivan,Lord Justice Jacob |
| Judgment Date | 15 June 2009 |
| Neutral Citation | [2009] EWCA Civ 579 |
| Docket Number | Case No: A3/2008/2014 |
| Court | Court of Appeal (Civil Division) |
| Date | 15 June 2009 |
[2009] EWCA Civ 579
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT
CHANCERY DIVISION
MR JUSTICE PETER SMITH
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Jacob
Lord Justice Aikens and
Lord Justice Sullivan
Case No: A3/2008/2014
HC06C02870
Michael Driscoll Q.C. and Ciaran Keller (instructed by Norton Rose LLP,London) for the Appellants
Jonathan Gaunt Q.C. and Edward Peters (instructed by Denton Wilde Sapte, LLP, London) for the Respondents
Hearing dates: 3 rd, 4 th and 5 th February 2009
Lord Justice Aikens:
Outline of the case so far, including the decision of Peter Smith J
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 the judge and permission to appeal
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...
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