Buttes Gas and Oil Company v Hammer ; Occidental Petroleum Corporation v Buttes Gas and Oil Company

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeThe Master of the Rolls,Lord Justice Roskill,Sir John Pennycuick
Judgment Date05 December 1974
Judgment citation (vLex)[1974] EWCA Civ J1205-2
Date05 December 1974

[1974] EWCA Civ J1205-2

In The Supreme Court of Judicature

Court of Appeal

Revised:

Before:

The Master of the Rolls (Lord Denning),

Lord Justice Roskill and

Sir John Pennycuick.

Appeal by second defendants, Occidental Petroleum Corporation from order of Mr. Justice May on 31st July, 1974.

Between:
Buttes Gas And Oil Company
Plaintiffs Respondents
and
Armand Hammer
First defendant
and
Occidental Petroleum Corporation (by original action) Second defendants
Appellants
and Between:
Occidental Petroleum Corporation
Plaintiffs
and
Buttes Gas and Oil Company
and
John Boreta (by counterclaim)

Sir John Foster, Q.C., Mr. Elihu Lauterpacht and Mr. M. Fitzmaurice (instructed by Messrs. Herbert Smith ' Co.) appeared on behalf of the Appellant Second Defendants, Occidental Petroleum Corporatn.

Mr. C.N.G. Ross-Munro, Q. C. and Mr. M. Fitzmaurice (instructed by Messrs. Herbert Smith ' Co.) appeared on behalf of the First Defendant, Dr. Hammer.

Mr. Anthony Evans, Q. C. and Mr. J. Previte (instructed by Messrs. Coward Chance) appeared on behalf of Buttes Gas and Oil Co. and John Boreta.

The Master of the Rolls
1

Two American oil companies are locked in battle. They are in dispute about an area under the sea in the Persian Gulf. This disputed area is rich in oil. Each company claimed the right to exploit it. Each company claimed under a concession granted by a local ruler or Sheik. One company claimed title from one Ruler. The other company from another Ruler. The two companies have tried to get the Courts of the United States to decide between them; but those Courts have refused to have anything to do with it. Now the oil companies have come to us here in England. There is some reason for it. In the days of Empire, the United Kingdom used to have some influence in the Persian Gulf and over the Rulers or Sheiks who were there. We had arrangements with them whereby, although we recognised them as independent states, nevertheless by special treaty relations Her Majesty's Government was generally responsible for the conduct of their international relations and for their defence. The United Kingdom also had much to do in settling the boundaries of the sheikdoms. This battle rages round those boundaries.

2

The question for us today is to what extent the Courts of England here may entertain the dispute between oil companies. For this purpose we have to assume that the facts pleaded are true. So when I state them, it must be remembered that they are one-sided and may be challenged hereafter.

3

In order to pinpoint the dispute, I must tell a little of the geography. There are several small islands at the mouth of the Gulf. One of them is called Abu Musa. In 1969 it belonged to the Sheikdom of Sharjah, together with the waters stretching out for 3 nautical miles around the island. This island lies about 40 miles off the coast. Nearby there is another sheikdom, the Sheikdom of Umm al Qaywayn - U.A.Q. The Ruler of U.A.Q. claimed title over the sea-bed in the neighbourhood. In 1964 the Rulers of U.A.M. and Sharjah signed an agreement delimiting theirboundaries. It was shown on the Admiralty chart. The important point is that, on this agreed setting out of boundaries, Shairjah had only the island of Abu Musa and 3 miles around; whereas U.A.Q. had all the rest of the sea bed. In 1969 it was realised that the seabed in these parts might be rich in oil deposits. Two American companies sought concessions to explore and drill for oil. On 18th November 1969 the company called Occidental Petroleum Corporation got a concession from the Ruler of U.A.Q. entitling them to exploit all of his territories. On 29th December 1969 another company called Buttes Gas and Oil Company got a concession from the Ruler of Sharjah to exploit all of his territories. So each Ruler gave each company a concession over all of his territories. These concessions were approved by our Foreign and Commonwealth Office. There was no divergence or conflict over the boundaries at that time. Buttes had the concession for the territories of Sharjah, including the island of Abu Musa and 3 nautical miles round it. Occidental had the concession for the territories of U.A.Q. including the seabed to the east of the island beyond the 3 miles.

4

As soon as the concessions were granted, the two companies started exploring. Each operated in its own concession area. They conducted seismic tests, which, if favourable, would show where oil was most likely to be found. They agreed to exchange Information, and did so.

5

In February 1970 Occidental found a very promising area. It is the disputed area. It was about 9 miles out to sea from the island of Abu Musa. Thus it was well within the concession of Occidental and 6 miles outside the concession of Buttes.

6

In March of 1970 Buttes got to know of this very promising area, and applied to the United Kingdom Political Agent for approval to drill there. He refused because it was not in hisview within the concession area of Buttes, but within the concession area of Occidental. Accordingly Occidental made preparations to drill in this very promising area.

7

Now comes an interesting sequence of events. Although this very promising area was within Occidental's concession, Buttes determined to get it for themselves, if they could. They arranged for one of their own men to be attached to the Ruler of Sharjah. This man was their legal adviser, Mr. Northcott Ely. They arranged for him to be also legal adviser to the Ruler of Sharjah. Things then began to happen in Sharjah. Shortly afterwards, towards the end of March 1970, the Ruler of Sharjah issued a decree in which he declared that his territorial waters were not 3 miles around the island of Abu Musa but 12 miles. If those were his territorial waters, it transformed everything. It would mean that this very promising area would no longer belong to the U.A.Q. It would belong to Sharjah; for, as I have said, the very promising area was 9 miles off the island. It would mean also that it would no longer be within Occidental's concession, but within Buttes' concession. Now there is another interesting point. Although that decree was made in March of 1970, it was back dated, it is said, to 10th September 1969. It declares in terms "Issued and recorded by us on the 10th day of September 1969"; and it was signed by the Ruler of Sharjah himself. This back dating would take the decree back to September 1969, before the concessions were granted to the oil companies in November and December 1969. If the back dating was valid, so as to have retrospective effect, it would give Buttes the very promising area and take it away from Occidental.

8

Then on 5th April 1970 a supplementary decree was issued by the Ruler of Sharjah extending the territorial limits to 12 miles around the island, and therefore bringing this very promising area within the Sharjah's territories, and so within the concessionof Buttes instead of Occidental.

9

At that time the United Kingdom Political Agent thought it was not right for the Ruler of Sharjah to extend his territorial waters in this way. On 16th May 1970 he wrote a letter telling him so. But the Ruler of Sharjah sent representatives to Iran, which was just across the other side of the entrance to the Gulf and no doubt much interested. Two days later Iran informed Her Majesty's Government that in their view the island of Abu Musa and its territorial waters to a distance of 12 miles were under the sovreignty of Iran.

10

This created a new situation. The United Kingdom no longer thought it expedient to support the U.A.Q. or its right to the very promising area. The United Kingdom Political agent made a recommendation to the Ruler of the U.A.Q. He recommended that the Ruler of U.A.Q. should no longer permit Occidental to operate in the very promising area. But the Ruler of U.A.Q.

11

did not accept the recommendation; nor did Occidental. Occidental determined to go ahead with their drilling. On 1st June 1970 Occidental were making preparations to drill. Their tugs were towing a derrick barge towards the very promising area. At that moment the United Kingdom Government determined to act. Her Majesty's Ship Yarn ton came up. Two officers boarded the derrick and stopped the operation.

12

On the next day R.A.F. helicopters and a Hawker Hunter jet fighter flew over the palace of the Ruler of U.A.Q. The United Kingdom Political Agent went to the palace and told the Ruler of U.A.Q. he was going to stop them unless the Ruler imposed limits on Occidental. The Ruler gave in. He told Occidental that they must not operate within the 12 miles limit claimed by the Ruler of Sharjah.

13

The result was that Occidental withdrew from the very promising area. Buttes went in and drilled. Buttes found oil there and have exploited it to very great advantage.

14

At the end of 1971 the United Kingdom Government gave up all influence in the area.

15

Occidental felt vary aggrieved about all this. On 25th June 1970 they filed a suit against Buttes in the United States District Court in California alleging conspiracy. On 17th April 1971 the District Judge there dismissed that suit on the ground that the doctrine of "Acts of State" as applied in the United States precluded any enquiry into the dispute. On 23rd June 1970 the United States Court of Appeals confirmed that decision. A request was made to the United States Supreme Court for certiorari, but it was refused. That was the end of the United States proceedings.

16

But meanwhile things had been happening in England which have given rise to the proceedings before us. In the first place, on 14th July 1970 Buttes issued a circular to their shareholders which Occidental now claim to be a libel. In that circular Buttes accused Occidental of wrongly invading the disputed area and of starting legal proceedings which were wholly without merit. On 5th October 1970 Mr. Hammer, the Chairman of...

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6 cases
  • Buttes Gas and Oil Company v Hammer; Buttes Gas and Oil Company v Hammer (No. 3)
    • United Kingdom
    • House of Lords
    • 29 October 1981
    ...in part to Buttes's application) the summonses came before the Court of Appeal. The decision (‘second decision’) of the Court of Appeal [1975] Q.B. 557,[4] was given on December 5, 1974. The court refused to strike out the conspiracy counterclaim or parts of the plea of justification, or th......
  • Buttes Gas and Oil Company v Hammer; Buttes Gas and Oil Company v Hammer (No. 3)
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 20 June 1980
    ...I have drawn a map. I would also ask the reader to go back to the previous time when this case was before us. It is reported in (1975) 1 Queen's Bench 557. 3The two companies are Occidental and Buttes. Each of them claimedunder a local Ruler. In November 1969 Occidental was granted an oil c......
  • Petrotimor Companhia De Petroleos S.A.R.L. v Commonwealth
    • Australia
    • Full Federal Court (Australia)
    • Invalid date
  • Farm Assist Ltd v Secretary of State for the Environment Food & Rural Affairs
    • United Kingdom
    • Queen's Bench Division (Technology and Construction Court)
    • 12 December 2008
    ...do not consider that there are any grounds for DEFRA to seek to strike out any allegations. This is not a case such as that in Buttes Oil Company v. Hammer (No 3) [1981] QB 223 at 246F where Lord Denning said that a party who pleaded reliance of a document either had to disclose the documen......
  • Request a trial to view additional results

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