Bocardo SA v Star Energy UK Onshore Ltd

The Palmers Wood Oil Field is a naturally occurring reservoir of petroleum and petroleum gas, the north eastern part of which extends beneath the Oxted Estate of which the appellant Bocardo ("Bocardo") is the freehold owner. The rest of the Oil Field lies under land in different ownerships. Petroleum cannot be recovered from an underground reservoir without carrying out works of some kind below the surface of the land. An oil company such as the first respondent, Star Energy Weald Basin Ltd, which has a licence under section 2 of the Petroleum (Production) Act 1934 (now repealed and replaced by section 3 of the Petroleum Act 1998, Schedule 3, para 4 of which preserves pre-existing licences) to search, bore for and get petroleum will have to sink wells into the substratum by means of drilling in order to recover it. It may have to do this by means of wells that are drilled diagonally rather than vertically from the well head.

A particular feature of this case is that the apex of the Oil Field lies beneath Bocardo's land. The most efficient means of recovering the petroleum is to sink a well as close to the apex as possible. If this is not done, and the well is sunk to a point that is substantially below the apex, much of the oil that could otherwise be recovered will be lost. It was for this reason that the respondents' predecessors sunk three wells from the well head by what is known as deviated or directional drilling from one of the two drilling sites that were created for the extraction of petroleum from the Palmers Wood Oil Field. The wells enter the substrata below the Oxted Estate at depths of about 1,300, 800 and 950 feet beneath the surface respectively. Two of them are known as PW5 and PW8. They are used to extract petroleum and petroleum gas from the reservoir beneath the Oxted Estate and terminate at about 2,900 and 2,800 feet below the surface of its land respectively. The third, known as PW9, passes through the substrata beneath the Oxted Estate at a depth of about 950 feet below the surface and ends beyond its perimeter at a point in the reservoir at about 1,400 feet below ground level. It is used for injecting water into the Oil Field to maximise and speed recovery.

The respondents' predecessors, Conoco (UK) Ltd, did not seek to negotiate any contractual licence or wayleave from Bocardo to drill the wells, lay the casing and tubing within them or extract the petroleum and petroleum gas by this means from the Oil Field. Nor did they apply for any statutory right to do this under the Mines (Working Facilities and Support) Act 1966 or the Pipelines Act 1962. The respondents in their turn did not seek to do this when they acquired the petroleum production licence from their predecessors. It appears to have been assumed all along that this was not necessary. The evidence at the trial of the respondents' expert was that, although deviated or directional drilling has been common industry practice for some years, he was not aware that any onshore oil company had applied for ancillary rights to permit deviated drilling on UK onshore operations. Bocardo was unaware until July 2006 that petroleum and petroleum gas was being extracted by this means from beneath its land.

The issues that this case raises fall into two parts. First, there is the question whether the drilling of the three wells under Bocardo's land was an actionable trespass. Peter Smith J held that it was: [2008] EWHC 1756 (Ch); [2009] 1 All ER 517. His decision was affirmed by the Court of Appeal (Jacob, Aikens and Sullivan LJJ): [2009] EWCA Civ 579; [2009] 3 WLR 1010; [2010] Ch 100. Secondly, if there was an actionable trespass, there is the question what is the correct measure of damages. The measure that was adopted by the trial judge was rejected by the Court of Appeal, which made a very substantial reduction in the award of damages. Bocardo appeal to this court on the damages issue, and the respondents cross-appeal on the issue of trespass.

(a) Trespass

On 21 July 2006 Bocardo commenced proceedings against the respondents for trespass. The question which this issue raises is whether an oil company which has been granted a licence to search, bore for and get petroleum in the licensed area which is beneath land belonging to another, and drills wells at depth beneath that land in order to recover petroleum from within the licensed area without obtaining the landholder's agreement or an ancillary right under the Mines (Working Facilities and Support) Act 1966 to do so, is committing a trespass. The respondents accept that, if a trespass was committed by drilling the wells in the first place, it will have continued until now. In the Court of Appeal Aikens LJ said that it was logical to examine the question of whether there was a trespass as at July 2000 when, having taken account of the fact that the limitation period under section 2 of the Limitation Act 1980 for a claim in trespass is six years, the cause of action arose: [2009] 3 WLR 1010, [2010] Ch 100, para 48. But I agree with him that nothing turns on the precise date at which the issue is considered.

It is common ground that a trespass occurs when there is an unjustified intrusion by one party upon land which is in the possession of another: Blackstone, Commentaries on the Laws of England, vol 3, p 209; Clerk & Lindsell on Torts, 19 ^th ed (2006), para 19.01. It is common ground too that Bocardo did not, and does not, own any of the petroleum in the reservoir that is situated beneath its land. Nor does it possess, or have the right to possess, any of that petroleum. Those rights belonged to the holder of the licence granted by the Secretary of State under section 2 of the Petroleum (Production) Act 1934, Conoco (UK) Ltd. They now belong to the respondents (currently the first respondent, Star Energy Weald Basin Ltd) as the original holder's assignees. By virtue of section 1 of the 1934 Act, which vested the property in petroleum existing in its natural condition in strata in Great Britain in the Crown, at no time did Bocardo have any right to search, bore for or get that petroleum from the reservoir beneath its land. Only the Crown or its licensee had the right to do so.

The question whether the drilling of the three wells under Bocardo's land, and the continued presence of the well casing and tubing within them, was an actionable trespass raises the following issues: (1) whether Bocardo's title to the land extends down to the strata below the surface through which the three wells and their casing and tubing pass; (2) whether possession or a right to possession is a pre-condition for bringing a claim for trespass and, if so, whether Bocardo has or is entitled to possession of the subsurface strata through which these facilities pass; (3) whether the respondents have a right under the 1934 Act (and subsequently the 1998 Act) to drill and use the three wells and their casing and tubing to extract petroleum from beneath Bocardo's land which gives them a defence to a claim in trespass.

Ownership: how far below the surface?

There is, of course, nothing new in one person carrying out works under land whose surface is in the ownership or the possession of another. Operations of that kind have been familiar since at least Roman times. They ranged from great public works such as catacombs on the one hand to modest cellars for the storage of wine or other commodities on the other. What is new is the depth at which the operations that are said to constitute a trespass in this case have been carried out. The advance of modern technology has led to the discovery of things below the surface, and the desire to obtain access to and remove them, that were unimaginable when the depths to which people could go were limited by what manual labour could achieve.

Bocardo's case is that it is trite law that a conveyance of land includes the surface and everything below it, unless there have been exceptions from the grant such as commonly occurs in the case of minerals. The respondents do not dispute this proposition as a general rule that applies where the rights of the surface owner are interfered with. But they maintain that it does not extend to the depth at which the operations were and are being carried out in this case. The minimum depth was 800 feet, while for the most part the depths were greatly in excess of this. Mr Driscoll QC for the respondents said that he accepted that in law the surface owner owned the substrata to some depth, but not that far. He submitted that the wells and their tubes and casing did not interfere with or enter upon "land" in any meaningful way at all. Moreover the right to search, bore for and get the petroleum was vested in the Crown. Bocardo did not own, and had no right to possess, the petroleum.

It has often been said that prima facie the owner of the surface is entitled to the surface itself and everything below it down to the centre of the earth: see, for example, Rowbotham v Wilson[1860] 8 HL Cas 348, 360, per Lord Wensleydale; Bowser v Maclean (1860) 2 De G F & J 415, 419, per Lord Campbell LC; Pountney v Clayton [1883] 11 QBD 820, 838, per Bowen LJ; Elwes v Brigg Gas Co [1886] 33 Ch D 562, 568, per Chitty J; and National Carriers Ltd v Panalpina (Northern) Ltd[1981] AC 675, 708, per Lord Russell of Killowen. The proposition that prima facie...