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||Neutral Citation Number:  EWHC 1756 (Ch)
||Case No: HC06C02870
IN THE HIGH COURT OF JUSTICE
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
MR JUSTICE PETER SMITH
|| BOCARDO SA
||- and -
||(1) STAR ENERGY UK ONSHORE LTD
(2) STAR ENERGY WEALD BASIN LTD
Jonathan Gaunt QC & Edward Peters (instructed by Denton Wilde Sapte) for the Claimant
Laurance Rabinowitz QC & Elizabeth Fitzgerald (instructed by Norton Rose) for the Defendants
Hearing dates: 23, 24, 25, 26, 27 and 30 June and 1 & 2 July 2008
HTML VERSION OF JUDGMENT
Crown Copyright ©
Peter Smith J:
- The Claimant ("Bocardo") is the freehold owner of Barrow Green Court and Barrow Green Farm (together "the Oxted Estate") at Barrow Green Road Oxted Surrey. The ultimate beneficiary behind Bocardo is Mr Al Fayed. The Palmers Wood Oilfield ("the Oilfield") is a naturally occurring reservoir of petroleum and petroleum gas. The north eastern part of the field extends beneath the Oxted Estate.
- The First Defendant Star Energy UK Onshore Ltd ("Star Onshore") was the holder of a petroleum production Licence ("the Licence") issued on 17th November 1980 under the Petroleum Act 1934 which authorised it to search and bore for and get petroleum in the Oilfield. It had a quarter share in the Licence from 1994 until 1996 when it became the 100% owner of the Licence. Between 1994 and 1996 it was the Licence Operator.
- The Second Defendant ("Star Weald") acquired the Licence from Star Onshore on 16th October 2007. That was after the commencement of the present proceedings. It was added as a Second Defendant pursuant to an order made by Master Bragge on 14th March 2008 and I granted permission to amend the Defence (amongst other things) to reflect that change of ownership on the first day of the trial of this action. I refer to the ruling that I subsequently handed down in respect of the amendment application on 2nd July 2008.
- One of the drilling sites is located at Coney Hill immediately next to the boundary of the Oxted Estate. From this site 3 wells were drilled namely PW5, PW8 and PW9 all of which pass under the substrata of the Oxted Estate. PW5 and PW8 are used to extract oil from the oilfield. PW9 pumps water into the oilfield to speed up or aid the extraction. Oil is extracted from the top of the reservoir of an oilfield so that water is pumped into the bottom of the reservoir which then pushes the oil up towards the top.
- PW5 and PW8 are each 0.8 kilometres long and penetrate about 0.5 and 0.7 kilometres respectively into the Oxted Estate. They both terminate beneath it. Both wells are used to extract petroleum and petroleum gas from beneath the Estate. However that extraction process is not limited to the oil and gas beneath the Oxted Estate. An oil company wishing to extract oil seeks by investigation to identify the top most point of the oil in any particular reservoir ("the cone"). A well situated at the top of the cone enables the optimum extraction of the oil from the field to take place.
- The experts in this case are agreed that PW5 enables the oil to be optimally extracted from the field. Extraction through PW5 is not limited therefore to the oil and gas under the Oxted Estate. It extends beyond that. There is another set of wells at a site to the west called Rooks Nest. Further wells emanate in a westward direction from that. In rough terms the oil from the eastern part of the oil field is extracted through the wells from the Coney Hill site and the oil in the western part of the Oilfield is extracted through Rooks Nest. That is not a fully accurate description of the operation as there is no barrier between the 2 parts of the reservoir of the oilfield and oil might ultimately be extracted from either of the wellheads (Rooks Nest or Coney Hill) from any part of the total of the Oilfield.
- Nevertheless in essence the parties acknowledge that any claim in this action is limited to the oil extracted via PW5 and PW8.
- The wells from the Coney Hill site were drilled diagonally under the neighbouring land (so called "deviated drilling") to maximise the recovery of the oil from that north eastern part. PW8 was targeting an area where the high point of the field was thought to be separated by a geological fault from the area targeted by PW5.
- Production from PW5 began in October 1990 and from PW8 in September 1992 (both before the Defendants' interest in the Oilfield). Initially the two wells were producing up to 9,000 barrels per month but the rate of production has declined to about 3,500 barrels per month in 2000 and 2,000 barrels per month in 2007. The total amount extracted between 1990 and the end of 2007 was approximately 1,006,000 barrels.
- There was nothing to indicate to Bocardo at the time that the wells were drilled that drilling had taken place under the Oxted Estate and that oil was being extracted from under the Estate via the wells. The pipelines are at least 800 ft below sea level.
INVESTIGATION BY BOCARDO
- In June 1992 Mr Al Fayed noticed that an oil drilling rig had been erected at Coney Hill and he retained Allen & Overy to write to Cairn Energy PLC seeking to clarify what actually was occuring. The correspondence started on 25th June 1992 and was addressed to a Mr McKie Cairn Energy PLC's Contract Operations Manager. I will make further references to this correspondence and Mr McKie later in this judgment when addressing an issue of Limitation raised by the Defendants. Cairn Energy PLC initially had a 75% interest and Cairn Energy Onshore from 17th November 1994 acquired a 25% interest and as I have said was the Operator. On 24th July 1996 Cairn Energy PLC's interest in the Licence was transferred to Onshore. That changed its name on 19th June 1997 to Soco UK Onshore Ltd and then changed its name to Star Energy UK Onshore Ltd on 26th October 1999. At the time of the correspondence in 1992 these Defendants had no interest in the Licence. Mr McKie however was kept on when they became interested and he still has an operational role within the Defendants in respect of (inter alia) the Oilfield.
- In that correspondence Allen & Overy asked Mr McKie to inform them whether or not the intended drilling and bore hole would pass under the Oxted Estate. Mr McKie declined to answer the question stating that he could not reveal it because of "reasons of commercial confidentiality." Allen & Overy did not accept that explanation and required Mr McKie twice more to identify the route of the drilling. Mr McKie declined to answer ultimately in a letter dated 20th July 1992. The letter was described by an internal manuscript annotation on a copy as being "very elegantly worded". This I accept as Bocardo submits in its closing suggested that Mr McKie was trying to draft his way around a problem that is to say revealing the true facts namely that drilling was not only taking place under the Oxted Estate but had already been happening for 2 years. It is plain that although the correspondence was written on behalf of Mr Al Fayed Mr McKie was taking legal advice from Stephenson Harwood solicitors and was told by them that the land in question was owned by Bocardo.
- Thereafter the correspondence stopped. Neither Mr Al Fayed nor Bocardo took the matter further until 2001. When Bocardo took the matter up further in 2001 apparently Mr Al Fayed did not tell his then representatives of the existence of the 1992 correspondence. They only became aware of it when it was disclosed by the Defendants in this action. I have not had any explanation as to how this occurred and Mr Al Fayed has not given evidence.
- Between December 2001 and 2004 there were various communications by email and a number of meetings between Bocardo and Star Onshore as to whether they might enter into a joint project to search for and if possible extract oil from beneath the Oxted Estate. It is Bocardo's case that at this time it had no idea that the oil had already been extracted by wells drilled over 10 years earlier. Ultimately in 2004 Star Onshore declined Bocardo's proposals stating that its financial covenants prevented it from entering into any joint venture with Bocardo to search for oil beneath the Oxted Estate. As will appear in this judgment that in my view was untrue; the Defendants were in the discussions perpetuating a decision not to tell Mr Al Fayed/Bocardo what was actually happening beneath the Oxted Estate.
- Bocardo contends that it first became aware from records held at the British Geological Survey in July 2006 that well PW5 and its pipe work had encroached beneath the Oxted Estate. However during the course of the trial the Bocardo position changed and by its closing Bocardo accepted that whilst its case was that it did not actually know until that time of the existence of wells beneath the Oxted Estate there was enough material in the public domain by August 1997 (well PW5) and August 2001 (wells PW8 and PW9) that it could (with the appropriate assistance of oil industry experts of the type that it employed) have discovered the facts. This was what Mr McKie had declined to reveal in 1992 and the Defendants declined to reveal in the discussions in 2001 and 2004 namely that the wells had been bored under the Oxted Estate a decade before and that by 2007 (for example) some 1,000,000 barrels had been extracted via them.
- I will refer to this in more detail once again when dealing with the Limitation issue.
COMMENCEMENT OF PROCEEDINGS
- The Claim Form was issued on 21st July 2006. It follows therefore that any claim for damages for trespass prima facie can only cover any acts of trespass back to 21st July 2000 unless there are reasons why the 6 year limitation period should not apply. Bocardo contends the 6 year limitation does not apply and it seeks damages from the Defendants for the period from 1994 to date and damages and/or an injunction for any future oil extraction. For the period between 1994 and 1996 the Claim is against Star Onshore as an Operator as opposed to being a Licensee. For that period as I have said it only had a 25% share.
- Bocardo's claim for damages is for a wayleave payment as damages for trespass amounting to 12.5% of the value of the totality of the oil extracted via PW5 and PW8.
A NUMBER OF OBSERVATIONS
- I should observe that the minimum depth of the pipeline is 800 feet. A very striking graph was produced (of a type used to advertise for example the huge size of the Titanic possibly a bad analogy) measuring that depth against well known structures such as Nelson's Column, Canary Wharf and the like to show just how deep the pipelines are.
- The second point I should observe is that Bocardo suffered no physical or other actual damage. Indeed Bocardo by its case did not realise that the wells had been drilled and the oil extracted for nearly 17 years. There is no disturbance to the soil or the like. What Bocardo has lost is the opportunity it had to negotiate a wayleave under the statutory provisions which I set out below. To that extent it can be said that the claim brought by Bocardo is a windfall. It is a claim for damages to be assessed at a price that it contends the Defendants ought to have paid at the start for the privilege of extracting the oil.
- The oil belongs to the Crown by virtue of statute. It can Licence the extraction of the oil and that is done under the terms of the Licence. The value of the oil extracted as I have said is about £10,000,000. The Defendants' primary case initially was that the maximum amount payable by it for the privilege of extracting oil worth at least £10,000,000 was £82.50. That was modified upwards to a maximum figure of 1.5% of the extra oil (described in the action as the "Attic oil") which PW5 was able to extract. The alternative possibility was to relocate PW5 outwith the subsoil of the Oxted Estate. That would have led to a net loss of 38,000 barrels. This figure according to a spreadsheet produced by the Defendants' accountant Mr Cohen would be payments totalling £45,000 for the Attic oil (12.5% revenue). However on the basis of the Defendants' valuation expert Mr Smith the figure would be 1.5% i.e. £5,480 (Claimants closing paragraph 34). I will elaborate on how this figure is arrived at further when I come to deal with the basis of assessment of the damages.
- Bocardo claims that the laying of the pipes underneath the surface of the Oxted Estate is a trespass. It can have no claim to the oil itself because the title to the oil is vested in the Crown. Nevertheless it contends that the vesting of the oil in the Crown did not confer on the Crown any rights of access and that had to be negotiated. The Defendants failed to negotiate access and therefore are trespassing. Initially the Defendants contended that the statutory provisions and the Licence afforded it not only to the right to extract the oil but all necessary ancillary rights to enable that extraction to take place. It abandoned that stance at the commencement of the trial.
- Nevertheless it did maintain the stance that its actions in drilling the bore holes did not constitute a trespass that the Courts should be concerned with because it was too far removed from Bocardo's ownership of the Oxted Estate and the soil beneath it. Bocardo's claim of course is that by virtue of its ownership of the Oxted Estate it also is the owner of all airspace above it and all the earth beneath it down to the centre of the earth.
- Bocardo calculates its claim at 12.5% of the value of the oil extracted via PW5 and PW8 (although this extends to oil extracted beyond the immediate subsoil of the Oxted Estate) for a period from 1994 to date and at the same rate for the future until the wells are exhausted. It contends that it is entitled to damages for trespass. It contends the amount of damages is a sum it could reasonably demand as damages in lieu of an injunction on the well known principle established first in the case of Wrotham Park Estate Co Ltd v Parkside Homes Ltd  1 WLR 798.
- In this context Bocardo submits that this approach involves a negotiation taking place between it and the oil company against a background of the statutory regime (see below) and against the background that the Defendant could have applied to the Court or the Secretary of State under the Act (see below) if agreement could not be reached because the landowner had held out for an unreasonably high price. In this context the negotiations on this basis would take place at the commencement of the acts of trespass in 1994. This in my view is significant because by that time all three wells were in place.
- In argument I suggested to Mr Gaunt QC who with Mr Peters appeared for Bocardo that any assessment ought to take place on a "as is" basis. One should look at the act of trespass namely the placing of the pipelines under the Oxted Estate and determine what would be a reasonable wayleave price for that continued trespass to be sanctioned by a compensatory payment and what damages ought to be paid for the trespass measured by the use of those pipes to extract £10,000,000 worth of oil. If that is the correct analysis then questions of what steps the Defendants could have taken at the start to avoid trespassing to that extent simply do not arise.
- Mr Gaunt QC did not accept that was the correct basis and conceded that the Defendants were entitled to submit (albeit incorrectly he contends) that it might be possible to reduce the payment to take into account the possibility of the pipes being routed elsewhere. In fact this was not as large a concession as appears at first sight because Mr Gaunt QC submitted that one had to take into account whether that would be likely. By that Mr Gaunt QC meant that one looks at the assessment in 1994. The pipelines were then in place. Dr Horgan's evidence (he being a witness for the Defendants) (witness statement paragraph 25) was to the effect that the cost of drilling a well was currently several million pounds. After the evidence was concluded Mr Gaunt QC examined the technical evidence disclosed in the supplemental bundle (page 31) which showed that the actual cost of drilling the wells was £1,163,000. This was not put to the Defendants' witness although it was put to Mr Smith that the cost of relocating a well would be a significant factor against the Defendants in the negotiations which he accepted.
- Given Mr Gaunt QC's reluctance to seek damages on a "as is" basis I will say nothing more about it.
- He accepts that the background of the Acts are relevant but contends that the assessment is not under the acts but is an assessment for damages for trespass.
THE STATUTORY REGIME
- Property in petroleum existing in its natural condition in strata in Great Britain was vested in the Crown by section 1 of the Petroleum (Production) Act 1934. That Act was repealed and its material sections re-enacted in the Petroleum Act 1998. By section 2 of the 1934 Act the Board of Trade (later the Secretary of State for Trade and Industry) was empowered to grant "licences to search and bore for and get petroleum".
- Section 3(1) of the 1934 Act provided that Part 1 of the Mines (Working Facilities and Support) Act 1923 should apply for the purpose of enabling a person holding a licence under the 1934 Act to acquire such "ancillary rights" as might be required for the exercise of the rights granted by the Licence. These were stated to include "a right to enter upon land and to sink boreholes therein for the purposes of searching for and getting petroleum" and "a right to use and occupy land for…. the laying and maintenance of such pipes…. as may be required for the purpose of searching and boring for and getting… petroleum".
- Section 10(3) of the 1934 Act provided that "Nothing in this Act shall be construed as conferring, or as enabling the Board of Trade to confer, on any person, whether acting on behalf of His Majesty or not, any right which he does not enjoy apart from this Act to enter on or interfere with land".
- Part 1 of the 1923 Act was repealed and replaced by the Mines (Working Facilities and Support) Act 1966, which provided that the reference to Part 1 of the 1923 Act in section 3 of the 1934 Act was now a reference to the 1966 Act (1966 Act Schedules 1 and 2). Section 1 of the 1966 Act empowered the Court to confer the rights described in the subsequent Table. These included conferring on a person having the right to work minerals "an ancillary right". The expression "ancillary right" is defined in section 2 as including:-
"A right of airway, shaft way or surface or underground wayleave or other right for the purpose of access to or conveyance of minerals or the ventilation or drainage of the mines."
- Thus the regime was to vest the mineral in the Crown and divest it from the landowner (without compensation). However the divesting of the mineral did not carry with it automatic rights of access for the purpose of winning or extracting the same. Those had to be acquired to enable the extraction to take place.
- Thus as I have said initially the Defendants contended that the operation of the Acts vested the rights to win the oil without any further requirement. That stance was abandoned at the start of the trial.
- Although as I have said the expropriation of the oil did not confer any right to compensation the same is not the case in respect of access rights to it.
- Under the 1966 Act paragraph 1 enables the Court to grant ancillary rights. The pipelines that have been laid under the Oxted Estate are plainly ancillary rights under the Act to enable the Licence holder to extract the oil. Under section 3(1) no right is to be granted unless the Court is satisfied that the grant is expedient in national interest. Further the Court cannot grant any right unless it is shown that it is not reasonably practicable to obtain the right by a private arrangement for a number of reasons. Reason (d) is "that the person with power to grant the right unreasonably refused to grant it or demands terms which have a regard to the circumstances are unreasonable".
- An application for a right under section 1 is made to the Minister setting out the grounds and justification. The Minister then considers the application and shall unless after communication with other interested parties he is of the opinion prima facie the case is not made out refer the matter to Court.
- Under section 5(1) where the matter is referred to the Court and it is satisfied that the requirements of the Act are complied with it may grant the rights on such terms and subject to such conditions and for such period as the Court might think fit and when the right is granted such compensation or consideration as in default of an agreement may be determined by the Court shall be paid or given by the applicant in respect of the acquisition of the rights.
- The basis for assessing the compensation is set out in the important provision of section 8(2) which provides:-
"(2) the compensation or consideration in respect of any right, including a right to enforce restrictions, shall be assessed by the Court 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 basis for the assessment of compensation under the Act has been considered by Mr Justice Peter Gibson in the decision of BP Petroleum Developments Ltd v Ryder & Ors  2 EGLR 233. This case is the only reported decision on the basis of the assessment of compensation for the obtaining of oil access rights under the 1966 Act. He after carefully considering a large number of authorities concluded that the amount of compensation payable was consistent with judicial interpretation given to the Lands Clauses Consolidation Act 1845. Thus the value of what the estate would lose by the enforced grant namely the rights over the land having its existing agricultural and forestry use plus compensation for disturbance and injurious affection was the basis. He rejected the argument that the basis was on the value by reference to the mineral to be extracted although he accepted (page 247 J) that the fact BP obtained compulsory powers for the purpose of exploiting the oil is to be disregarded he did not see that the fact that the presence of oil gave a Licensee (but only the Licensee) a special interest in acquiring the rights could be ignored. It would be unreal if he decided to ignore the fact that the Licensee had removed all competition from other oil companies but had made the Licensee a possible purchaser of those rights because of their special value to him. "That special value will be reflected in the value to the estate of the rights because the Licensee would be prepared to pay more to secure those rights than those interested in purchasing the land only for its agricultural or forestry value".
- Further he took into account the requirement of (the then section 3(2) (b)) that in determining the amount of any compensation to be paid in respect of the grant of any rights an additional allowance of not less than 10% should be made on account of the acquisition of the right being compulsory. The corresponding provision in the Petroleum Act 1998 is section 7(4)(b).
- The rights involved surface works as set out in page 237 of the judgment. There are of course no surface works in the present case. He assessed compensation at £45 an acre. That represented an increase from the then existing agricultural value of £40 of £5 an acre.
- Naturally the Defendants relied strongly on this case and equally naturally the Claimant subjected it to detailed criticism. The case has attracted some criticisms: see the judgment of Judge Hague QC sitting in the Mayor's and City of London County Court in Mercury Communications Ltd v London & India Investments Ltd  1 EGR 229. This was an assessment of the compensation payable under Schedule 2 of the Telecommunications Act 1984. Under paragraph 7 (1) (a) the compensation to be assessed by the Court is what "appears to the Court would have been fair and reasonable if the agreement had been given willingly and subject to the other provisions of the order….." The wording is therefore similar to section 8 (2) of the 1934 Act. Judge Hague QC had the Ryder case cited to him (and another one cited to me re Naylor Benzon Mining Co Ltd  Ch 567). Judge Hague QC (page 236 E) concluded that had the matter been free from authority he would not have considered that compulsory purchase principles were applicable to the 1923 and 1966 Acts. He did however acknowledge that had the case before him been under the 1966 Act he would have considered himself bound to follow both the Naylor Benzon case and the Ryder case. He declined to apply those decisions to the Code (page 237) and determined that the principle level of compensation was based on the words "willingly" and "fair and reasonable". He gave a number of reasons why he rejected the arguments set out in Ryder as being applicable to the basis of compensation under the Code. In one of them he observed (paragraph 5 page 238) that the determination by Peter Gibson J that a fair and reasonable grant was £45 per acre even though other grantors were receiving £2,500 for similar grants "bordered on the absurd".
- I will consider this and the other decisions further in this judgment on the section involving Ryder. For present purposes however I can say that in my view Ryder was wrongly decided and I decline to follow it.
- Before I consider the evidence I will deal with the Defendants' first submission namely that there was no trespass at all. This submission is based on the fact that the pipelines in question are at least 800 feet below sea level and their laying and the subsequent extraction of the oil (which is of course not owned by Bocardo) did not affect the use and enjoyment of the Oxted Estate one iota. Indeed according to the Claimant's evidence the oil was extracted for 17 years before its extraction was noticed. It is said that the oil and gas industry in general have in the main not regarded it as necessary to seek permission from owners of adjoining land in order to drill deviated wells at the substantial depth to which they are drilled. Equally of course if a field of oil as in the present case has oil extracted from its entirety or a substantial part at any rate via (for example) the pipes under the Oxted Estate the oil can be removed from adjoining land without even laying a pipe under it. There is of course then no basis for arguing that there is any trespass because all that happens is that the oil (which is in the ownership of the State and Licenced to the extractor) is "siphoned out" of the adjoining land. That might be why Peter Gibson J in the Ryder case said (page 244 K) "a landowner cannot prevent a Licensee oil company which has a well outside his land from lifting oil and gas which may come from under his land".
- Bocardo's case in effect involves asking the Court to apply the maxim "cuius est solum eius est usque ad coelum et ad inferos". This is apparently an old phrase "often upon the lips of lawyers since it was first coined by a Accursius in Bologna in the late 13th century" (Bernstein (Baron) v Skyviews Ltd  1 QB 479 at page 485). That decision rejected the concept of the ownership of land reaching upwards to the heavens. In so concluding Griffiths J (as he then was) adopted Lord Wilberforce's analysis of the maxim in Commissioner for Railways v The Valuer-General  AC 328 at 351 namely that the maxim was so sweeping unscientific and unpractical a doctrine it was unlikely to appeal to the common law mind. In Sovmots Investments Ltd v Secretary of State for the Environment  QB 411 Browne LJ in referring to the maxim whilst he did not think it was necessary to consider it in the context of the case suggested that the observations of Lord Wilberforce threw great doubt upon it.
- The conclusion of Griffiths J was that the rights of an owner to the airspace were not absolute up to the heavens. The problem was to balance the rights of an owner to enjoy the use of his land against the rights of the general public to take advantage all that science then offered in the use of the airspace. The over flying in that case was not actionable. However that is not to say that over flying can never be actionable nor over sailing of cranes even if no damage occurs: see Anchor Brewhouse Developments Ltd v Berkley House (Docklands Developments) Ltd  2 EGLR 173. Further the owner of the land prima facie will be entitled to an injunction and it will be refused only in exceptional circumstances: see Jaggard v Sawyer  1 WLR 269 and Midtown Ltd v City of London Real Property Ltd  1 EGLR 65 (cp Regan v Paul Properties  EWCA Civ 1391).
- Is the position the same as regards the subsoil? In principle there is no reason why the subsoil should be treated any differently. A subterranean mole like passage under the subsoil can hardly be different from flying over the surface at 40,000 feet. The major difference of course is that there are valuable resources situated below the subsoil namely minerals. Those can be located at depths beyond even those contemplated by the present case. Possession of the surface of land prima facie includes possession of the subjacent minerals also see Clark & Lindsell "Torts" paragraph 19-14. Indeed Mr Rabinowitz QC who with Miss Fitzgerald appeared for the Defendants acknowledged that the oil could not be removed mole like before it vested in the Crown under the 1934 Act. He conceded that his clients could not have removed the oil therefore had it not been expropriated by that Act. That can only be on the basis that the minerals at that depth (or any other depth) belonged to the owner of the surface unless expressly taken away by Statute or some other provision. This in my view fatally flawed the Defendants' arguments. Before any minerals are severed from the ownership of the surface clearly Mr Rabinowitz QC acknowledges the owner of the surface has also the ownership of the minerals. As he owns the access to the minerals he has no need for any easement of access. He will access them as owner of the ground beneath the surface and will exercise a right as a quasi easement.
- When the minerals become vested either in the Crown or somebody else (say for example by virtue of an exception and reservation on conveyance) the land in question is therefore severed so that the surface and the mineral rights become in separate ownership. However the mineral rights in order to be removed need an access. It has always been the case that the ownership of the minerals did not of itself confer rights to enter and remove the same. This is well illustrated by the decision in Re Markham Main Colliery Ltd  134 LT 253 (referred to by Peter Gibson J in Ryder at page 244 J). The issue for the Court was to determine the compensation payable by the Applicant Markham Main Colliery for right to work the minerals under land at Armthorpe in Yorkshire. The difficulty (as referred to by Peter Gibson J ibid) was that the ownership of the minerals was vested in the Lord of the Manor where the land was copyhold but the possession of them was vested in the copyhold tenant so that the minerals could not be worked without their consent. The Court ultimately determined the compensation payable as between the copyholder and the Lord of the Manor. Traditionally the compensation was split 50/50. The arguments as summarised in the judgment at page 257 reflect the arguments before me to a certain extent namely that the owner of the surface because he can block the extraction of the subjacent minerals and can hold them to ransom is entitled to a large sum. The competing argument is that as he has no right to the minerals and he has no entitlement to any compensation. Sankey J observed that the purpose of the (1923 Act) was that compensation should be assessed "[on the basis] that all circumstances of the case must be taken in to consideration. It must be taken in to consideration that [the 1923 Act] was passed to prevent people from holding up coal by unreasonable claims…." (ibid page 257). Although Peter Gibson J in Ryder distinguished the Markham case it is in my view relevant and instructive when I come to consider the correct basis for compensation.
- The significance of the case of Markham in this part of the judgment is that if Mr Rabinowitz QC's arguments are correct there would have been no royalties payable whatsoever; there would merely be compensation for diminution in value and injurious affection. This was never the practice as regards the extraction of coal. The reason for this is that before the ownership of the coal is severed from the surface ownership it is clearly part of the land that belongs to the owner of the surface. An attempt to remove such minerals would be a trespass in two ways. First the entering on to the subsoil to remove the minerals would be a trespass and second the removal of the minerals themselves would also be a second trespass. When the ownership of the minerals is divorced from the ownership of the surface there remains nevertheless the plain fact that to access those minerals requires access over the remainder of the land beneath the subsoil. I cannot see that a vacuum is created whereby that part of the subsoil becomes ownerless.
- In effect the Act removed the ownership of the oil for the benefit of the State. It did not address rights of access but the compensation provisions and the power to grant the rights on application are designed as Sankey J said to prevent a rapacious landowner asserting a ransom position.
- Thus in my view after the oil is severed from the surface owner there can be no question of any claim for trespass arising out of the removal of such property because it belongs to the Crown. There remains nevertheless the secondary trespass namely access to enable it to be removed. It was a trespass before severance and I cannot see how it cannot remain a trespass afterwards.
- When one analyses the Bernstein and other cases it is clear that they have no application to this situation. The owner of the subsoil clearly has a legitimate interest in the subsoil because it is used to enable somebody else to pass through it to obtain a valuable asset that belongs to it i.e. the oil.
- Any suggestion that that could not be a trespass merely because the minerals were being extracted at great depth seems to me to be a nonsense.
- During the course of argument Mr Rabinowitz QC conceded that this principle only operated when the minerals sought to be removed were at a depth whereby it would have no impact on the owner of the surface. He declined (quite understandably) to fix the relevant depth. The difficulty with this submission however in this context is that logic would dictate that if any minerals could be extracted without causing any damage to the surface or affecting the surface owners' use and enjoyment of the surface there can be no trespass by removing those minerals nor having access through the subsoil in order to remove the same.
- I do not think it is a matter of depth; it is a matter of the use to which the access is sought. Whilst there might be an argument (for example) that a deep tunnel through which a railway might pass can give no actionable trespass the same is not the case in my view if the access is to remove a valuable mineral lying below the surface. Whilst the maxim cannot be taken literally it is clear from the several authorities provided by the parties that there are occasions where there have been held to be trespass by boring deep under the Claimant's land: see for example Bulli Coal Mining Co v Osborne  AC 351. Similarly there are authorities in other jurisdictions to the like effect: see Edwards v Simms  24 SW 2 d 619 (The United States). The Defendants rely upon the dissenting judgment of Logan J but the majority judgment was in favour of an actionable claim for trespass for a cave created 350 feet below the surface of the land. Equally the German Civil Code and the Italian Civil Code maintain that the ownership of the land in accordance with the maxim is not the case. Whatever the criticisms of the maxim they do not in my view detract from the analysis that I have set out above. I do not see how in the present case that the insertion of the pipelines under the Oxted Estate for the purpose of removing the oil both beneath the Oxted Estate and in the remainder of the field can be anything other than a trespass. In such cases the Court has regularly granted damages for trespass measured as if a wayleave had been granted: see the authorities referred to by Nourse LJ in Stoke on Trent Council v W& J Wass Ltd  1 WLR at page 1411.
- I therefore reject the Defendants' contention that their activities did not cause any trespass. I find that there was a trespass and the next question to consider is the remedy which is available to the Claimant for such trespass.
- Although the trespass commenced in 1990 when the first oil was extracted the Claimant acknowledges that it has no claim before the 25% share of the Licence was taken by Star Onshore in 1994. Between 17th November 1994 (the start) and the end of 2007 a total of £10,000,192 of oil and gas was extracted. That is according to a schedule produced by Mr Fisher for Bocardo. The Defendants' figure is £10,164,000. The difference is marginal. Taking Mr Fisher's figures PW5 produced £5,775,000 and PW8 £4,302,000 of oil.
- I will consider those figures and any arguments to alter them when I come to quantify the damages for trespass further in this judgment. The alternative dates depend on the Limitation issue raised by the Defendants.
- The purpose of the non expert evidence called by the parties was to give evidence about events that occurred in 1992 and later in 2001/2002. These are germane to the Bocardo claim to rely on section 32 of the Limitation Act 1980.
- I can deal with the evidence quite shortly in the light of concessions made by Star Onshore.
- In 1992 correspondence ensued between Allen & Overy writing on behalf of Mr Al Fayed seeking information (inter alia) about the route of any pipelines under the Oxted Estate. This correspondence predated the interest of Star Onshore under the Licence. For the purpose of section 32 Bocardo however contends that as the Defendants derived title through Cairn Energy any deliberate concealment by it also affects them. Bocardo contends that this correspondence shows that the Defendants' predecessor deliberately concealed the fact that it was deliberately trespassing under the Oxted Estate and that Bocardo was unlikely to discover it for sometime or at all.
- Neither Mr Al Fayed on whose behalf the correspondence took place nor Mr McKie who wrote the correspondence on behalf of Cairn Energy gave evidence. Mr Al Fayed's absence is not significant. Mr McKie's is. In addition to the 1992 correspondence Mr McKie was plainly involved in the discussions that took place in 2001/2002. He was copied in to emails by the Defendants' other representatives. Their explanation as to why he was so copied in was completely unconvincing.
- Mr McKie could have given valuable evidence on both episodes. No explanation was given as to why he was not called. I conclude absent an explanation that the Defendants made a conscious decision not to call him because he would confirm Bocardo's contention namely that the Defendants both in 1992 and 2001/2002 deliberately attempted to conceal from Bocardo the fact that oil extraction beneath the Oxted Estate had already taken place. This is in accordance with (for example) the Court of Appeal decision upholding my decision in this regard in Lennox Lewis v Eliades  EWCA Civ 1627.
- In 1992 Cairn Energy declined to answer the question as to whether or not drilling was taking place under the Oxted Estate 3 times. Bocardo contends that that was deliberate concealment of that fact. I agree. It is clear that both Cairn Energy and Star Onshore did not wish to reveal that the oil extraction was taking place underneath the Oxted Estate. The reason for this was given by the Defendants' witnesses in cross examination namely that they were fearful of revealing this to Mr Al Fayed. The reason is that they expected "trouble" if he found out i.e. (presumably) an action like the present one. Mr Al Fayed is not known as a reluctant litigator.
- In 1992 Cairn Energy pleaded "commercial confidentiality" as a ground for declining to provide the information. I am not convinced that was a genuine reason. However even if it was in my view Bocardo could have easily circumvented that confidentiality. All it had to do was to write a letter before action and invite Cairn Energy to reveal the drilling route (confidentially if need be to Bocardo's legal advisors). The letter would also threaten that if they did not reveal it proceedings would be commenced and immediate discovery (1992 event) would be applied for. This was a course of action regularly pursued in the 1990's. Pre action discovery was only available in personal injury cases before the CPR changed that. I am in no doubt whatsoever that the route of the pipeline could have been discovered by Bocardo in 1992 relatively easily had it so wished. I have had no explanation as to why the correspondence petered out. Indeed the correspondence was apparently so insignificant that Mr Al Fayed filed it away somewhere and never handed it over to his staff or lawyers when matters resurrected themselves in 2001. Bocardo and its lawyers first heard of the correspondence when it was disclosed by Star Onshore.
- Equally it is plain having heard the evidence of the witnesses and in the light of the cross examination that the correspondence and meetings that took place in 2001/2002 between Mr Zappaterra and Mr Fallowfield on behalf of Bocardo and Mr Wessel and Dr Horgan (and possibly Mr McKie) took place in circumstances where Star Onshore and its representatives in that correspondence and discussions made a deliberate decision to conceal from Bocardo that the oil had already been extracted for 9 years. There can be no justification for the charade of talking about future collaborative joint exploration when the oil had already been studiously removed by Cairn Energy then Star Onshore. That point was not seriously argued against by Star Onshore in its closing submissions.
- However it is also clear (and Bocardo conceded this in closing) that the information about the drilling for the pipelines had been in the public domain before the discussions in 2001/2002 started. PW5 came in the public domain in 1997 and PW8 and PW9 in August 2001. The latter date is at the start of the commencement of the discussions/meetings. Bocardo accepted that the material could have been discovered by it using the expertise of somebody like Mr Zappaterra to carry out research on the publicised documents available at the Department. Further Star Onshore had adverted to this in the correspondence. Thus for example in an email sent by Dr Horgan to Mr Zappaterra (coped in to Mr McKie and Mr Wessel) dated 8th October 2001 he informed Mr Zappaterra "all the seismic data over the area is sufficiently old to have been released into the public domain and can be purchased through application to the DTI". Star Onshore did not wish to come out openly and reveal this. This is why (for example) on 22nd January 2002 Mr Wessel was sending an email to Mr Fallowfield (copied to Mr McKie and Dr Horgan again) saying that Star Onshore had concluded that the Licence "is not likely to be productive beyond the current Palmers Wood production…." Why a joint venture was not likely to be productive was because it was already being extracted. Mr Aron, Bocardo's oil expert, was also asked whether he had been employed by Bocardo to find the publicly available material from the DTI he would have had any difficulty in obtaining it. His answer to that question was "no". Mr Zappaterra also gave evidence to the like effect. I will consider the implications of this evidence in the section dealing with the Limitation Act.
- Both parties called expert evidence in relation to oil extraction onshore. The Claimant called David Aron a consultant to Petroleum Development Consultants ("PDC"). He had run that company for the last 20 years. Star Onshore called Dr Stephen Wright a technical consultant for the oil and gas industry.
- Ultimately there was a large measure of agreement between them. This culminated in a joint statement dated 17th June 2008. There were further agreements before evidence was given.
- The experts agreed that PW5 to ensure maximum recoverability from the field had to be drilled under the Oxted Estate. PW8 was drilled to address a slight fault under the Oxted Estate which would have prevented PW5 ensuring maximum recoverability.
- Even with PW5 located at its optimum point it was agreed that there would be approximately 30,000 barrels which would not be recovered. The experts were ultimately agreed that PW5 could have been located off the Oxted Estate. In that eventuality the total loss of recoverable oil would be 68,000 barrels meaning there would be a net increase in irrecoverable oil of 38,000.
- There was no evidence led about the location of PW8 at an alternative site.
- Mr Aron maintained his view that the Department would not sanction a PW5 location other than at its optimum site i.e. under the Oxted Estate. This was because of the requirement in the National Interest to maximise recovery. Dr Wright's position was that the Department would not sanction it because of the overall requirement to extract as much oil as possible. Mr Aron in cross examination was shown a Department of Energy Press Release which showed that the government was intent on maximising oil recovery. Faced with that and also the fact as he said in his own words that the DTI were flexible as regards onshore drilling he acknowledged that it was fair when Mr Rabinowitz QC put to him that if he had been acting for Star Onshore he would have said he could see no reason why the DTI would refuse an alternative location of PW5 on public grounds.
- Given that concession I conclude that it is possible that the DTI might refuse a location elsewhere but that is unlikely. It actually makes sense in the context of the fact that the government has already granted a Licence to extract oil in the field and that therefore they would wish to maximise the return. If the only difficulty is the recalcitrant owner given the 38,000 barrel loss the DTI would not in my view see any real advantage in refusing a development plan to extract the oil which would prevent any oil at all being extracted from under the field. It will be recalled that over 1,000,000 barrels were extracted and I cannot see how they would be a realistic objection to a proposal which would lose merely another 38,000 barrels.
- Equally as regards material in the public domain Mr Aron acknowledged that from material which was available (I have set the dates out above) he if retained by Bocardo could have discovered the line of the pipelines of PW5, PW8 and PW9. It follows that there is no basis for suggesting there was no material available to Bocardo before its initially pleaded case in 2006. Mr Gaunt QC acknowledged this in his closing submissions.
- The other point to note is that the oil witnesses agreed to the dates when the pipelines were laid. PW5 commenced extracting oil in around October 1990. PW8 commenced extracting in around September 1992 and PW9 as a water injector was completed around 5th August 1992. As a water injector well it was not used to produce petroleum. The significance of those dates is that it follows that all the pipelines were in place before Star Onshore acquired its interest in the Licence in 1994 therefore any damages for trespass will be assessed on the basis that Star Onshore would be faced with either continuing to maintain the pipeline that was trespassing under the Oxted Estate or abandoning that pipeline and creating new pipelines that did not trespass under the Oxted Estate. All three pipelines pass under the Oxted Estate to a varying degree. Therefore given the cost of relocating a pipeline in excess of £1,000,000 the question to be addressed on the negotiations in 1994 is whether or not it is realistic to think that Star Onshore would abandon these pipes and go elsewhere. If it chose to do so it would lose 38,000 barrels (say £380,000). Against that it would spend a large sum in relocating. Given that fact in any negotiations hypothetically that would take place in 1994 for negotiating compensation under the Acts as a measure of damages for trespass a suggestion that Star Onshore could move its pipes elsewhere is really just a bluff. I do not believe for one minute it would do so. The Bocardo claim at its maximum for the period between November 1994 and December 2007 would be 12.5% of £10,192,000. That would be a maximum figure of £1,274,000. It would be far more expensive than that to move the pipelines. There would also be the modest loss of 38,000 barrels. It would therefore not make sense for Star Onshore to contemplate abandoning the pipelines to work around the problem of trespass.
- Both experts' reports in my view suffered from a lack of objectivity. Bocardo's expert Mr Crawford prepared a report assessing the value that he would put on what would be the negotiated value of access rights which was delivered as if the Ryder decision did not exist. In cross examination he admitted that he had been instructed to prepare a report and disregard the impact of the Ryder decision.
- Star Onshore's expert report was no better. It was provided by Mr Smith a Senior Director and Head of Compulsory Purchasing compensation at CB Richard Ellis. His report was based on the proposition that Ryder determined the issue entirely. He therefore concluded that a sum of £500 would have been agreed between a willing landowner and a reasonable acquiring body as the amount of consideration for access rights. He also concluded that had the matter gone to Court the Court would have awarded £82.50. This figure he arrived at by assuming a nominal figure of £50 which is the amount that had been negotiated for the Channel Tunnel Rail Link and for tunnels prepared for the 2012 Olympic Park. He was mindful of the 10% uplift provisions under the Act and thus uplifted his figure of £50 to £82.50. He accepted in cross examination that that figure was probably generous on the analysis of the Ryder case. The reason for that of course is that Ryder started with a base figure of the then use which was lost (£40) and then added £5 per acre to take into account the provisions of the Act and the fact that a little extra might be paid to secure the access rights. He accepted in cross examination that in fact there will be no existing use value for the holes which would be created by drilling and laying the pipes. He therefore over compensated in suggesting a figure of £82.50.
- In view of the failure of the valuation experts to address respectively the Ryder case and the fact that the Ryder case might not apply I required them to produce further statements addressing what they believed would be an appropriate figure for hypothetical negotiations that took place taking into account whether or not the Ryder case would apply (in Mr Crawford's case) and whether or not it might not apply (in Mr Smith's case). The reason for this in my view is self evident. Whether Ryder is correctly decided or not any negotiations would take place against the backcloth of the parties respective valuers in the light of advice that they might receive as to the prospects of Ryder being successfully challenged in a later application. I also accept Mr Crawford's analysis that in any negotiations there would be a figure below which the landowner would not go because he might think the prospects of obtaining a substantial sum were greater if he took the matter to Court. Thus he says (and I agree) there would be no realistic prospect of any landowner in a case like this agreeing a nominal figure of £82.50 or even £500. He would go to Court.
- Ultimately Mr Crawford produced a second supplemental report addressing the impact of Ryder in any negotiations, what impact would be made on the possibility of locating PW5 to an alternative location and what was the consequence of PW8 remaining where it was (i.e. under the Oxted Estate). His conclusion as regards Ryder was that it would have made no difference to his 12.5%. With respect to Mr Crawford this is an untenable stance. I do not accept in his initial report he took into account Ryder at all. That being the case Ryder showed that there was at the very least a possibility that if the landowner took the matter to Court instead of the hoped for £1,250,000 he might obtain £500 or possibly £82.50. I cannot believe that that is not a factor which in negotiations would lead to the landowner being willing to retreat downwards on advice from 12.5%. Ultimately Mr Crawford acknowledged that he might be willing to recommend that a landowner in the context of the present case would be advised to accept a reduced figure of 10%. Mr Smith also produced a second supplemental report. He had acknowledged in cross examination that in a world free from Ryder a figure of 12.5% of revenue would be achievable. He when recalled (and his second supplemental report reflected this) suggested that he was conceding that figure of 12.5% only in relation to the excess 38,000 barrels. I did not understand his first answers to be that and that in my view he was reconsidering his answers in the light of material provided by Mr Cohen Star Onshore's accountancy expert after he had given evidence. It was quite clear to my mind that he did not so limit his 12.5% concession in the unfettered world. That was intended in my view to apply to the entirety of the revenue extracted by PW5, PW8 and assisted by PW9.
- In fact there is a logic to this. As I have said above the hypothetical negotiations take place in 1994 with the pipes already in location. For the reasons I have set out earlier in this judgment any negotiations would be around the fact that the pipes remain where they are. It follows therefore that Star Onshore is negotiating a Licence (and the damages are assessed on this basis) to extract the entirety of the oil under at least half of the field (in unscientific terms) via these pipes. It is not therefore unreasonable to contemplate that the negotiations will be around the total value of the oil extracted via the two pipes and not merely the attic excess 38,000 barrels. Once again I cannot believe that the negotiations given the fact that the pipes will remain would lead an owner settling for 12.5% of the value of 38,000 barrels that figure (assuming an approximate price of £10 per barrel) would produce (at 12.5%) £45,600 and (at 2.5% Mr Smith's maximum) produce £9,500. I doubt whether Bocardo would have agreed to go as low as that in any hypothetical negotiations. It is in the context of the value of the extraction in Star Onshore's hands such a modest figure that I believe that Bocardo would have been strongly inclined to chance its arm in Court.
- Mr Smith's report would actually only give 1.5% of the £380,000 extra oil extracted. That would have produced a figure of £5,700. Whilst that is a tenfold increase on his £500 in his original report it is still such a modest level that applying Mr Crawford's principle that there is a figure far below which the landowner would not go this and the other figures by Mr Smith are unrealistic.
THE HYPOTHETICAL NEGOTIATIONS
- It seems to me that the negotiations that would have taken place in 1994 when access rights would have been negotiated would have been on the following basis. First it would be against the background of the fact that either party could go to Court to fix the compensation. Second the parties would be faced with a negotiation against the background of the Ryder decision and its criticism in the Mercury decision. Third the negotiations would therefore be to achieve the compensation that ought to have been negotiated at the start in accordance with the provisions of section 8 (2). Thus there would be a grant of ancillary rights; there is no negotiation on a ransom basis as such. It seems to me that the parties would face the position much like in the Markham Colliery scenario. Star Onshore has the oil; Bocardo has the control over the access rights to unlock the oil. However if Bocardo negotiate unreasonably (in my view this extends to asserting a ransom value or take it or leave it figure) Star Onshore can take them to Court. Thus there would be agreed a sale between a willing grantor and a willing grantee at a reasonable price. I have no doubt Bocardo's opening gambit will be 12.5%. In addition it would seek to play on the fact that there was no realistic prospect of Star Onshore walking away and there being no pipes in place. There are two reasons for this. First as I have said above on the facts that would not have been realistic. Second once again on the facts Star Onshore would have to renegotiate on the same basis with someone else.
- In respect to that last point Mr Smith's original report and his evidence assumed that there was no strong position because Star Onshore would have to negotiate with 200 owners. Now in fact the statute gives the power to go to the Secretary of State if the potential people are so numerous or have conflicting interests or cannot be ascertained (section 3(2)(a)-(b) of the 1966 Act). Mr Smith's experience in compulsory purchase matters was that when a large number of people have to be negotiated with they fail to put forward a common front and fall apart and regularly they are played off against each other and the compensation is negotiated at reduced levels. I do not see that that would happen here because the pipes are already in place and it would be uneconomic to remove them. In any event there would only be negotiations with two owners because the pipes would either be left where they were or moved to one other place. I cannot see therefore there would be the multiplicity of people whom Star Onshore could exploit for the purpose of negotiations.
- Further for that reason as Bocardo said in its closing submissions that would not achieve a saving; it would be on the basis that the same amount would simply be payable to a different person. The threat to move therefore would count minimally in the negotiations.
- If that is the correct analysis there would be no realistic stance on the part of Star Onshore which would involve it moving PW5 elsewhere. It is a factor however that would have counted (albeit very low) in the negotiations. In that context I do not believe Star Onshore would have given credit for the possibility that the Department would refuse a Licence with PW5 located at some place other than the optimal recovery location.
- All of those factors would be in the parties minds had they negotiated in 1994. In addition the strength of the Ryder case would be undermined by the Mercury criticisms.
- Mr Gaunt QC in his submissions suggested that it would be unfair to Bocardo if I concluded that Ryder was wrongly decided to give him less than a 100% credit for that view.
- There are two reasons why that is not the correct analysis. First the hypothetical negotiations would take place against the background that Ryder and Mercury had already been delivered as judgments. In negotiations the parties would have a view as to the strength of those decisions but they would not of course know for definite (because there would be no determination) that Ryder had been held to be definitively wrongly decided.
- The second point is that even if I am of the view that Ryder is wrongly decided that does not overturn that decision. It merely means that there are conflicting decisions at first instance and it is therefore no injustice to Bocardo to require the negotiations to take place against the background that there was a possibility that Ryder was the correct analysis of compensation payable in exchange for the ancillary rights.
- For the same reason I reject Mr Gaunt QC's submission that the hypothetical negotiations that are used as the yardstick for determining the damages for trespass would be not under the provisions of the Act but would then be in the background. Thus Mr Gaunt QC submits they would be conducted on the basis that the Wrotham principle would apply namely that the question to be asked is how much Bocardo could reasonably demand as damages in lieu of an injunction.
- I do not accept that is the correct analysis. First in effect it has the result that the impact of Ryder is ignored and Bocardo seeks 12.5% in hypothetical negotiations as if it did not exist. Although for reasons I will set out below I do not believe Ryder was correctly decided as I have already said that is simply my opinion. A Court of Appeal might conclude that my opinion was wrong. Unlike the Wrotham case and Jurys (Amec Developments Ltd v Jurys Hotel Management (UK) Ltd  1 EGLR 81) the hypothetical negotiations taking place under this claim are with the statutory procedure in the background which gave the right of Star Onshore to have the compensation assessed by the Court if an unreasonable demand was made by Bocardo. In effect a ransom demand ignoring the compensation basis potential of Ryder is to my mind self evidently unreasonable. There was no corresponding statutory background for sanctioning the wrongdoing in any of the previous cases that awarded damages on what were in effect involuntary sales forced on an unwilling party by the Court. In this context reference should be made to my analysis of the Amec case and all the other authorities in World Wide Fund for Nature v World Wrestling Federation Entertainments Inc  EWHC 184. The Court of Appeal's decision did not deal with that analysis. The analysis is to be found in paragraph 174 of my judgment.
- In applying those principles to the present case I am of the opinion that the parties would also be alive to the background of the statutory regime and the decision of Ryder and the decision of Mercury. Those negotiations would as I say take place against the backcloth that the pipes were already laid and it would be most unlikely that it would be an economic proposal for Star Onshore to move the pipes elsewhere.
- Taking all those factors into account I am of the view that Bocardo would have been forced to concede its headline figure of 12.5% to take into account the possibility of obtaining an extremely reduced level in the Court. Equally Star Onshore would have to take into account that it was most unlikely that it would be economic for it to move the pipelines but it would if it did that exercise not expect to give much weight to the suggestion that the Department would have refused permission to extract the oil from the field via an alternative use of PW5. On all of this analysis of course PW8 and PW9 remain. Finally for the reasons that I have already set out any figure for compensation for the ancillary rights will be negotiated in respect of the total amount of oil and gas which it turned out had actually been obtained. This is a little artificial for the reasons I set out in the World Wildlife case and as indeed Mr Mann QC (as he then was) adverted to in the Amec case. It uses hindsight in that material. Nobody before me suggested that any compensation on this basis should be on anything other than the actual oil production. There were a number of studies which attempted to address the possible recoveries before any extraction took place but no clear picture emerges from them.
- I should say of course that this is compensation for damages for trespass and merely because it is measured by reference to a percentage of the income received does not make it a royalty in my view.
ASSESSMENT OF PRINCIPLE OF COMPENSATION
- Taking into account all the factors set out above in my view Mr Smith's figure is much too low. It seems to me likely that in any negotiation of this nature the basic principle was that the parties would approach the negotiations on a 50/50 basis. That is because the successful extraction of the oil involves the marriage of two rights neither of which can on its own achieve it. It is the marriage of Star Onshore's right to the oil and Bocardo's control over the access to it. One would start with that but move down for the reasons set out in Mr Crawford's report and arrive at a headline figure of 12.5% of the gross income. In my view however that figure should be further reduced to take into account the fact that there was the background of the ability of Star Onshore to obtain an assessment under the Act. That assessment might well be on the basis of the Ryder decision.
- Mr Smith's figure would have to be lifted because I do not accept that the Ryder decision had the effect that he contended for. I have already rejected an argument that anybody would have negotiated around the attic oil alone. Equally Star Onshore would be hampered in the negotiations because of the fact that they would be anxious to use the pipelines in situ because the cost of removing them was not economic. That reduces Star Onshore's ability to argue for a reduction in the negotiations on account of that ability and also weakens its argument that the Department would have sanctioned such an alternative arrangement. Bocardo argues for an identical percentage to be applied across the board both as regards past extractions and regards extraction from the date of the judgment until the oil reserves are finally exhausted.
- Taking into account all of the above factors and the impact of the Ryder case it seems to me that Bocardo would have to give a discount to take into account the impact of the Ryder decision. One would expect the parties initially to negotiate around a 50/50 split as between 12.5% and 2.5% to take into account that factor. That would produce a figure of 7.5% (i.e. half the difference amounting to 5% plus the original 2.5%). However I am of the opinion that Bocardo's advisors would be more confident than a 50/50 basis. In addition there is the fact that the arguments about not using the existing pipes are weak. That would lift the percentage in my view above the midway split. Doing the best I can it seems to me that the parties would have settled in this case on a compensation payment calculated on 9% of the income received from the extraction of the oil under the field via PW5 and PW8. In arriving at the figure of 9% I include the 10% uplift required by the statute. It is not a scientific analysis but then the reality is that negotiations very rarely are. Given all of the factors it seems to me that is the appropriate percentage that would have been negotiated.
- I do not accept that this decision will have serious implications for the oil industry as it is almost entirely fact specific. For reasons that I set out below I am of the opinion that the Ryder decision was wrongly decided. To that extent it may be said that the oil industry has been operating under a generous assumption that any compensation for ancillary rights is likely to be determined at modest levels. The final position under the Act remains for consideration elsewhere; my judgment does not carry any greater weight than that of Mr Justice Peter Gibson.
- I will set out below upon what figure that percentage applies and how it is calculated. There are two matters for consideration. First there is the question of limitation and second there is the question of what items can be deducted from the receipts. That will involve an examination of some schedules produced by Mr Cohen Star Onshore's financial expert. Neither expert was called because of the way in which the valuation evidence developed.
THE RYDER DECISION
- In my judgment the criticisms of the Ryder judgment in Bocardo's opening are correct. I do not believe Peter Gibson J paid proper attention to the direction in section 8(2) that the consideration should be assessed on what would be "fair and reasonable between a willing grantor and a willing grantee" in that he did not pay proper regard to the decisions of IRC Clay  3 KB 466 (CA); The Indian case  AC 302 and FR Evans (Leeds) v English Electric Co Ltd  36 P&CR 185.
- I have already observed that Peter Gibson J's analysis of the Markham decision seems with respect to him ignore the fact that there was no argument maintained that no royalties at all would be payable. It is true as he said that there is no question of the Crown's royalties being shared and that it was common ground that an Estate cannot obtain a royalty but that does not mean that compensation cannot be assessed as a Licence based on a percentage of the income received. That is not a royalty as such because one must appreciate that there is a difference between a royalty which is an extraction of a percentage of the income and compensation for the imposition of the ancillary rights on Bocardo's land. He followed compulsory purchase cases and decisions in similar areas (see for example Stockport Borough Council v Alwiyah Developments  52 P& CR 278: a case under section 84 Law of Property Act 1925). All of those cases identified that in a compulsory purchase situation the value to the acquirer is not the relevant test. The test is the effect on the person whose rights are expropriated. The loss of a right to extract a payment has been held not to be a figure that is compensatable under these kind of regimes see the Stockport case and see its application (for example) under section 237 of the Town and Country Planning Act 1990 see Wrotham Park Settled Estates Ltd v Hartsmere Burough Council  62 P & CR 652 and Midtown paragraph 34. This is reinforced in my view by the fact that Peter Gibson J (page 247 H-K) rejected the Pointe Gourde principle namely that one must disregard any increase in value due to the scheme underlying the acquisition. Having come (correctly) in my view to that conclusion I disagree with his analysis based on the idea that there would be one bidder only namely the oil company and in effect they would just make "one more bid" to secure the rights. Given that rejection Peter Gibson J in my view ought then to have considered the value of the right in real terms. In the present case for example Star Onshore have already extracted £10,000,000 worth of oil. I can well understand why Judge Hague QC when considering the Ryder decision found an uplift there of £5 an acre was somewhat low when taking into account the value of the benefits accruing to the Licence holder. Equally in the present case as I have said Mr Smith's figures cannot realistically be argued as being a figure which takes into account the value of the interest in extraction vested in Star Onshore.
- Although Peter Gibson J referred to the Indian case (page 248 F) he does not appear to have considered the impact of that decision in its requirement to give effect to the value of the asset being compulsorily acquired in the hand of the acquiring authority.
- I appreciate that it might be on the evidence before him the figure of an uplift of £5 per acre was the appropriate figure. His reasoning is criticised by His Honour Judge Hague QC in the Mercury case on this point (item 5 at page 237).
- I find the criticisms of His Honour Judge Hague QC compelling in this regard and I adopt them gratefully. To elevate the oil company to the state of being the only acquirer produces the low figure. It ignores (by analogy) the FR Evans case in the context of rent review but the principle is the same. The compensation is assessed as between willing grantor and willing grantee on what would be "fair and reasonable" as between them having regard to the conditions subject to which the right is or is to be granted. It is not open on such analysis to argue that the figure should be reduced because there is only one interested party which in my view is the logical conclusion of Peter Gibson J's judgment.
- It does not therefore with respect to Peter Gibson J give full effect to the statutory wording of the basis for assessing the compensation. By analogy to the Wrotham Park and other cases in that line it is not open to the grantor or the grantee to argue that they can walk away from the transaction. A transaction will take place and it is a matter of deciding what will be negotiated fairly and reasonably as between them.
- This leads to the final difficulty about the Ryder decision. The procedure available to challenge is not the same in my view as the compulsory purchase mechanism. A reference can only be made to Court if the prospective grantor negotiates unreasonably. He would only negotiate unreasonably in my view if he insisted (wrongly for the reasons set out in this judgment) that he was entitled to a ransom value on the basis that the transaction might not proceed.
- For all of those reasons I would respectfully decline to follow Peter Gibson J's judgment because I believe it to be wrongly decided. This does not however have the full impact contended for by Mr Gaunt QC for the reasons that I have already set out above.
- It follows in my view for the reasons I have set out above the decision of Wynn-Parry J in Naylor Benzon Mining Co Ltd  1 Ch 567 is equally incorrect. In my view accordingly Peter Gibson J was wrong to give it the weight he did in the Ryder decision (page 245-246 G). His reliance upon it flowed from the reference to the observations of Fletcher Moulton LJ Re Lucas and Chesterfield Gas and Water Board  1 KB 16 at page 30 (see Ryder page 245 M). The observations of Fletcher-Moulton LJ were criticised in "The Indian Case"  1 AC 302. In addition to rejecting the "one more bid argument" the Privy Council in its opinion referred to IRC v Clay  1 KB 339 at 348 as suggesting that valuation as between willing seller and willing vendor is the fact that a purchaser might be willing to pay more and that that was to be contrasted with the vendor parting with his land under compulsion. They acknowledged (page 319) that the existence of a compulsory scheme should not be allowed to enhance the price and a valuation must be on the basis that no such powers had been acquired. However they saw some difficulty in seeing why taking into consideration the fact that the special value exists for those purchases only should be said to be allowing the existence of the scheme to enhance the value of the lands (page 320). Accordingly they declined to follow the opinion of Fletcher-Moulton LJ in the Lucas case and preferred the opinion of Vaughn Williams LJ in the same decision. The Indian case was not cited to Wynn-Parry J in Naylor Benzon. It was cited to Peter Gibson J in Ryder and he dealt with it at page 246 by expressing the view that the criticisms of Fletcher-Moulton LJ's remarks did not invalidate the reasoning of Wynn-Parry J that the general principles of compulsory acquisition do apply to the compulsory acquisition under the 1923 Act. With respect that to my mind fails to address the wording under section 8 (2). The section is not a compulsory acquisition section; it provides for acquisition of ancillary rights as between willing grantor and willing grantee. The compulsion only arises if they cannot achieve a reasonable price. The Court is then required to determine what is a reasonable price for the acquisition rights.
- This seems to me to reflect what I perceive to be the operation of the Act. The minerals were expropriated but the access to the minerals was not. This appears to be a deliberate decision; if the access rights were also to be expropriated it could have provided expressly for that. It follows therefore that the Act contemplated a bargain to be struck reasonably between the grantor and grantee representing their respective interests namely access rights and ownership of the minerals. I therefore do not accept that the reasoning of Wynn-Parry J is correct because in it in my view he had not given full effect to the wording of the section.
- Bocardo seeks recovery back to 1994. I accepted as a matter of principle that the fact that Star Onshore only had a 25% share between 1994 and 1996 is irrelevant. It is liable as the operator. As operator it trespassed from 1994 and as operator it is liable to pay damages for trespass on that basis. The question as to whether it can recover a contribution from its principals on whose behalf it operated the oil pipes in a trespass way is neither here nor there.
- As I have said earlier in this judgment the prima facie claim goes back to 22nd July 2000 six years before the date of the claim form.
- Bocardo seeks to avoid that by the application of section 32 of the Limitation Act 1980. It contends that its cause of action was deliberately concealed by Star Onshore and a person through whom it claims (Cairn).
- The relevant provisions of section 32 are as follows:-
"32 postponement of limitation period in case of fraud, concealment or mistake
(1) subject to subsection (3) and subsection (4 A) below, where in the case of any action which a period of limitation is prescribed by this Act either:-
(b) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the Defendant;………….
The period of limitation shall not have begun to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or with reasonable diligence have discovered it.
Reference in this subsection to the Defendant include references to the Defendant's agent and to any person through whom the Defendant claims and his agent
(2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstance in which it is unlikely to be discovered for sometime amounts to deliberate concealment of the facts in breach of that duty"
- Accordingly there must be deliberate concealment of any fact relevant to the Claimant's claim. Time will not then run against the Claimant until he has discovered the concealment or could with reasonable diligence have discovered it.
- Therefore there must be a deliberate concealment of a relevant fact. Second time does not run against a Claimant until he has discovered the concealment. Third however the Claimant will be deemed to have been able to have discovered the deliberate concealment when he could have done so with reasonable diligence. Deliberate commission of a breach of duty in circumstances in which the facts are unlikely to be discovered for sometime amounts to deliberate concealment of the facts involved in that breach of duty.
- I considered the ambit of section 32 in AG of Zambia v Meer Care & Desai  EWHC 952 at paragraphs 376-422. The Court of Appeal has recently heard an appeal by the First Defendants against that decision. I understand that there are some challenges to the limitation determinations made by me. For the present in my view the relevant part is paragraphs 405 et seq. It seems to me plain that Bocardo could have discovered with reasonable diligence which carries with it "the notion of a desire to know, and, indeed, to investigate" (Neuberger LJ as he then was) in Law Society v Sephton  QB 1013 (C.A) long before Bocardo's claim that it did not have the requisite knowledge until 2006.
- In my judgment it had the requisite knowledge by 1997 when the details of PW5 were made public. Time ran against Bocardo therefore from 1997. Any claim before 1997 became statute barred in 2003 i.e. 6 years after it could have discovered the claim with reasonable diligence. It follows therefore that it had requisite knowledge for the purposes of suing Star Onshore from 1997. It follows therefore that its claim is for 6 years to 22nd July 2000 and any earlier claims are statute barred.
- Mr Gaunt QC in his closing submissions submitted that the actions of Star Onshore in 2001 was a fresh deliberate concealment. This he submitted had the effect of "starting the clock again" so that any claims did not become statute barred until at the earliest 2007. Mr Gaunt QC submitted that this proposition which involves reviving the cause of actions which are already statute barred is to be derived from the House of Lords in Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd & Ors  AC page 102 at page where Lord Brown Wilkinson said this
"For myself, I do not find it absurd that the effect of section 32 (1) is to afford to the plaintiff a full six-year period of limitation from the date of the discovery of the concealment. In such a case, the plaintiff must have been ignorant of the relevant facts during the period preceding the concealment; if he knew of them, no subsequent act of the defendant can have concealed them from him. If the defendant then deliberately take a step to conceal relevant facts ( a step which is by ordinary standards morally unconscionable if not necessarily legally fraudulent) it does not seem to be absurd that a plaintiff who has bee prevented by the dishonourable conduct of the defendant from learning of the facts on the basis of which to found his action should be afforded the full six-year period from the date of the discovery of such concealment to bring his action. Certainly, that consequence is far less bizarre that the result of the construction favoured by the majority of the Court of Appeal  2 WLR 999 under which a plaintiff's right of action can become time barred before he even becomes aware of the relevant facts, his ignorance being due to the deliberate concealment of such facts by the defendant."
- I do not accept that Lord Brown-Wilkinson's judgment had the effect contended for by Mr Gaunt QC. It has no application in my view to a situation where a Claimant has knowledge of the relevant facts already. That much is clear from page 144 A. If a Claimant has the requisite knowledge time runs from him inexorably when he had the full knowledge enabling him to bring the action. As Lord Brown Wilkinson says if he knew of those facts "no subsequent act of the Defendant can have concealed them from him". What the decision says is that the Claimant has a full 6 years from the time when he could have discovered the facts even if the concealment is after the accrual of the cause of action. Until the discovery of the concealed matters he does not know he can sue. That is not the case here for the reasons that I have set out above.
- I therefore reject Mr Gaunt QC's submissions based on the Outhwaite case.
- For those reasons I am of the view that Bocardo's claim in respect of any trespass before 22nd July 2000 fails because it had enough knowledge had it employed proper experts to discover that the pipelines were under its land from 1997 onwards. In this context the fact that PW8 and PW9 were drilled later does not matter. Once Bocardo ought to have become aware there was one act of trespass it follows inexorably that it ought to have then discovered the subsequent trespasses. The knowledge of PW5 therefore also affects any claim in respect of PW8. This is the balancing exercise created by section 32. A Claimant does not have time run against him until he knew or ought to have known he could sue. Once he has this knowledge time starts to run against him.
- That makes it unnecessary for me strictly to deal with the other facts and the legal submissions in relation to limitation. However in case the matter goes elsewhere I will express my views.
- I am of the view that first Cairn Energy and Star Onshore deliberately concealed from Bocardo the fact that they knew they were trespassing under the Oxted Estate and were extracting oil by virtue of that trespass. The deliberate concealment of that fact arises from their failure in 1992 to be frank about the pipeline and their disingenuous answer. In 2001/2002 it relates to false discussions which were designed to conceal the fact that the oil was already being extracted.
- However both in 1992 and in 2001 Bocardo could have easily found out that it was being deceived.
- The next question to consider is whether that deliberate concealment amounted to a deliberate concealment within the purpose of section 32 LA 1980. Star Onshore submitted in their opening and referred to it again in their closing that section 32 involves two limbs whereby deliberate concealment might occur. The first of those is where there is a concealment i.e. an intentional concealment of facts. That is expressly provided for by section 32 (1) (b). The second requires a deliberate commission of a breach of duty in circumstances where the breach is unlikely to be discovered for some time. This is provided for by section 32 (2).
- It is submitted that the first limb is concerned with active concealment as per Lord Millett in Cave v Robinson Jarvis & Rolf  UKHL 18 in paragraphs 23 and 24. It is submitted that active concealment requires a positive or active conduct and intention to conceal facts and circumstances where it is known that they are relevant to the wrongdoing. I agree with that analysis. However the facts of this case as set out above by me make it plain that is precisely what Cairn Energy was doing in 1992 and precisely what Star Onshore was doing in 2001/2002.
- Star Onshore next submitted that Bocardo must show "either active and intentional concealment of a fact relevant to a cause of action or at least the intentional concealment by omission to speak of a fact relevant to a cause of action which the Defendant knows himself to be under a duty to disclose." There is no decision that anything less than a duty to disclose will suffice in the absence of that active concealment (per Rix LJ in AIC Ltd v ITS Testing Services (UK) Ltd  1 Lloyd's Rep 555 at paragraph 321. In so concluding Rix LJ is distinguishing between an active concealment and either a duty to disclose and a conscious omission to disclose (see paragraph 328 for example).
- Star Onshore submit that on the facts neither alternative is satisfied.
- I accept that as regards the 1992 correspondence there was no duty to disclose. As regards the 2001/2002 matters they were negotiations in advance of a contract.
- In such negotiations which might lead to a contract in my view Star Onshore owed a duty not to misrepresent the position. If for example the negotiations had advanced and led to an acceptance of the proposal put forward by Bocardo that it would carry out a seismic investigation at its expense that would have had serious consequences. That offer was rejected. The reason it was rejected of course was because Star Onshore knew that a seismic investigation would reveal the existence of the pipes. That is what happened in 2006 when Bocardo went and carried out a seismic exercise. That conduct has been described by Star Onshore as illegal because it is said that Bocardo had no entitlement to conduct such a seismic exercise. That may or may not be the case but it is irrelevant to the issues before me. The cost of that exercise was put at £200,000. Therefore if that had happened (as a continuation of the deception by Star Onshore) it would have incurred a considerable amount of expenditure. That would have been incurred as a result of the deliberate concealment in my view by Star Onshore of the known facts namely that it was already extracting the oil so an arrangement with Bocardo would not achieve anything. It is in my view misrepresentation by conduct; Star Onshore has induced the negotiation by implicitly representing that there is some worthwhile point to the proposal or by its conduct in silence in not revealing equally there was no point see Chitty "Contracts" paragraphs 6-009 and 6-004 respectively.
- Had the matter ripened to a contract it would have plainly been actionable. In my view that is such a duty as contemplated by Rix LJ in the AIC Ltd case above. I should say in this context that it seems to me that the word duty has to be given a wide meaning. In my judgment a duty in negotiations not to misstate the position would be such a duty for the purpose of section 32. That wider consideration of duty is relevant for purpose of section 32 is to be found in the Court of Appeal decision Giles v Rhind  EWCA Civ 118 at paragraph 38 per Arden LJ where she said:-
"I do not consider that the expression "breach of duty" includes any legal wrong doing whatsoever. In my judgment there must be a legal wrong doing of a kind that can be properly raised in action to which section 32 applies. I will call this the "wider meaning" of "breach of duty". Thus the expression "breach of duty" would not cover legal wrongs which are not justiciable, for example target duties. But may also not cover breach of duty owed by a public authority which can be the subject of judicial review proceedings at the instance of a person who is not directly affected thereby but who has a sufficient interest for the purpose of standing in public law. I would not wish to be taken to proving the view that any such actions fall within section 32, at least without further argument"
- In so qualifying the duty decision by Richards J she approved (paragraph 37) of his determination that the expression "breach of duty" applied to any legal wrong doing in contradiction to a breach of duty in a tortious of contractual sense or in a sense of a breach of an equitable or fiduciary duty (which I call "the narrower meaning").
- Therefore in my view when applied to the matters that took place in 2001/2002 the silence was a breach of duty in the alternative not to mis-state a fact in the negotiations that might lead to a contract.
- Therefore absent the knowledge point which I have determined against Bocardo I would have rejected Star Onshore's arguments that section 32 LA 1980 did not apply.
QUANTIFICATION OF THE CLAIM
- In the light of my determination as to the period for which Bocardo can complain the final question to be determined is the amount of damages payable in the light of this judgment. I take as a starting point Mr Cohen's figure of £6,902,000 for the period of 22nd July 2000 to 31st December 2007. In addition prospectively the best way to address the continuing trespass is to award damages assessed at the same 9% on the value of all oil subsequently extracted. I will leave this for the parties but I would suggest that a provision could be made for (say) quarterly disclosure and payment in account in accordance with that disclosure with provisions dealing with the possibility that Bocardo might wish to challenge the veracity of any disclosure.
- As I understand the agreed statements of the accountants and the schedules produced by Mr Cohen the only live issue is that of Mr Cohen (Star Onshore's expert from Deloittes) is whether or not an amount for "hedging" ought to be deducted from the headline figure. The hedging costs appear to be £1,324,389 as set out in Mr Cohen's incremental revenue analysis. That would reduce the income from 22nd July 2000 to 31st May 2008 to £5,365,564. The figure may be a little higher because Mr Cohen's schedule started with a figure of £6,689,954 whereas his later table has a £6,902,000. The parties should clarify that before the judgment is finally handed down.
- Mr Cohen referred to this hedging principle in paragraph 3.29 of his report et seq. It is said that hedging is required by Star Onshore for its banking covenants.
- I did not hear any evidence from Mr Cohen on this point nor did I hear any evidence from Bocardo's expert Mr Fisher. The point of the hedging is not accepted by Bocardo as I understand the closing submissions.
- Neither of the closing submissions address the point and as I have said above neither expert was called to challenge this.
- On that scant material I am unable to determine whether or not the hedging is a correct deduction. It does seem to me that it is nothing to do with the compensation that will be payable for the ancillary rights but more likely a personal requirement of Star arising out of its own banking arrangements. I cannot see that that would be successfully negotiated as against Bocardo. However I am unable to determine this because the material has not been deployed. The burden is on Star Onshore to establish it as a deduction on the revenue it receives and it has failed to do so.
- Accordingly I determine that Bocardo is entitled to damages assessed at 9% of the income received by Star Onshore which appears to be £6,902,000 between 22nd July 2000 and 31st December 2007 and to damages assessed at 9% of all future income from that date until the oil and gas extraction is exhausted. I will hear submissions from the parties as to the form of the final order.
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