Bocardo SA v Star Energy UK Onshore Limited [2009] EWCA Civ 579

As many of you will already be aware, this judgement was handed down in June of this year. For any of you who are not aware of this case, it essentially concerned the calculation of compensation for extracting oil from the substrata of an estate where the estate owner had not granted access rights for that purpose. Basically, from an oil and gas company stance, the issue was not so much whether a trespass had occurred, but what the amount of compensation should be for that trespass.

Having had time to reflect on the implications of the decision handed down by the Court of Appeal, some of the key issues are summarised below:

  • The High Court had initially found in favour of Bocardo in terms of an actionable trespass and it then went on to depart from the well-established approach to assessing the compensation owed to the claimant (BP Petroleum Development v Ryder [1987] 2 EGLR 233).
  • Bocardo was awarded 9% of the £7 million (£621,180) income that the oilfield had yielded and the same proportion of all of the income generated by the extraction of the oil from under Bocardo’s estate until its depletion (a potential windfall to Bocardo in excess of £6 million), despite the Court finding that the interference did not interfere with the landowner’s use or enjoyment "one iota". It should also be noted that (like BP v Ryder) this decision was based on compensation payable under the Petroleum Act 1998 and deals with compensation for substrata trespass that in real terms does not affect the use or interference with the land.
  • This departure from the approach to quantifying damages raised concerns in the oil industry that the 9% would become a blanket figure applied in all future cases and that the case would set a dangerous precedent.
  • Star Energy appealed to the Court of Appeal. It was considered of such importance that the Government made submissions to the Court of Appeal, arguing against the decision of the High Court.
  • The Court of Appeal set aside the order of Peter Smith J to pay 9% of the gross revenue from an oil field and awarded Bocardo damages of only £1000 for the past and all future trespass caused by the wells.
  • Although it is perhaps disappointing to oil and gas companies that the Court of Appeal found that there had been a trespass, it is however a positive ruling on how compensation should be assessed. So, where deviated drilling is used, for example, in respect of coal bed methane projects, whilst each householder would be entitled to some form of compensation, it would be very little if there was no practical interference with the use of land. The issue is really one of adding another layer to the process of onshore drilling, which will inevitably lead to administrative and professional fees in ensuring that consents are obtained.
  • The compensation would have been greater if works had included disturbance of the surface (i.e. some physical interference with the use or rights on the land).
  • The case does not, on the face of it, extend to compensation payable under, for example, the Pipelines Act 1962 or the Gas Act 1986, since those Acts contain their own compensatory provisions where compulsory powers are used and (whilst this has no basis in any case law to date) we would therefore hope that a court would then apply an analogous approach to that in Bocardo (and BP v Ryder) which also relied on compulsory purchase compensation principles.
  • No doubt, oil and gas companies operating onshore in England will be anxious to see if Bocardo makes an appeal to the House of Lords, (or, come October 2009, the new Supreme Court) and, if it does, whether the Lords will uphold the Court of Appeal’s decision - there is potentially £5,999,000 riding on it...

It is important to note that this decision is applicable only to onshore drilling in England. Since Scotland has its own separate system of property law, any issue in relation to Scottish land would need to be considered under Scots law principles.