In Star Energy UK Onshore Ltd (1) Star Energy Weald Basin Ltd (2) v Bocardo S.A., an oil company had the statutory right to bore for oil in a particular area. The oil lay below land belonging to a third party; Bocardo. It was agreed by the parties that, given the terms of the relevant legislation and the licence granted to Star Energy, Bocardo did not own the oil underneath its land. However, in order to recover it, the oil company had to bore pipes at depth underneath that land. The court had to decide whether the pipes constituted a trespass and, if so, on the correct measure of damages.
The pipes, which were between 8 and 12 inches in diameter, had been drilled at an angle from a neighbouring piece of land. They entered Bocardo's land at a depth of about 800 feet below the surface and finished at a depth of over 2,300 feet.
The High Court ruled that Bocardo's title to the land extended to the depths at which the pipes passed through it. However, it found that laying the pipes and extracting the oil did not result in any physical or other damage to Bocardo, nor affect its enjoyment of the land. Notwithstanding this, the High Court ruled that the measure of damages was equal to the sum that the parties would have agreed, had they negotiated a payment for the necessary rights. It concluded that Bocardo was entitled to 9% of the income received from the extraction of the oil from the time the trespass began until the petroleum supply was exhausted. That resulted in a payment, in respect of oil extracted up to 2007, of over £600,000. The oil company appealed to the Court of Appeal.
The Court of Appeal upheld the decision of the High Court on the first point. It ruled that the registered freehold proprietor of the surface of land also owned the strata beneath the surface, including minerals, unless there had been an express or implied disposition of the whole or a particular part of the strata to someone else. On that basis, it held that Bocardo did own the strata beneath the land (excluding the oil deposits).
The court considered a number of authorities which decided that a person who is entitled to recover minerals from beneath land is also entitled to create and use a passage through the land to get to those minerals. However, the court distinguished these cases on the basis that they were founded in the principle of non-derogation from grant. In other words, a landowner who had granted the right to extract minerals could not then deny the means of accessing those minerals. In this case however, the right to extract the oil had been granted by the Crown (in whom ownership of the oil was vested), not by Bocardo.
The Court of Appeal therefore concluded, albeit "with reluctance", given that the pipes did not affect Bocardo's enjoyment of its land, that the pipes constituted a trespass.
The court then had to go on to consider the appropriate measure of damages. The oil company argued that the basic principle of compensation under the relevant legislation was the loss of the right to the landowner, not the value of the right to the trespasser.
The court ruled that damages should be calculated according to what the oil company would have had to pay had it sought the right to lay pipes under the relevant mining legislation. The test to be applied was what would be a fair and reasonable compensation between a willing grantor and willing grantee for the right to drill the pipes? The only value that the right to drill the pipelines had was created by the right to bore for petroleum, and this was vested in the oil company as licensee. Applying the principles applicable to compensation on a compulsory purchase of land, that "special" value had to be disregarded.
The court accepted evidence given by an expert valuer for the oil company that the compensation would have been assessed at £82.50. The court then went on to consider what would have been the result of the hypothetical negotiation between the oil company and Bocardo before the trespass. It thought that the oil company would have been prepared to be generous in negotiation, so as to avoid delay and the possible expense of having to take the issue to court. On that basis it awarded damages to Bocardo of £1,000 - considerably less than at first instance.
Things to consider
Conventionally, damages for trespass (as for any other tort) are compensatory, so that a claimant is entitled to recover money in respect of the loss which he has suffered. Loss can be suffered either because the value of the land is diminished or because the claimant has been deprived of the use of his land.
However, in certain cases of trespass, the landowner can recover compensation notwithstanding that, on the face of it, it has suffered no loss. Damages may instead be measured by the benefit received by the trespasser for the use of the land. On this approach, the loss to the landowner may be measured by what the landowner might have extracted from the trespasser in return for permission to use the land. In determining what the trespasser might have been willing to pay, the court may take into account the profits earned from the trespass by the trespasser.
This principle was made famous by the case of Wrotham Park Estate Company Ltd v Parkside Homes Ltd, which concerned an action for breach of a restrictive covenant, but the principle has also been applied in other contexts, such as rights to light (see The Shining Beacon). There is a precedent for using this method of calculation in trespass claims. In October 2008's edition of property update, we considered the case of Field Common Ltd v Elmbridge Borough Council. In this case a landlord had permitted its tenants to trespass over land belonging to a third party. The landlord was ordered to pay damages based on a percentage of the rent the landlord received from its tenants.
The court in Field Common made it clear that the Wrotham Park method of calculation will not be appropriate in all cases of trespass. In Bocardo, the amount the oil company would have been willing to pay for the right to lay pipes would have been linked to the amount of compensation it could be required to pay to the landowner under the Mines (Working Facilities and Support) Act 1966. The court ruled that the general principles of compulsory purchase compensation applied to this statute. These take no account of the special value of the land to the purchaser as a result of the "scheme" for which the right of compulsory purchase is being exercised - in this case the right to bore for oil.