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On 22 – 24 June 2010, Lords Hope, Walker, Brown, Collins and Clarke will hear the case of Star Energy Weald Basin Ltd & Anor  v Bocardo SA. The case raises the interesting issue of the rights of landowners in England under whose land there are naturally occurring deposits of petroleum, and has attracted a good deal of media attention, since the landowner in question is Mr Mohammed Al-Fayed.

Bocardo, Mr Al-Fayed’s company, is seeking damages for trespass against Star, an oil company which drilled for oil underneath Mr Al-Fayed’s estate in Surrey without permission, and is appealing against a decision of the Court of Appeal on 15 June 2009 to award only nominal damages for the trespass, rather than the £620,000 which had been awarded at first instance.

Facts:

Through Bocardo, Mr Al-Fayed owns an estate near Oxted in Surrey called the Barrow Green estate.   There happens to be a deep lying oil field in the area called the Palmers Wood field, which in 1980 Star was granted a licence to exploit by the Crown under the Petroleum (Production) Act 1934.  Without obtaining consent from Mr Al-Fayed, or the permission of court for an “ancillary right” pursuant to s.3 of the 1934 Act, Star diagonally drilled three pipelines between 800 and 2800 feet below Mr Al-Fayed’s land, and between 1990 and 2007 extracted over one million barrels (worth over £10 million) from the Palmers Wood field.

It was not until 2006 that Mr Al-Fayed noticed what was going on, and instructed his solicitors to investigate any potential legal claim.  In July 2006, Bocardo issued a claim seeking damages (amounting to 12.5% of Star’s revenues from the Palmers Wood field) for past and continuing trespass to land, claiming that whilst Star had a right to the oil itself, it had no right without permission to access the property by drilling pipelines through the substrata (which it was claimed was part and parcel of the Barrow Green estate).  Star contended that no trespass had occurred, as the landowner’s property did not extend to the substrata, and even if it did, the extraction had not effected Bocardo’s enjoyment of the land in any way.  Star further contended that, if the Court did find a trespass had ocurred, the damages should be awarded in accordance with the decision in BP Petroleum Developments Ltd v Ryder [1987] (2 E.G.L.R. 233), which, interpreting s.8 of the Mines (Working Facilities and Support) Act 1966, determined that the quantum of damages should be the decrease in the rental value of land per acre (which is the approach taken in compulsory purchase cases), as opposed to a percentage of the oil itself.

First Instance

In the Chancery Division, Mr Justice Peter Smith ruled in favour of Bocardo.  On the issue of liability for trespass, he found that a landowner’s rights do extend to the substrata, and there was no common law or statutory right (in the absence of applying for an “ancillary right” under the 1934 Act) which permitted Star’s intrusion on the land.  Therefore, prima facie a trespass had occurred, even though it was at least 800 feet down, and even though (as the Judge held) ”not one iota” of damage had been caused to the land.

On the quantum of damages issue, the Judge was critical of the approach taken in BP v Ryder, which he felt gave insufficient consideration to what was “fair and reasonable between grantor and grantee” as set out in s.8 of the 1966 Act.  The Judge accordingly awarded damages on the basis of the amount the parties would have agreed had they at the outset negotiated compensation for right of access, which the Judge assessed at 9% of the oil revenues (amounting to  £621,180 plus interest).  In addition, an injunction was granted in favour of Bocardo, forbidding Star from further trespass, unless Star paid the Applicant 9% of the revenues going forward.

Court of Appeal

Lord Justices Jacob, Aikens and Sullivan heard Star’s appeal against Peter Smith J’s decision. The appeal was refused in respect of liability, the Court of Appeal agreeing with the Judge’s conclusion that Bocardo owned the substrata and, absent landowner consent or an “ancillary right” under the 1934 Act, a trespass had occurred.  However, the measure of damages was significantly altered.  Since Bocardo had no ownership of the oil and no right to drill for it, and had suffered no damage, the trespass on its land was “purely technical”.  In the circumstances, the real compensation figure that the parties would have negotiated, in light of what was ”fair and reasonable” under the 1966 Act, and the reasoning in BP v Ryder (which was upheld), would have been limited to the standard compulsory purchase figure (£82.50), plus an uplift to account for the fact that Star was a “special purchaser”.  In total, the Court assessed the damages at £1,000.

Bocardo was granted permission to appeal, and accordingly, the issue for the Supreme Court to decide will be this: what is the correct measure of damages to be awarded to a claimant where a defendant has been found to have committed past and continuing trespass onto the claimant’s land by boring pipelines under the land and extracting oil via those pipelines without the claimant’s consent?

Mark Singer is a trainee in Olswang’s commercial litigation team