Planning and environmental law news

Supreme Court Closes Pandora's Box in Star Energy v Bacardo

The Supreme Court has now delivered its eagerly awaited judgment in Star Energy Weald Basin Limited (and Another) v Bacardo SA. This decision has implications not only for the energy and utility industries but also for those bodies that have access to and can utilise compulsory purchase powers.

The Supreme Court had to decide whether Star Energy had committed trespass by drilling under Bacardo's land. If the answer was "yes", did the fact that Star Energy had a right to drill via a licence under the Petroleum (Productions) Act 1934 (replaced by the Petroleum Act 1998) provide a defence to such trespass? The Supreme Court found that an actionable trespass did occur (see below) which then left the thorny issue of how to assess damages and whether the principles of value in compulsory purchase law were applicable. 

To the relief of most working in or for the energy and utility sectors, the Supreme Court confirmed the long held principle that the damages (or compensation) was by reference to the loss to the landowner, rather than the value to the promoter.

Trespass

The Supreme Court confirmed the decision of the lower courts, that Star Energy had committed an actionable trespass against the landowner, and that:

• the owner of the surface of land is also the owner of the strata beneath it, extending down until a point at which physical features (e.g. pressure and temperature) render the concept of such ownership absurd. In the present case, the wells in question - being between depths of 800 and 2,800 feet - were far from being so deep as to reach that level of absurdity. This suggested that, if a level of strata is capable of being worked for, say, minerals, then the owner of the surface also owns that strata being worked;
• the paper title owner of the strata (and all within it) has the prima facie right to possession of the strata so as to be deemed to be in factual possession. So, whilst perhaps not in physical possession of the affected substrata, paper title was sufficient for the owner to be deemed to be in possession of the land to enable an action in trespass to be brought; and
• neither the common law nor the relevant statutory provisions provided a defence to a claim in trespass. The owner's right to object to a third party boring into his land was inherent in his right of ownership of that land. The 1934 Act (and subsequently the 1998 Act) gave Star Energy a licence; however it still meant that the licencee had to seek ancillary rights from the owner of the land if they wanted to exercise those rights by entering onto the land.

Once the Supreme Court held that a trespass had taken place, the next issue was how would damages (or compensation) be assessed? Had the owner of the land refused Star Energy a wayleave to enter onto the land under its 1934 Act licence, Star Energy would then have had the statutory right to have applied to court and, at which point, they would have been granted the necessary ancillary rights. As such, on the basis that Bacardo could have been compelled against its will to grant the rights, the Supreme Court found that the general principles of compulsory acquisition law must be applied. 

Measure of damages/compensation

The Court of Appeal's ruling (which had overturned the High Court's decision) on the question of damages was upheld, albeit only by a narrow 3-2 majority, on the following basis:

• the relevant statutory scheme required compensation to be assessed on usual compulsory purchase principles - by a willing (not driven) seller to a willing buyer on the the open market (subject only to a 10% uplift as provided for by the legislation).  The Supreme Court emphasised the point that compensation is awarded on the value of the land to the owner not its value when taken by the promoter of the scheme (this was the long held view following such cases as BP v Ryder);
• compensation should be for any loss of amenity value in respect of interference with actual rights that exist. The rights to extract the oil (or to licence the extraction by others) belonged to the Crown, not the landowner, and therefore the potential value of the oil extraction fell to be disregarded;
• the effect of the statutory scheme had been to extinguish any pre-existing open market key value that the land might have had for facilitating access for the oil extraction and to create a new situation limiting any interest in such access to the Crown and its licencees, with their having been empowered to do so compulsorily and subject to the "no-scheme rule" approach to compensation; and
• the landowners were not entitled to a share in the value of the oil being accessed through their land and the £1,000 awarded by the Court of Appeal could, therefore, be regarded as "positively generous". 

The effects of the judgment

The effects of this judgment will be welcomed specifically by the oil industry and also the wider energy and utility sectors, in terms of the compensation aspects.  However, it was keenly followed by those in these industries with compulsory purchase powers.  In particular, the discussion in the lower courts as to how one can value a "ransom" strip or piece of land that holds the "the key " to the development.  In real terms, this judgment does not shed any new light on this difficult subject.  It has always been accepted in compensation law that valuations should be based on a "no scheme world" or the "pointe gourde principle"; but the problem was understanding the value for these types of "key" valuations.

The Supreme Court decision will still allow for some higher value - depending on the facts of the case - if the land has an inherent "special value"  because, regardless of whether or not it is an integral part of the CPO scheme, it has greater value because it unlocks some other land.  The Supreme Court stated that if this was the case, then an element of this valuation could be included in the compensation.  The key will be whether a special value exists not only to the person acquiring the land but to other potential purchasers in the open market. If more than the acquiring authority has an interest in the land/rights and could acquire that land/right, then that creates a real but limited market and the landowner is entitled to that value.

In short, those seeking to utilise CPO rights or rights to drill etc under licence via statue would be well advised to consider the valuation aspects of any potential claim in terms of whether any landowner could claim that their land is the "key" to another development.